This chapter provides climate policy context and gives an overview of the mitigation policy instruments that governments can deploy or reform to accelerate the transition to net-zero greenhouse gas (GHG) emissions. It then describes the methodology of the Effective Carbon Rates and Taxing Energy Use database, which takes stock of emissions trading systems, carbon taxes, fuel excise taxes, fossil fuel subsidies, electricity excise taxes and electricity subsidies in 71 countries, including all OECD member countries. The database contains several composite indicators, including the Effective Carbon Rate (ECR), which is the sum of permit prices from emissions trading systems, carbon taxes and fuel excise taxes, and the Net ECR, i.e. the ECR minus fossil fuel subsidies that decrease pre-tax fossil fuel prices. The chapter also outlines the effective tax rates framework that is used for the systematic stocktaking, and explains how effective tax rates are mapped to GHG emissions and energy use.
Pricing Greenhouse Gas Emissions
1. Building a systematic stocktaking and mapping of mitigation policies
Abstract
The climate challenge
Accelerating the transition to net zero greenhouse gas (GHG) emissions is urgently required to contain the risks of climate change. The Working Group I contribution to the Sixth Assessment Report by the Intergovernmental Panel on Climate Change (IPCC), released in August 2021, made it clear that “unless there are immediate, rapid and large-scale reductions in GHG emissions, limiting warming to close to 1.5°C or even 2°C will be beyond reach.” (IPCC, 2021[1]) The Working Group II contribution, released in February 2022, observed that “human-induced climate change, including more frequent and intense extreme events, has caused widespread adverse impacts and related losses and damages to nature and people” (IPCC, 2022[2]) already. The Working Group III contribution, released on April 2022, concluded that there are “options in all sectors to at least halve emissions by 2030.” (IPCC, 2022[3])
While awareness of the urgency to address climate change has increased, an ambition gap persists. Announced pledges, even if fully implemented, are insufficient to reach the objectives of the Paris Agreement. As of 1 March 2022, 88% of global GHG emissions where covered by a net zero target (Net Zero Tracker, 2021[4]). This is because 136 countries, home to 85% of the world’s population and accounting for 90% of global GDP (in purchasing power parities) have announced net zero targets of some sort. Nevertheless, the ambition gap between where countries aim to go and where they would end up if the announced pledges were fully implemented remains substantial, as shown in Figure 1.1. In addition, it should not be taken for granted that announced pledges will be implemented in full, and many details of existing net zero targets are still unclear (Jeudy-Hugo, Lo Re and Falduto, 2021[5]).
Figure 1.1. The climate challenge
Source: Adapted from (IEA, 2021[6]).
To avoid an implementation gap, countries now need to translate their long-term climate commitments into concrete policy packages that deliver for the climate and the economy in the short and medium term. Recent analysis by the United Nations Framework Convention on Climate Change (UNFCCC), synthesising the nationally determined contributions (NDCs) submitted by the Parties to the Paris Agreement, concluded that there was an “urgent need for either a significant increase in the level of ambition of NDCs between now and 2030 or a significant overachievement of the latest NDCs, or a combination of both” (UNFCCC, 2021[7]). This analysis is supported by recent bottom-up scenario analysis (Meinshausen et al., 2022[8]). Similarly, many countries have committed to a “green recovery” from the COVID-19 crisis to take advantage of “a unique window for finance ministers across the world to act fast and put investment in sustainable growth” (Coalition of Finance Ministers for Climate Action, 2020[9]). However, OECD analysis shows “overall, recovery packages are not currently set to deliver the transformational investments needed” (OECD, 2021[10]).
The net-zero toolbox
As countries seek to reduce GHG emissions, they can employ or reform a wide range of policy instruments. Table 1.1 gives a schematic overview of the variety of policy instruments in the net-zero toolbox. It includes climate policy instruments, introduced with the explicit policy motivation of reducing GHG emissions. It also contains non-climate policy instruments, i.e. policy instruments for which the principal policy motivation behind their introduction is not climate, but which are nevertheless highly climate-relevant. Both types of instruments can either be price-based (i.e. they directly change prices of activities or assets and leave it to the market to react to the price signals) or not. Non-price-based instruments (e.g., vehicle emission rate standards, energy efficiency regulations) instead put constraints on producers and consumers to only pursue activities or invest in assets complying with regulatory requirements. Non-price-based instruments leave less flexibility to market participants to reduce emissions.
Table 1.1. A tentative typology of selected mitigation policies
Note: All instruments followed by a number in parentheses are covered in this report; their definition and scope of coverage in this report is further discussed below. ECR=1+2+3, Net ECR=ECR-4, EER=1+2+3+5, Net EER=EER-(4+6). Corporate tax incentives equally impact emissions whether they are motivated by climate considerations or not (see Box 1.1). Instruments not mentioned in the table, such as biodiversity policies (OECD, 2020[11]) and nature-based solutions (OECD, 2021[12]), can have mitigation benefits as well.
Price-based climate policy instruments include, but are not limited to, explicit carbon prices. Explicit carbon prices either take the form of carbon taxes, first implemented in the Nordic countries in the early 1990s, or tradable GHG emission permits (or allowances), as pioneered by the European Union’s (EU) emissions trading system in operation since 2005 (see Chapter 2). Carbon taxes and emissions trading systems directly price GHG emissions as they apply to a base that is proportional to GHG emissions.
Other price-based policy instruments (as well as non-price-based instruments) generally do not induce the same energy demand and supply response as their relationship to GHG emissions is typically only indirect.1 The public support for such instruments can be stronger and they can complement explicit carbon prices by targeting hurdles to the transition to net zero other than the absence of a price on emissions. Emissions-based vehicle taxes, for example, encourage the uptake of more carbon-efficient vehicles, but do not price the GHG emissions resulting from the use of these vehicles. They strongly affect vehicle choices and therefore can help to drive electrification of the vehicle fleet. Feed-in tariffs promote the use of renewable sources for power generation, such as wind and solar, which can accelerate the transition to a zero-carbon power sector. However, they do not directly discourage the use of fossil sources of power generation. Similarly, while not pricing GHG emissions, corporate income tax incentives can encourage investment in carbon-neutral production processes and consumption of low carbon or carbon-neutral products by providing targeted activities with favourable deviations from a country’s standard tax treatment (Box 1.1).
Box 1.1. Corporate income tax incentives and the transition to net zero
Corporate income taxation (CIT) affects the cost of investment, which can have an effect on the take-up of new technologies and input choices, with potentially important implications for the carbon footprint of businesses. In particular, CIT influences business decisions on whether and when to invest, what technology or processes to use and how much investment to provide (Hall and Jorgenson, 1967[13]; 1969[14]; Devereux and Griffith, 2003[15]). While taxation is only one of multiple drivers of investment decisions, businesses take costs from taxation into account when evaluating new projects, including investments in clean industrial technologies or in clean power production. Therefore, standard CIT systems and targeted tax incentives could have a significant effect on the transition towards net-zero GHG emissions and the investments in clean productive assets that it requires.
Tax incentives have the potential to promote investment and create positive spillovers, but they come at the cost of forgone government revenue and can compromise the neutrality of the tax system.
CIT incentives for clean investment come with different designs and targeting strategies
Countries use different instruments, designs and targeting strategies to promote clean investments through the CIT system. For example, some tax incentives reduce the tax costs of acquiring specific clean assets; others favour activities that reduce carbon emissions per unit of output relative to a benchmark; and other incentives apply to entire sectors, such as power production from renewable energies. These varying and complex designs and targeting strategies complicate an evaluation of the benefits and costs from using tax incentives as part of the net-zero toolbox.
Evidence suggests that OECD countries usually apply expenditure-based tax incentives when promoting clean investment through CIT. These include tax credits or favourable tax deductions relating to the acquisition costs of clean assets. For example, (Dressler, Hanappi and Van Dender, 2018[16]) found that 10 out of 36 OECD and selected partner economies provide fiscal depreciation schedules that are more generous for carbon-neutral power generation technologies than for their carbon-intensive alternatives. Denmark recently introduced an accelerated depreciation allowance targeting clean technologies more broadly (OECD, 2021[17]).Germany plans to implement a super depreciation allowance to promote investment in climate protection and digital assets (SPD, Bündnis 90/Die Grünen and FDP, 2021[18]). The United States has a long-standing tradition of supporting clean investment through the corporate tax system, mainly through investment and production tax credits (Metcalf, 2021[19]). The Netherlands provides tax support to clean investment through a combination of targeted CIT incentives, including two investment allowances and a specific accelerated depreciation schedule (Anderson et al., 2021[20]).
Developing and emerging economies equally use CIT incentives to promote climate objectives– through expenditure-based, but also through income-based tax incentives (i.e. reduced CIT rates or CIT exemptions). The OECD Investment Tax Incentives database (Celani, Dressler and Wermelinger, 2022[21]) shows, for example, that investors in the renewable energy sector have access to CIT incentives that specifically target renewables in Madagascar (tax allowance), Rwanda (reduced rate), Senegal (partial tax exemption) and South Africa (accelerated depreciation). Investment in green technologies more broadly is promoted in Viet Nam (tax exemption and reduced rate), as well as in Mauritius, and the Seychelles (accelerated depreciation).
Non-price-based climate policy instruments (e.g. GHG emissions intensity regulations) are motivated by climate considerations. They do not directly change prices of activities or assets but usually involve costly compliance efforts. The CO2 limits imposed on new fossil fuel-fired appliances, such as utility boilers, as included in the United States’ Environmental Protection Agency’s (EPA) New Source Performance Standards (NSPS) under the Clean Air Act are an example of an emissions intensity regulation.
Not all policy instruments with an impact on climate change mitigation are motivated by climate considerations. Among price-based instruments, fuel excise taxes are typically introduced principally with revenue raising considerations in mind, but still discourage the use of fossil fuels. Fossil fuel subsidies may be introduced to protect vulnerable households or energy intensive industries; yet they also lower the cost of using fossil fuels, which increases GHG emissions. Air pollution standards, a non-price-based instrument, can come with the co-benefit of reducing GHG emissions from fossil fuel use, which is a major cause of air pollution.
The economics and the politics of the challenge to mitigate climate change call for the use of a combination of policy instruments, including pricing, regulation and subsidies. There are at least two sets of reasons for this. First, there are many market failures, inertia and path dependencies that need to be overcome to move to net-zero. Second, countries have different starting points, economic structures, and political, social and legal constraints, which can lead them to opt for different policy approaches. At the same time, the variety of approaches and overlap between instruments make systematic comparisons of countries’ climate change mitigation policies challenging.
Comparing mitigation policies is useful for strengthening mutual learning, comparing policy stringency, and informing decisions on ways to manage international spillovers from domestic policy choices. International spillovers can be negative, for example when domestic action leads to carbon leakage or harms the competitiveness of countries’ businesses. But spillovers can equally be positive, in particular when it comes to innovation and the transfer and trade of clean technologies.
This report provides a systematic stocktake and mapping of carbon pricing and energy tax policy instruments, and it accounts for fossil fuel and electricity subsidies that lower pre-tax prices for domestic energy use. This is an important subset of price-based policy instruments listed in Table 1.1. All instruments covered in this report have one thing in common: they either directly change the cost of emitting GHG (emissions trading systems, carbon taxes, fuel taxes, fossil fuel subsidies) or change electricity prices (electricity taxes and subsidies). In addition, reforming these instruments to better align them with climate considerations could contribute to improving public finances, either by raising revenue or reducing expenditure. By contrast, reforming most of the other policy instruments in the mitigation toolbox would typically not directly change the cost of emitting GHG or using electricity, although indirect effects on prices can be significant.
A systematic stocktaking using the OECD’s effective tax rates framework
First published in 2013 and 2016 respectively, the OECD’s Taxing Energy Use (TEU) and Effective Carbon Rates (ECR) publication series and database (simply referred to as the database below) take stock of how countries tax energy use and explicitly price GHG emissions.2 The database systematically integrates all specific taxes on energy use and GHG emissions in a consistent framework that ensures cross-country comparability. It traditionally covers carbon taxes, excise taxes on fuels, taxes on the consumption of electricity, and determines permit prices on emissions that are subject to emissions trading systems (Table 1.2). Starting with Taxing Energy Use for Sustainable Development (OECD, 2021[22]), and drawing on data from the Inventory of Fossil Fuel Support (OECD, 2015[23]; OECD, 2021[24]) where available,3 fossil fuel subsidies and electricity subsidies that lower pre-tax prices for domestic energy use have also been integrated in the effective tax rates framework used in the database (OECD, Forthcoming[25]).
This vintage of the database provides new and original 2021 data for 71 countries (including, but no longer limited to, all OECD and G20 countries except Saudi Arabia)4 and all GHG emissions. In addition to the 44 OECD and G20 economies, already covered in Taxing Energy Use 2019 and Effective Carbon Rates 2021, this report includes Costa Rica, a member of the OECD since May 2021, as well as 26 other countries, all members of the Coalition of Finance Ministers for Climate Action. Eleven of these new countries are in Africa (Burkina Faso, Côte d’Ivoire, Egypt, Ethiopia, Ghana, Kenya, Madagascar, Morocco, Nigeria, Rwanda, Uganda), eight in Latin America and the Caribbean (Dominican Republic, Ecuador, Guatemala, Jamaica, Panama, Paraguay, Peru, Uruguay), six are in Asia (Bangladesh, Kyrgyz Republic, Malaysia, Philippines, Sri Lanka) and two in Europe (Cyprus, Ukraine). Fifteen of these countries were covered for the first time in Taxing Energy Use for Sustainable Development (OECD, 2021[22]).
As a result of the geographical and base expansion, TEU now accounts for approximately 79% of global GHG emissions (excluding emissions from land use change and forestry (LUCF)5). For comparison, Effective Carbon Rates 2021 (2021[26]) covered 57% of global GHG emissions – GHG emissions coverage has thus increased by 22 percentage points. Throughout this report, 2021 rates are often compared to data for 2018, which has been updated and extended to incorporate the increase in instrument, emissions, and country coverage of this report (see also, next section).6
The most widely used composite indicator of the database to date has been the ECR, which is the sum of fuel excise taxes, carbon taxes, and ETS permit prices. The new Net ECR indicator additionally accounts for negative carbon prices (i.e. pre-tax price reductions) resulting from fossil fuel subsidies. Fuel excise and fuel-based carbon taxes, which are typically specified in various physical units such as litres or kilogrammes, are converted into tax rates per tonne of CO2 based on the carbon content of the fuels to which they apply.7 Emissions-based carbon taxes and emissions permit prices do not need to be converted since they are usually specified per tonne of CO2-equivalent (CO2e).8 Budgetary transfers are mapped to all CO2 emissions from domestic energy use directly affected by the measure and converted into the corresponding negative tax rate per tonne of CO2. Official OECD exchange rate and inflation data are used to express all prices in real 2021 Euros.9
The other principal composite indicator is the Effective Energy Rate (EER), which adds electricity taxes to the components included in the ECR indicator; the Net EER indicator additionally accounts for fossil fuel and electricity subsidies.Electricity excise taxes and subsidies generally do not treat fossil fuels in a differential manner compared to clean sources and are therefore excluded from the Net ECR indicator (OECD, 2019[27]; OECD, 2021[22]). The Net EER indicator is expressed per gigajoule (GJ) based on the energy content of the products to which they apply, because electricity taxes and subsidies typically also apply to energy sources that do not emit CO2, such as hydro, wind and solar, as well as nuclear. This indicator can, for example, be used to estimate energy tax revenues net of fossil fuel and electricity subsidies (see Chapter 3) and break down such revenues by policy instrument.10
Table 1.2. Policy instruments covered in this report
Note: Data on the tax policy instruments are collected via publicly available official sources; government officials are provided with the opportunity to review and refine the data.. Excises are taxes levied as a product specific tax on a predefined limited range of goods (OECD, 2020[28]). For details on emissions trading systems, see OECD’s (2021[26]), Effective Carbon Rates 2021. For details on fossil fuel and electricity subsidies, see (OECD, Forthcoming[25]; OECD, 2021[24]).
The database accounts for tax exemptions, rate reductions and refunds, which are pervasive in energy tax and carbon pricing systems. Frequently, certain energy users or GHG emitters enjoy preferential treatment that effectively reduces prices on energy or emissions. Therefore, effective tax rates measured by the database are adjusted accordingly irrespective of whether countries report such policy measures as tax expenditures, which represents a different approach from the OECD’s Inventory of Fossil Fuel Support (Box 1.2).11 The availability of preferential treatment varies substantially across countries, and even within a country such preferential treatment frequently changes over time. As a result, simply comparing nominal rates (also called standard or advertised rates) across countries and time is misleading (Finch and van den Bergh, 2022[29]).
The Net ECR captures carbon price signals (resulting from taxes and emissions trading systems, as well as fossil fuel subsidies), whereas the Net EER measures energy price signals (resulting from the Net ECR components plus electricity taxes and subsidies). The policy instruments included in the Net ECR and Net EER indicators are rarely directly applied to the actual emitters, but typically levied on fuel suppliers.12 Therefore, final energy users are exposed to price signals captured by the Net ECR and Net EER indicators to the extent that these costs are passed through to them. Evidence on pass-through is fragmented and mixed, but there are indications that pass-through is high when competition is strong and supply is elastic. In addition, pass though tends to be stronger in the case of tax rises than tax cuts (Alm, Sennoga and Skidmore, 2009[30]; Harju et al., 2022[31]; Benzarti et al., 2020[32]; Marion and Muehlegger, 2011[33]).
The database focuses on pricing instruments that specifically apply to a base that is directly proportional to energy use or GHG emissions. It therefore excludes taxes and fees that are only partially correlated with energy use or GHG emissions. Common examples of policy instruments that fall outside the scope of the database include vehicle purchase taxes, registration or circulation taxes, and taxes that are directly levied on non-GHG emissions, such as the Danish tax on SOX. Some countries also apply production taxes on the extraction or exploitation of energy resources (e.g., severance taxes on oil extraction). Since these supply-side measures are not directly linked to domestic energy use or emissions, the database does not cover them either.
Similarly, the database does not include value added taxes (VAT) or sales taxes. As VAT in principle applies equally to a wide range of goods, they do not change the relative prices of products and services (i.e. they do not make carbon-intensive goods and services more expensive than cleaner alternatives). In practice, differential VAT treatment and concessionary rates may target certain forms of energy use, thereby encouraging their consumption (OECD, 2015[34]). However, quantifying the effects of differential VAT treatment is beyond the scope of the database as such an exercise would entail extensive price information, which is generally not available for all energy products.13 Reduced VAT rates, zero-ratings or exemptions are noted where relevant and data are available.14 Sometimes such measures are recorded in the OECD Inventory of Support Measures for Fossil Fuels, which can be used as a complement to this analysis.
Box 1.2. The OECD Inventory of Support Measures for Fossil Fuels
The OECD Inventory of Support Measures for Fossil Fuels (OECD, 2021[24]) identifies, documents, and estimates government measures that encourage fossil-fuel production or consumption relative to alternatives. Its primary objective is to enhance transparency on such public policies, which may result in larger production and consumption of fossil fuels than would be the case absent government intervention. The Inventory should be considered as a tool for policy makers to identify potentially distortive support measures – the first step in a sequential approach to the reform of fossil fuel subsidies (Elgouacem, 2020[35]). It does not provide an analysis of the effects of covered measures on prices and quantities and does not assess whether they are inefficient, encourage wasteful consumption, or are environmentally harmful (OECD, 2015[23]). This is consistent with the notion that “information precedes analysis”. The intent is to cast a wide net in supporting governments identify potential measures for reform. In its latest version, it includes around 1 300 measures in 50 OECD countries and selected partner economies (OECD, 2022[36]).
While support measures for fossil fuels can take many forms depending on their incidence and their transfer mechanism (OECD, 2015[23]), the Inventory covers budgetary transfers and tax expenditures because of data availability. The primary data sources are official government documents such as budget reports and reviews, public accounts, and budget statistics. Such documents typically report budgetary transfers and tax expenditures – with a varying degree of estimation quality and coverage – but generally do not report other forms of support. Budgetary transfers are generally well documented and estimated in budget reports, revised on a budget cycle, and subject to legislative scrutiny (Elgouacem, 2020[35]). Such policies can be readily compiled in an inventory of support measures.
By contrast, the quality of tax expenditure estimations reported in official documents varies, as tax expenditures tend to undergo less scrutiny than direct spending programmes (Elgouacem and Van Dender, 2019[37]; OECD, 2015[23]; OECD, 2021[24]). Some countries report detailed estimates of their support measures through tax expenditures while others provide hardly any information.1 In addition, cross-country and over-time comparisons of tax expenditures are challenging for several reasons. First, countries estimate tax expenditures from specific tax provisions against their own benchmark tax system. As benchmarks vary across countries and over time, it is difficult to correctly interpret factors driving cross-country and over-time variation in tax expenditures. Second, countries have diverging accounting and budgetary approaches to tax expenditures. Certain countries consider lower tax rates on a subset of fuels – typically lower excise tax rates – as a reduction of tax liability, but others consider them as tax differentiation on different products or economic activities.
Tax expenditures included in the Inventory are typically provided through lower tax rates, exemptions, or rebates on value-added taxes (VAT) and excise taxes. Tax expenditures are generally targeted towards: i) specific groups of consumers; ii) specific types of fuels; iii) specific uses of fuels (OECD, 2015[23]). For instance, residents of regions deemed economically disadvantaged may benefit from lower taxes on their use of fuels, or diesel fuel may benefit from a lower tax rate relative to gasoline in the transport sector. Finally, some tax rebates can also be applied if fuels are used for specific activities such as commercial aviation, farming, fishing, forestry, maritime transport and mining.
1. Nevertheless, the majority of measures the Inventory documents are tax expenditures (60% of total support by USD value); virtually all recorded support takes this form for some countries. The stocktaking of individual government measures also invites assessment of ongoing relevance of support measures, and the extent to which alternative, more efficient, equitable and environmentally-friendly measures could potentially meet intended policy objectives (OECD, 2021[24]).
Source: (OECD, Forthcoming[25]).
Mapping effective tax rates to energy use and GHG emissions
The database not only takes stock of policy instruments, but also maps them to the corresponding energy use and GHG emissions base in a way that is comparable across countries and over time. Energy base data is adapted from IEA, World Energy Statistics and Balances (IEA, 2020[38]), which is also used to calculate CO2 emissions from energy use. GHG emissions other than CO2 emissions from energy use are included for the first time, and sourced from Climate Watch (2020[39]). Non-CO2 emissions are expressed in CO2e using 100-year global warming potential values from the IPCC’s Fourth Assessment Report.15 Effective tax rates for 2018 and 2021 are both mapped to 2018 base data, which facilitates comparisons between the two points in time, as changes in average rates are not affected by changes in the composition of energy use and GHG emissions.16
The mapping accounts for overlap between policy instruments, which is ubiquitous. In countries, such as Finland and the United Kingdom, carbon taxes apply to emissions that are also covered by an ETS, increasing the carbon price applied. In other countries, such as France and Germany, the domestic carbon pricing instruments generally only apply to emissions that are not already covered by the EU ETS.17 Explicit carbon prices often apply on top of pre-existing excise tax regimes, and excise taxes are sometimes reduced following the introduction of explicit carbon pricing instruments. The very same fuels and users benefiting from fossil fuel subsidies are sometimes still subject to fuel excise taxes (e.g. in Egypt). Ignoring such interactions – which vary across countries, change over time, and often extend over several levels of government (e.g., the EU and its member states, at national and subnational levels in Canada, Mexico, and the United States) – will paint an inaccurate picture of countries’ climate actions and policies.
Table 1.3. Sector definitions
Note: Estimates of primary energy use are based on the territoriality principle, and include energy sold in the territory of a country but potentially used elsewhere (e.g. because of fuel tourism in road transport).
Source: Own classification based on information on energy flows contained in the IEA’s extended world energy balances (IEA, 2020[38]) and “other GHG” reported in the Climate Watch dataset (2020[39]).
To enable like-for-like comparisons across countries, the database uses consistent sector and product definitions for all countries. Table 1.3 provides an overview of the six economic sectors used in the database, and defines the GHG emissions and energy base associated with them. GHG emissions and energy use are allocated to the sector where the primary energy is consumed. The primary energy use associated with electricity generation is, for instance, allocated to the electricity sector, even if the electricity is consumed by households. Due to data limitations and to facilitate comparisons with previous vintages of this database, other GHG emissions are not allocated to the six economic sectors, but introduced as a new, seventh sector, in the GHG pricing dataset (see Chapter 2). Table 1.4 contains more details on how energy products are aggregated in the database, and in which dataset they are included.
Table 1.4. Energy product definitions
Note: Own classification. Energy products are as defined in IEA, World Energy Statistics and Balances (2020[38]).
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[10] OECD (2021), The OECD Green Recovery Database: Examining the environmental implications of COVID-19 recovery policies, OECD, Paris, https://www.oecd.org/coronavirus/.
[28] OECD (2020), Revenue Statistics 2020, OECD Publishing, Paris, https://doi.org/10.1787/8625f8e5-en.
[11] OECD (2020), Towards Sustainable Land Use: Aligning Biodiversity, Climate and Food Policies, OECD Publishing, Paris, https://doi.org/10.1787/3809b6a1-en.
[27] OECD (2019), Taxing Energy Use 2019: Using Taxes for Climate Action, OECD Publishing, Paris, https://doi.org/10.1787/058ca239-en.
[23] OECD (2015), OECD Companion to the Inventory of Support Measures for Fossil Fuels 2015, OECD Publishing, Paris, https://doi.org/10.1787/9789264239616-en.
[34] OECD (2015), Taxing Energy Use 2015: OECD and Selected Partner Economies, OECD Publishing, Paris, https://doi.org/10.1787/9789264232334-en.
[25] OECD (Forthcoming), Net Effective Carbon Rates.
[18] SPD, Bündnis 90/Die Grünen and FDP (2021), Mehr Fortschritt Wagen: Bündnis für Freiheit, Gerechtigkeit und Nachhaltigkeit (Coalition agreement between the German governing parties), https://www.bundesregierung.de/resource/blob/974430/1990812/04221173eef9a6720059cc353d759a2b/2021-12-10-koav2021-data.pdf?download=1.
[7] UNFCCC (2021), Nationally determined contributions under the Paris Agreement: Synthesis report by the secretariat, https://unfccc.int/sites/default/files/resource/cma2021_08_adv_1.pdf.
Notes
← 1. Among the other price-based policy instruments, both fuel excise taxes and a subset of fossil fuel support measures also apply to a base that is proportional to CO2 emissions, and they are therefore included in the Net Effective Carbon Rates indicator. However, as the applicable rates are not linked to a carbon price, they do not provide a consistent carbon price across fuels with different carbon intensities. In addition, they typically only apply narrowly to certain fuels, (e.g., diesel and gasoline used for road transport).
← 2. In addition to CO2 emissions, this dataset covers methane (CH4), nitrous oxide (N2O), fluorinated gases (F-gases), which include hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulphur hexafluoride (SF6).
← 3. The Inventory of Support Measures for Fossil Fuels is available for OECD and G20 economies and Eastern Partnership countries. For all other countries covered in this report, the OECD Secretariat collected original data on budgetary transfers and related measures.
← 4. The report is based on data and information that pre-date the war that began with Russia’s offensives into government-held territories in Ukraine in February 2022.
← 5. This report uses the abbreviation LUCF (as opposed to the term land use, land-use change, and forestry, or LULUCF), to emphasise that the underlying GHG emissions data is sourced from CAIT dataset (Climate Watch, 2020[39]), which does not rely on countries’ official inventories reported to the UNFCCC.
← 6. Tax rates are those applicable on 1 April 2021 (for 2021) and 1 July 2018 (for 2018). To account for permit price volatility, ETS permit prices are the average ETS auction (or, if unavailable, spot) prices for all of 2021 and 2018, respectively. 2021 and 2018 fossil fuel and electricity subsidy estimates are based on annual data for 2020 (due to data availability) and 2018, respectively.
← 7. The Secretariat first converts all tax rates into effective energy tax rates per gigajoule (GJ) based on the energy content of the taxed products, using conversion factors from the IEA (when IEA conversion factors are not available, the Secretariat uses conversion factors provided by JMTEE delegates, mainly for natural gas, or based on desk research). This approach allows tax rates to be aggregated across all energy products and energy users (as reported in Chapter 3). Fuel excise and fuel-based carbon taxes are then additionally converted into rates per tonne of CO2 (Chapter 2), using official conversion factors from the Intergovernmental Panel on Climate Change.
← 8. Where this is not the case, as for certain F-gas taxes, CO2-equivalent rates are calculated using the best available information.
← 9. Where OECD exchange rate period averages were not available, they were supplemented using IMF International Financial Statistics. Inflation gaps were supplemented using the World Bank’s World Development Indicators Consumer Prices. In the case of Argentina, the GDP deflator was used as an approximation for inflation. Remaining missing 2021 values were filled with 2020 values.
← 10. It is possible to obtain bottom-up estimates of tax revenues from energy use by multiplying the prevailing effective tax rates with the energy base. Bottom-up estimates do not necessarily correspond to the actual revenue and expenditures, inter alia due to differences between the base year and the rate date. Given that energy use data is available at yearly intervals, mapping the complete evolution of tax rates throughout a full year is not possible.
← 11. Tax expenditure data remains highly relevant, however, in identifying and setting out individual subsidy measures, and allowing tracking of what countries themselves consider to be preferential treatment in the form of deviations from domestic tax benchmarks, along with potential revenue gain from reform (OECD, 2021[24]).
← 12. This is different for emissions trading systems (and emissions-based carbon taxes), where it is usually the regulated entities who need to remit emission permits (also called allowances) for the GHG emissions of their facilities.
← 13. In addition, given that the dataset takes a territorial approach to emissions and energy accounting, adding information on a destination-based tax such as VAT is not straightforward (e.g., for export-based industries).
← 14. Import tariffs are not included, but similar to VAT and sales taxes, they may affect relative prices of energy products to the extent that they do not apply widely to other goods.
← 15. See http://cait.wri.org/docs/CAIT2.0_CountryGHG_Methods.pdf for details regarding data source and methodology.
← 16. At the time of data collection, the latest available energy use, emissions, and ETS coverage data available for all countries was from 2018, which was used as a proxy for the 2021 base. Energy use and GHG emissions declined substantially in the beginning of 2020 due to the COVID-19 pandemic. However, already in December 2020, global emissions were 2% higher than they were in the same month a year earlier (IEA, 2021[40]).
← 17. ETS coverage estimates are based on the OECD’s (2021[26]) Effective Carbon Rates 2021, with adjustments to account for recent coverage changes.