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How Should Different Countries Tax Fuels to Correct Environmental Externalities?

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  • Ian Parry, Dirk Heine, Shanjun Li, and Eliza Lis

Abstract

This essay discusses (based on a recent IMF study) how developed and developing countries alike might put into practice the principle of 'getting prices right' to address the major externalities from energy. The efficient set of taxes includes charges on fuel use for carbon and local pollution (with credits for emissions capture during combustion) and additional charges on motor fuels for road congestion and accidents (though the latter should transition to distance-based charges). Techniques and data sources for measuring the externalities and corrective taxes by country are discussed. In general, heavy taxes on coal and motor fuels are warranted (though there is substantial cross-country variation in corrective tax rates). For most countries, tax reform could yield considerable fiscal, health, and carbon benefits.

Suggested Citation

  • Ian Parry, Dirk Heine, Shanjun Li, and Eliza Lis, 2014. "How Should Different Countries Tax Fuels to Correct Environmental Externalities?," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    • Handle: RePEc:aen:eeepjl:eeep3_2_05parry
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    References listed on IDEAS

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    1. Cropper, Maureen & Gamkhar, Shama & Malik, Kabir & Limonov, Alex & Partridge, Ian, 2012. "The Health Effects of Coal Electricity Generation in India," RFF Working Paper Series dp-12-25, Resources for the Future.
    2. Ian W. H. Parry & Kenneth A. Small, 2005. "Does Britain or the United States Have the Right Gasoline Tax?," American Economic Review, American Economic Association, vol. 95(4), pages 1276-1289, September.
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    Cited by:

    1. Beaudoin, Justin & Chen, Yuan & Heres, David R. & Kheiravar, Khaled H. & Lade, Gabriel E. & Yi, Fujin & Zhang, Wei & Lin Lawell, C.-Y. Cynthia, 2018. "Environmental Policies in the Transportation Sector: Taxes, Subsidies, Mandates, Restrictions, and Investment," ISU General Staff Papers 201808150700001050, Iowa State University, Department of Economics.
    2. Irina, NASALCIUC, 2016. "Economic Aspects Of Fossil Fuel Social Costs. Why Do We Subsidize And Mediate The Cliamte Change Process?," Contemporary Economy Journal, Constantin Brancoveanu University, vol. 1(4), pages 133-147.
    3. Benedict Clements & David Coady & Stefania Fabrizio & Sanjeev Gupta & Baoping Shang, 2014. "Energy subsidies: How large are they and how can they be reformed?," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    4. Lucas W. Davis, 2017. "The Environmental Cost of Global Fuel Subsidies," The Energy Journal, International Association for Energy Economics, vol. 0(KAPSARC S).
    5. Xiang, Hongjin & Kuang, Yanxiang, 2020. "Who benefits from China’s coal subsidy policies? A computable partial equilibrium analysis," Resource and Energy Economics, Elsevier, vol. 59(C).
    6. Si, Shuyang & Lyu, Mingjie & Lin Lawell, C.-Y. Cynthia & Chen, Song, 2018. "The effects of energy-related policies on energy consumption in China," Energy Economics, Elsevier, vol. 76(C), pages 202-227.
    7. Xiaolin Wang & Xiangyi Lu & Na Zhou & Jianzhong Xiao & Jun Chen, 2020. "Does Environmental Regulation Affect Natural Gas Consumption? Evidence from China with Spatial Insights," Sustainability, MDPI, vol. 12(8), pages 1-18, April.
    8. Grzegorz Peszko & Simon Black & Alexandrina Platonova-Oquab & Dirk Heine & Govinda Timilsina, 2019. "Environmental Fiscal Reform in Morocco," World Bank Publications - Reports 34030, The World Bank Group.
    9. Michelle Harding & Chiara Martini & Alastair Thomas, 2014. "Taxing Energy Use in the OECD," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).

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