25 June 2015: A report released by the Organisation for Economic Co-operation and Development (OECD) notes that energy taxes are one of the most effective policy tools for combating the negative effects of energy use. The report finds, however, that these taxes are currently “poorly aligned” with these negative effects, having limited impact on reducing energy use, increasing energy efficiency and shifting to alternative forms of energy.

For the report, the OECD surveyed 41 countries, 34 OECD and seven Group of Twenty (G-20) economies, accounting for 80% of global energy use. Titled ‘Taxing Energy Use 2015: OECD and Selected Partner Economies,’ the report finds that, while taxes can send a transparent signal to the energy sector of the need to move away from the sources of greenhouse gas (GHG) emissions and air pollution, governments surveyed are not taking full advantage of the potential of taxes to deliver this shift.

Commenting on the report, OECD Secretary-General Angel Gurría called current taxes “low and incoherent,” highlighting that, if used effectively, tax policy could also reduce health impacts of energy use. The report, which calculates effective tax rates per unit of energy and per unit of carbon dioxide (CO2) based on statutory tax rates, concludes that tax rates are relatively low compared to environmental costs.

The authors compare the weighted average effective tax rate per ton of CO2 across the 41 countries, which they determine is €14.8, to estimates of the social cost of carbon, approximately €30 per ton, which does not include non-carbon harmful side effects.

While taxes vary widely by country, the authors report that taxes are often particularly low on some of the most harmful fuels. Coal, for instance is one of the “lowest and least frequently taxed.” The report recommends reforming taxes to be more in line with energy sources’ harmful social and environmental effects. [OECD Press Release] [OECD Publication Webpage] [Publication: Taxing Energy Use 2015: OECD and Selected Partner Economies]