OECD urges increase in taxes on carbon dioxide

OECD urges an increase in taxes on carbon dioxide © UBC Micrometeorology
© UBC Micrometeorology

In a new report, the Organisation for Economic Co-operation and Development (OECD) urges an increase in taxes on carbon dioxide to combat climate change.

The report found that there was very little increase in taxes on carbon dioxide between 2012 and 2015, and that while the energy tax profiles of the 42 countries examined varied substantially, only 0.3% of emissions are taxed at a level that counterbalances their impact on the environment.

The findings of the report indicated that the highest overall tax rates on CO2 emissions were observed in OECD countries which are also EU member states. It speculates that this higher rate of tax is influenced by the EU’s Energy Taxation Directive 2003, which establishes minimum tax rates for a range of fuels in different economic sectors.

The difference between EU and non-EU countries was ‘significant’ in both the road and non-road sectors, and in the countries which were OECD key partners – but not members – the tax rates were lower than any of the other countries in the study.

What did the OECD conclude?

Introducing the report, OECD Secretary-General Ángel Gurria argued the merits of taxes, and detailed why an increase in taxes on carbon dioxide would support greater environmental efforts.

He said: “Governments around the world have joined forces to fight global warming. This requires deep cuts in carbon emissions, starting now. Carbon taxes and other specific taxes on energy use can integrate the climate and environmental costs of energy use into prices. They … will help cut air pollution and other negative side effects of energy use.”

What’s more, he added, the money raised by an increase in taxes on carbon dioxide would act as “a new source of revenues to help fund vital government services and foster the development of affordable and clean energy”.

How much progress has been made?

Gurria bemoaned the lack of progress that OECD found in this area since 2012, saying: “Evidence of improved use of energy taxes to address the mounting global environmental and climate challenges is very limited … The intense debate on carbon taxation has sparked action, but … has not driven any significant change in actual tax rates”.

He concluded that “well-designed taxes on energy use are a core element of cost-effective policy and vast improvements are urgently needed”. He warned that translating the need for higher taxes on CO2 into policy should be an urgent priority.

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