OECD – TAXING ENERGY USE 2018. COMPANION TO THE TAXING ENERGY USE DATABASE

Many forms of energy use are associated with environmental and health damages and contribute to climate change, so the social cost of energy use frequently exceeds private cost. Taxes on energy use – carbon taxes and other specific taxes on energy use – can make energy users pay for the full costs of pollution and climate change, so reducing harmful emissions at minimal cost, while also raising revenue that can fund vital government services. These considerations may affect policy design to an extent, but this report clearly shows that energy taxes continue falling well short of their potential to improve environmental and climate outcomes. Based on OECD’s Taxing Energy Use database, a unique dataset to compare coverage and magnitude of specific taxes on energy use across 42 OECD and G20 economies, six sectors and five main fuel types, this report assesses the magnitude and coverage of taxes on energy use in 2015, and considers change between 2012 and 2015. Together, the 42 countries represent approximately 80% of global energy use and CO2 emissions associated with energy use. This uniquely detailed and comprehensive database is now available for 2012 and 2015. Permit prices in CO2 emissions trading system change the prices of energy use and carbon emissions in a way similar to the taxes included in Taxing Energy Use. These prices are not included here but in OECD’s Effective Carbon Rates. However, they do little to change the findings presented here. Taxing Energy Use data is a key input for Effective Carbon Rates, but remains unique in its in-depth account of tax rates, particularly the breakdown by fuels. The main findings are as follows: taxes are strongly heterogeneous, so are poorly described by country averages; almost all taxes are too low from an environmental point of view; taxes on coal often equal zero or nearly so; taxes in road transport are much higher than taxes in other sectors, but still are too low to cover external costs in nearly all cases; taxes tend to be higher where GDP per capita is higher but there are notable exceptions to this pattern; fuel taxes increased between 2012 and 2015 in some large countries, and first steps towards removing lower tax rates on diesel compared to gasoline are taken, but apart from that there are no signs that the polluter pays principle determines the energy tax landscape more strongly in 2015 than in 2012. The following paragraphs elaborate on these findings. Energy taxes differ strongly between countries, sectors and fuels. This is the result of a mix of policy objectives and political economy factors, and it implies that consideration of average tax rates across sectors and fuels on a country level can be very misleading. A bird’s eye view of effective tax rates per tonne of CO2 across all countries reveals that there is hardly any change in the tax rates on emissions outside the road transport sector. Taxes continue to be poorly aligned with environmental and climate costs of energy use, across all countries. In road transport, 97% of emissions are taxed.