OECD: Energy Taxes Too Low to Fight Climate Change
Guest essay by Eric Worrall
The OECD thinks member governments are not doing enough to impose punitive carbon taxes on citizens.
Governments should make better use of energy taxation to address climate change
14/02/2018 – Taxes are effective at cutting harmful emissions from energy use, but governments could make better use of them. Greater reliance on energy taxation is needed to strengthen efforts to tackle the principal source of both greenhouse gas emissions and air pollution, according to a new OECD report.
Taxing Energy Use 2018 describes patterns of energy taxation in 42 OECD and G20 countries (representing approximately 80% of global energy use), by fuels and sectors over the 2012-2015 period.
New data shows that energy taxes remain poorly aligned with the negative side effects of energy use. 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, which are not discussed in this publication, but are included in the OECD’s Effective Carbon Rates, are having little impact on this broad picture.
“Comparing taxes between 2012 and 2015 yields a disconcerting result,” said OECD Secretary-General Angel Gurría. “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% of emissions were untaxed, according to the report. Tax rates were below the low-end estimate of climate costs (EUR 30/tCO2) for 97% 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% in 2012 to 50% in 2015. Encouragingly, some countries are removing lower tax rates on diesel compared to gasoline. However, fuel tax rates remain well below the levels needed to cover non-climate external costs in nearly all countries.
Coal, characterised 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 1% to 6% in 2015, but carbon taxes reflect climate costs for just 0.3% 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,” Mr 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 favoured.”
Further information on Taxing Energy Use, including graphical profiles of energy use and taxation in the 42 countries is available at: http://oe.cd/TEU2018.
An embeddable version of the report is available, together with information about downloadable and print versions of the report.
Register for a 16:00 GMT (11:00 EST) webinar where OECD economists will present Taxing Energy Use and answer questions.
Working with over 100 countries, the OECD is a global policy forum that promotes policies to improve the economic and social well-being of people around the world.
The OECD was originally set up to administer the US financed Marshall Plan, the post WW2 reconstruction of Western Europe. The transnational OECD bureaucrats somehow managed to perpetuate their jobs beyond the completion of the Marshall Plan in 1951, and now take credit for US post war growth.
From the OECD website;
… The Organisation for European Economic Cooperation (OEEC) was established in 1948 to run the US-financed Marshall Plan for reconstruction of a continent ravaged by war. By making individual governments recognise the interdependence of their economies, it paved the way for a new era of cooperation that was to change the face of Europe. Encouraged by its success and the prospect of carrying its work forward on a global stage, Canada and the US joined OEEC members in signing the new OECD Convention on 14 December 1960. The Organisation for Economic Co-operation and Development (OECD) was officially born on 30 September 1961, when the Convention entered into force.
Other countries joined in, starting with Japan in 1964. Today, 35 OECD member countries worldwide regularly turn to one another to identify problems, discuss and analyse them, and promote policies to solve them. The track record is striking. The US has seen its national wealth almost triple in the five decades since the OECD was created, calculated in terms of gross domestic product per head of population. Other OECD countries have seen similar, and in some cases even more spectacular, progress.
So, too, have countries that a few decades ago were still only minor players on the world stage. Brazil, India and the People’s Republic of China have emerged as new economic giants. The three of them, with Indonesia and South Africa, are Key Partners of the Organisation and contribute to its work in a sustained and comprehensive manner. Together with them, the OECD brings around its table 39 countries that account for 80% of world trade and investment, giving it a pivotal role in addressing the challenges facing the world economy. …
Read more: http://www.oecd.org/about/history/
Why hasn’t the OECD been decommissioned? Sixty seven years since the official end of the Marshall Plan has surely been enough time to tie up any loose ends. Its not like we’ve got a global shortage of well funded transnational bureaucrats offering obnoxious, out of touch advice on imposing climate taxes.
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