This report analyses the taxation of energy use in 41 countries, covering 80% of global energy use. It appears at a juncture when many countries struggle to sustain or reconnect with economic growth and face formidable fiscal consolidation challenges. At the same time, concerns over the very high human costs of air pollution are mounting and the urgency of acting to limit greenhouse gases is now abundantly clear.

Taxes can integrate the costs of environmental and health damage and of climate change associated with energy use into its price. There is strong evidence that taxes are one of the most cost-effective ways to curb these negative side-effects of energy use. To what extent does this recognition drive the actual practice of energy taxation? Based on the systematic analysis in this report of effective tax rates on energy use in 41 countries, the answer is readily apparent: with very few exceptions, taxes on energy use do not reflect its negative side-effects. The policy implication is that even where taxes on energy use are also determined by other policy objectives, there is considerable scope for improving their effectiveness.