Environment & Energy

Use of Energy Taxes to strengthen Developing Country Finances

On 25 January 2021 the OECD issued a document entitled Taxing Energy Use for Sustainable Development: Opportunities for energy tax and subsidy reforms in selected developing and emerging economies.

The report looks at energy taxation in a sample of fifteen developing countries located in Africa, Asia and Latin America and the Caribbean. The countries in the sample are Côte d’Ivoire, Egypt, Ghana, Kenya, Morocco, Nigeria, Uganda, the Philippines, Sri Lanka, Costa Rica, Dominican Republic, Ecuador, Guatemala, Jamaica and Uruguay.

Improved Taxing Energy

The report notes that developing countries could introduced improved taxes on energy, together with reduced energy subsidies, to help them raise more tax revenue and reduce carbon emissions. Generally, these countries could on average raise revenue amounting to around 1% of GDP if the rate of carbon tax imposed on fossil fuels could be set at the equivalent of EUR 30 per tonne of carbon dioxide.

With a combination of energy taxes and reform to energy subsidies countries can achieve decarbonisation and access to affordable energy while raising more domestic revenue. In the wake of the economic crisis resulting from the pandemic developing countries have much lower tax revenues than developed economies and could raise revenue from improved taxes accompanied by targeted support for low-income groups. For example it is noted that the tax-to-GDP ratios in the sample countries averaged 19% in the period studied. This compares to an average tax to GDP ratio of 34% in OECD countries.

Improved carbon taxing could raise revenue from energy

In the sample countries there is no use of an explicit carbon price or carbon emissions trading. Generally fossil fuels used in heating and cooking were taxed at low rates or subsidised, to help low-income groups, but this policy can be costly for the government and can encourage excessive use of fossil fuels. The report points out that in four of the sampled countries the cost to the government of energy subsidies exceeded the income. Improved design of carbon taxes could raise revenue to support targeted subsidies to help affordable access to energy by lower income households.

Carbon emissions are not taxed

The report notes that in the sampled countries around 83% of energy-related carbon emissions are not taxed at all. Countries therefore need to better align their tax policy with energy targets and reduce the negative externalities arising from the use. Of the fifteen sample countries, thirteen already have experience with the imposition of fuel excise taxes, and this would facilitate the administrative aspects of implementing improved carbon taxes.

By introducing carbon pricing and phasing out fossil fuel subsidies developing countries can encourage infrastructure investments that are in line with a low carbon path of economic development. Energy taxes are also difficult to avoid and can therefore help to combat the informal economy.

eudebates Taxation in Energy

EUdebates Team

SHARE your ideas online and JOIN us for a better Europe. eudebates! Your opinion counts! eudebates.tv The unique initiative aiming to promote debate, dialogue, knowledge, participation and communication among citizens.

Recent EU debates

Watch State of the Union live: Ursula von der Leyen gives 2022 address #SOTEU

President Ursula von der Leyen debates priorities ahead of hard winter at the State of the European Union #SOTEU at…

2 years ago

EU steps up solidarity with refugees fleeing Ukraine

More than two million refugees have now been forced to flee their homes in Ukraine to find safety in neighbouring…

3 years ago

REPowerEU to get rid of the dependencies of Russian fossil fuel

The European Commission proposed an outline of a plan to make Europe independent from Russian fossil fuels well before 2030, starting with gas, in…

3 years ago

EU sanctions against Russia following the invasion of Ukraine

In response to Russian President Putin’s unprecedented and unprovoked military attack against Ukraine, the EU is responding by adopting a…

3 years ago

Finland: NATO membership ‘will change’ after Russian invasion

Finish Prime Minister Sanna Marin said Russia’s invasion of Ukraine will change the debate around NATO membership within her country.…

3 years ago

EU responds to Russia’s invasion of Ukraine with massive sanctions

EU leaders held a joint press conference with NATO Secretary-General sending the message that the world can see that unity…

3 years ago

We use cookies to ensure that we give you the best experience on our website.