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Global Energy Tax Regimes Falling Severely Short: OECD

by Ulrika Lomas, Tax-News.com, Brussels

14 February 2018


The OECD has released a new report analyzing energy use and tax regimes in 42 countries, which make up 80 percent of global energy use. The report calls on governments to adopt more effective use of taxes to cut harmful emissions from energy use.

Taxing Energy Use 2018 describes patterns of energy taxation in these countries by fuel type and sector over the 2012-2015 period. It shows that energy taxes remain poorly aligned with the negative side effects of energy use. Currently taxes provide only limited incentives to reduce energy use, improve energy efficiency, and drive a shift towards less harmful forms of energy. Emissions trading systems are having little impact on this broad picture, the OECD said.

"Comparing taxes between 2012-2015 yields a disconcerting result," said OECD Secretary-General Angel Gurria. "Efforts have been made, or are underway, in several jurisdictions to apply the 'polluter-pays' principle, but, on the whole, progress towards the more effective use of taxes to cut harmful emissions is slow and piecemeal. Governments should do more and better."

In 2015, outside of road transport, 81 percent of emissions were untaxed, according to the report. Tax rates were below the low-end estimate of climate costs (EUR30 per tonne of carbon dioxide emitted (EUR30/tCO2) for 97 percent of emissions.

Meaningful tax rate increases have largely been limited to the road sector. Fuel tax reforms in some large low-to-middle-income economies have increased the share of emissions taxed above climate costs from 46 percent in 2012 to 50 percent in 2015. Encouragingly, some countries are removing lower tax rates on diesel compared with gasoline. However, fuel tax rates remain well below the levels needed to cover non-climate external costs in nearly all countries, the report says.

The report says coal, characterized by high levels of harmful emissions and accounting for almost half of carbon emissions from energy use in the 42 countries, is taxed at the lowest rates or fully untaxed in almost all countries.

While the intense debate on carbon taxation has sparked action in some countries, actual carbon tax rates remain low. Carbon tax coverage increased from one percent to six percent in 2015, but carbon taxes reflect climate costs for just 0.3 percent of emissions. Excise taxes dominate overall tax rates by far.

"The damage to climate and air quality resulting from fossil fuel combustion can be contained, but the longer action is delayed the more difficult and expensive it becomes to tackle this challenge," Gurria said. "Aligning energy prices with the costs of climate change and air pollution is a core element of cost-effective policy, and vast improvements are urgently needed. While in some cases compensation for higher energy costs faced by households or firms may be deemed necessary, especially to those more vulnerable, lower tax rates or exemptions are not the way to provide it – targeted transfers should be favored."

TAGS: Energy | tax | energy | accounting | tax rates | carbon tax | tax reform | Tax

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