The Organisation for Economic Development and Cooperation (OECD) has called on the governments of its member states (which include most EU countries) and those of the G20 to make better use of the lever of energy taxation to bring down harmful emissions from energy use. In a report published on Wednesday 14 February, it also encourages them to make greater use of carbon taxation and alignment of energy prices with the costs of climate change and air pollution.
“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”, said OECD Secretary General Angel Gurría.
The report, covering 42 of the OECD and G20 countries which account for 80% of the world’s energy consumption, reveals that, outside road transport, 81% of emissions were untaxed in 2015 and rates on 97% of taxed emissions were below the low-end estimate of climate costs of €30 per tonne of CO2.
Meaningful tax rate increases have largely been limited to the road sector, where an average of 97% of emissions are taxed, and the share of emissions taxed above climate costs rose from 46% in 2012 to 50% in 2015, through fuel tax reforms in some large emerging economies (China, India and Mexico).
“Encouragingly”, the OECD says, some countries, such as France, are removing lower tax rates on diesel compared to petrol.
However, fuel tax rates remain well below the levels needed to cover non-climate external costs in nearly all countries, the OECD states.
At the same time, coal, consumption of which produces large amounts of harmful emissions and which accounts for almost half of carbon emissions in the 42 countries, is almost everywhere the lowest taxed form of energy, and in some countries, goes completely untaxed, the OECD laments, highlighting that coal is taxed at more than €5 per tonne of CO2 in just five of the countries studied.
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 OECD points out.
Major improvements are urgently required, aligning energy prices with the costs of climate change and air pollution and ensuring cost-effective action on climate change, it emphasises.
“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”, argued Gurría. (Original version in French by Emmanuel Hagry)