OECD report criticises energy tax policy

The Organisation for Economic Cooperation & Development (OECD) has released data showing that some developed and emerging market countries have very weak energy taxes, reports Keith Nuthall. The OECD argues that many tax systems fail to target the negative effects of energy use, and barely encourage efforts to improve energy efficiency and promote green energy.

Energy taxes were studied in 34 ‘largely rich’ OECD member countries and seven G20 emerging economies – Argentina, Brazil, China, India, Indonesia, Russia and South Africa. The data reveals that the weighted average effective tax rate on all energy use across the 41 countries is €14.80 per tonne of CO₂ from energy use. ‘This is well below estimates of the social cost of carbon, at around €30/t,’ said the OECD. Considering the negative side effects of energy use, the report said ‘this strengthens the conclusion that average tax rates are very low relative to the harmful effects of fuel use.’

There are stark variations between the countries assessed, ranging from the best – Switzerland, with €107.20/t, to the worst – Indonesia and Russia, which have close to zero. Among richer countries, the US stands out as being a particularly poor performer according to the OECD, with €4.80/t, and Canada at €7.70/t. They performed worse than emerging markets South Africa (€13.80/t) and Argentina (€29.90/t). However, their energy taxation is slight compared to European oil exporters Norway (€93/t) and the UK (€73/t). Western European countries studied had rates exceeding €40/t CO₂.

The OECD was also critical about how energy taxes are structured. High pollution coal is taxed the least, with 85% of coal used for heating and industry across the sample untaxed, with average tax rates below €2/t CO₂; oil products are taxed at €49/t. Also, 39 countries tax diesel for transport at lower rates than gasoline, despite diesel’s greater environmental harm, said the OECD.