The OECD published a new report Taxing Energy Use 2018 describing patterns of energy taxation in 42 OECD and G20 countries by fuels (coal, oil, gas) and sectors over the 2012-2015 period. Its findings reveal that taxes are effective at cutting harmful greenhouse emissions from energy use, however, taxation applied by major economies to CO2 emissions is not enough to fight climate change. According to the OECD, the damage from climate change resulting from a tonne of CO2 can be conservatively estimated at 30 EUR. As regards non-road sectors, which account for 95% of carbon emissions from energy use, 81% of emissions are untaxed. Coal, characterised by high levels of harmful emissions and accounting for nearly half of the carbon emissions, still escapes taxation in many countries, and its taxation exceeds 5 EUR per tCO2 in only five countries. Meaningful tax rate increases have largely been limited to the road sector. According to the report, fuel tax reforms in most of the countries increased the share of emissions taxed above climate costs from 46% in 2012 to 50% in 2015. However, fuel tax rates remain well below the levels needed to cover non-climate external costs in nearly all countries. As regards carbon taxation, despite ongoing debate in some countries, actual carbon tax rates remain low, according to the OECD.
Overall, taxes provide limited incentives to reduce energy use, improve energy efficiency and drive a shift towards less harmful forms of energy.
Angel Gurría, Secretary General of the OECD said that
There is no structural change to the pattern of taxes on energy use between 2012 and 2015. This is disconcerting. Aligning energy prices with the costs of climate change and air pollution is essential for effective and efficient action, and major improvements are urgently needed
Although many countries have made effort to apply the “polluter pays” principle, progress towards more efficient use of taxation to address climate change is slow. Angel Gurría concludes that governments must do more and better.