OECD: Energy Taxes Harmfully Low A view of the Bełchatów coal power station, Poland. Photo: Morgre/Wikimedia under CC BY-SA 3.0 license.

OECD: Energy Taxes Harmfully Low

Energy taxes in major advanced economies are not used sufficiently to reduce energy use, improve energy efficiency and drive a shift toward low-carbon sources, the Organization for Economic Co-operation and Development (OECD) announced on 14 February 2018. In a report, entitled Taxing Energy Use 2018  the OECD examined taxes on energy use between 2012 and 2015 in 42 OECD and G20 economies, which represent around 80 percent of global energy use and carbon emissions from energy use.

The OECD’s study did not include carbon market prices, such as in the EU’s Emissions Trading System, but the OECD said these prices do little to change the report’s findings, the Reuters’ Nina Chestney reported. The international organisation found that almost all taxes are too low to help combat global warming, compared to a benchmark level of 30 euros per ton of carbon dioxide (CO2) – a conservative minimum estimate of the damage from emitting one ton of CO2. “A bird’s eye view of effective taxes per ton of CO2 across all countries reveals that there is hardly any change in the tax rates on emissions outside the road transport sector”, the report said.

Dimitar Sabev, critical economist and tax justice campaigner, calls for a universal carbon tax. Photo: BGNES

Taxation is the most potent tool to achieve a desired shift of energy use, confirmed Dimitar Sabev, a tax justice investigator based in Sofia, Bulgaria. But energy taxes in the developed world are more than too low – given huge government subsidies for carbon fuels, in fact our societies pay a tax to carbon business to operate, Sabev explained.

Sabev, who is a critical economist and author of Wounded Earth, is convinced that only a universal carbon tax set on a global level may offer a viable solution to the Earth’s climate problems. “But this requires a different kind of world leaders”, he concludes.

Instead, a generally negative attitude towards taxation in recent years has led to the adoption of palliative measures to bypass taxation – such as the European carbon trading scheme (EU ETS), Sabev explained. He strongly doubts that the short selling of carbon allowances may do some good to the climate. “Taxes continue to be poorly aligned with environmental and climate costs of energy use, across all countries”, the OECD’s report confirmed.

According to the OECD, in the road transport sector, 97 percent of emissions are taxed via rates that were above 50 euros/tCO2 for 47 percent of emissions in 2015, compared to 37 percent in 2012.  In non-road sectors, which collectively account for 95 percent of carbon emissions from energy use, 81 percent of emissions were untaxed, and rates were below 30 euros/tCO2 for 97 percent of emissions.

Coal, which accounts for almost half of carbon emissions in the 42 countries, goes untaxed in many countries and was taxed above 5/tCO2 in just five countries examined. Taxes on oil products were relatively high at over 100 euros/tCO2 on average across all sectors and particularly high in road transport, a sector which remains almost entirely dependent on oil products, the OECD found out. And taxes on diesel for transport use are lower than taxes for gasoline in every country except two, although this pattern appears to be changing, Reuters reported.

“It is almost insane that coal goes untaxed in many countries”, said Dick Holemans, expert on green policies and director at OIKOS – a think tank for social and ecological change in Belgium. The statement by the OECD sends a serious warning, Holemans believes.  If taxes are too low to have an impact, governments should change their policies, and a radical tax shift is the best option, Holemans explained. In his view, this should involve installing higher carbon taxes while at the same time lowering taxes on labour, stimulating transition to a circular economy and creating new green jobs.

Many governments are trying to prop up failing energy companies with massive handouts

Not taxing the carbon industry is almost insane, said OIKOS director Dirk Holemans. Photo: Ökopolisz Alapítvány/GEF.eu

On 21 February, the European Parliament’s energy committee proposed restrictions for controversial subsidies for energy utilities in its vote on energy market reform. According to the proposal, the so called capacity mechanisms – national subsidies to keep power plants on standby – would only be allowed as a “last resort” and would be heavily regulated. The committee’s decision contradicts a preliminary position on energy reform by the European Council – the Union’s highest decision making body, which rejected requirements for national governments to justify capacity mechanisms. While many governments are trying to prop up failing energy companies with massive handouts, the EU Parliament recognises the power of renewables and that taxpayer money should not be wasted on old, polluting power plants, Greenpeace’s EU energy policy adviser Sebastian Mang commented.

Some governments have started to raise diesel fuel taxes amid pressure to improve air quality in major cities, Reuters reported. “Apart from transport fuel tax increases in some large low-to-middle income economies, and some first steps toward aligning diesel taxes with gasoline taxes, there is no structural change to the pattern of taxes on energy use between 2012 and 2015”, the OECD’s report said.

Founded in 1961, the OECD is an intergovernmental economic organisation whose 35 member countries have committed to stimulating economic progress and world trade, democracy and the market economy.

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