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OECD: Better use of energy taxation to address climate change

OECD: Energy taxation to address climate change

The Organisation for Economic Cooperation and Development (OECD) today reported while taxes are effective at cutting harmful emissions from energy use, governments could make better use of these taxes. The OECD continued by noting greater reliance on energy taxation is needed to strengthen efforts to tackle the principal source of both greenhouse gas emissions and air pollution.

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An OECD report released today 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. According to new data:

  • 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 are having little effect.

Today’s OECD release states that 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. 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.

The OECD release continues to explain that coal—which is 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 is not taxed in almost all countries. While the 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.

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