September 20, 2019
Taxing polluting sources of energy is an effective way to curb emissions that harm the planet and human health, and the income generated can be used to ease the low-carbon transition for vulnerable households. Yet 70% of energy-related CO2 emissions from advanced and emerging economies are entirely untaxed, offering little incentive to move to cleaner energy, according to a new OECD report.
As world leaders gather for a UN Summit on climate change amid mounting public pressure for action, a preview of Taxing Energy Use 2019 shows that for 44 countries accounting for over 80% of energy emissions, taxes on polluting sources of energy are not set anywhere near the levels needed to reduce the risks and impacts of climate change and air pollution.
Taxes on road fuel are relatively high yet rarely fully reflect the cost of environmental harm, especially with some road transport sectors offered preferential rates. Taxes on coal – which is behind almost half of CO2 emissions from energy – are zero or close to zero in most countries. Taxes are often higher on natural gas, which is cleaner. For international flights and shipping, fuel taxes are zero, meaning long-haul frequent flyers and cargo shipping firms are not paying their fair share.
“We know we need to burn less fossil fuel, but when taxes on the most polluting fuels are zero or close to zero, there is little incentive to change,” said OECD Secretary-General Angel Gurría. “Energy taxes are not the sole solution, but we can’t curb climate change without them. They should be applied fairly and used to improve well-being and ease the energy transition for vulnerable groups.”
Across the 44 countries studied, 97% of energy-related CO2 emissions outside of road transport are taxed far below levels that would reflect damage to the environment. Only four countries (Denmark, the Netherlands, Norway and Switzerland) tax non-road energy above EUR 30/t CO2, considered a low-end estimate of the costs to the climate of carbon emissions. Several countries have even lowered energy taxes in recent years.
Adjusting taxes, along with state subsidies and investment, is vital to encourage a shift to low-carbon energy, transport, industry and agriculture. Given the difficulties of making big changes without hurting industries or communities, a new strand of OECD work shows how factoring in potential synergies and trade-offs between emission reduction goals and broader societal objectives such as better health, jobs and affordability of services can increase the incentives for swift action to cut emissions.