Governments around the world have joined forces to fight global warming. The Paris Agreement sets a clear goal – limiting global average temperature increases to well below 2 degrees Celsius. This requires deep cuts in carbon emissions, starting now. Carbon taxes and other specific taxes on energy use – analysed in this report – can integrate the climate and environmental costs of energy use into prices. They are indispensable components of the policies needed to fight climate change, and will help cut air pollution and other negative side effects of energy use.

Many forms of energy use are associated with environmental and health damages and contribute to climate change, so the social cost of energy use frequently exceeds private cost. Taxes on energy use – carbon taxes and other specific taxes on energy use – can make energy users pay for the full costs of pollution and climate change, so reducing harmful emissions at minimal cost, while also raising revenue that can fund vital government services. These considerations may affect policy design to an extent, but this report clearly shows that energy taxes continue falling well short of their potential to improve environmental and climate outcomes.

Effective tax rates on energy use translate statutory excise and carbon tax rates into rates per tonne of CO2 and per GJ. For the Taxing Energy Use publications and database, effective tax rates on energy use are calculated for 42 OECD and G20 economies, distinguishing the main economic sectors and fuels used. This chapter describes the motivation and scope for the measurement and analysis of effective tax rates on energy use and carbon emissions from energy use. It also provides an overview of the methodology used and the data feeding into the calculation of effective tax rates. Some methodological refinements introduced for the second vintage of the Taxing Energy Use database are outlined, too.

This chapter describes similarities among and differences between countries’ profiles of taxes on energy use (energy and carbon taxes), by the main economic sectors and fuels used, for selected country groupings and on a country-by-country basis. The discussion focusses on tax rates expressed per tonne of CO2. A main finding is the continued very poor alignment of taxes with the environment and climate costs of energy use, across all countries and country groups, though at different levels. Progress towards better use of taxes to cut harmful emissions is slow and piecemeal at best, and largely limited to the road sector.