OECD: energy taxes ‘misaligned’ with climate change impacts

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Taxes placed on energy are ‘under-utilised’ by governments and too small to have an large impact on climate change, according to analysis from OECD.

In a report, OECD argues that governments are failing to use adequately use energy taxes as a tool to curb the environmental consequences of energy use. The paper compares taxes on energy use across 41 countries, which combined use 80% of global energy.

OECD described taxes on energy uses as “one of the most effective tools governments have for reducing the negative side effects of energy use”. However, the organisation adds that many countries have poorly aligned energy taxes that are having only a limited impact on efforts to reduce energy use, improve energy efficiency and drive a shift towards clean energy sources.

Current taxes on energy use are low and incoherent,” commented Angel Gurria, OECD secretary general.

“Tax policy is not being used effectively to reduce adverse health impacts and emissions of greenhouse gases resulting from energy use. There is still considerable scope to use taxation to improve the environment and containing climate change.”

On average it was found that energy taxes are relatively low when the environmental costs of energy use is considered. Taxes are particularly low on some of the most harmful fuels. For example, coal, which contributes significantly to climate change, is the lowest and least taxes fuel, with 85% of coal used for heating and process purpose in the countries analysed being untaxed.

Furthermore, 39 of the countries tax diesel for transport at lower rates than gasoline, despite the environmental harm diesel causes.

Gurria added, “The evidence presented in this report provides concrete suggesting for reform to make sure that taxes on energy use help achieve economic, social and environmental objective more effectively.”

Photo: Matt Buck via Flickr

Further reading:

Greenpeace urges David Cameron to divert tax funds away from coal

Abandoning ‘environmental taxes’ on energy bills will harm your health and wealth

Stronger EU renewable energy targets could rid need for subsidies

Government plans to end onshore wind subsidies early

World Bank president calls for fossil fuel subsidies to be scrapped