Energy industry plus taxes

Taxation of power consumption and energy resources is one of the efficient measures for reduction of greenhouse gas emissions; however, the present level of taxation does not correspond to the real costs of liquidating losses caused by climate changes, authors of the report issued by the Organization for Economic Cooperation and Development (OECD) believe.

Energy industry taxation applied in the majority of world countries does not give sufficient incentives for reduction of energy consumption, enhancement of energy efficiency, and transfer to less harmful types of fuel, authors of the “Taxation in the Energy Industry - 2018”  Report came to this conclusion.  The new report was prepared by OECD request.    

For reference: OECD is an international economic group, joining to which gives member states preferences in international trade.  OECD member countries control more than 80% of the global general national product and about 70% of global trade. Russia has not once declared its interest in joining OECD but for a number of political and economic reasons the country’s candidacy has not yet been considered…  

Within the frame of their study, OECD experts have analyzed taxation in the energy industry of 42 industrially developed countries and states with fast growing economy, including Russia, the major energy exporter.  Analysts examined tax laws and practices within the period from 2012 to 2015.  The study did not include carbon markets; this means that only pure tax charges and levies in the energy industry sphere were taken into account.

OECD experts identified the “minimal reference level” of the damage costs at 30 euro per one ton of carbon dioxide. The research showed that in the majority of countries (Russia is no exception) taxes are by far too low to provide for countering climate change. 

Analysts claim that in the majority of the studied countries the energy industries pay environmental taxes: there are so-called taxes for carbon emissions, fuel excise duties, taxes on pollution emissions. The report points out that significant tax increase in the transport sector has recently taken place in the majority of the countries. With that, a paradoxical situation has occurred: the reform and increase of the fuel tax in some countries has not decreased but increased the emission quota from 46% in 2012 to 50% in 2015.   

The reason for this absurdity stems from the differentiated approach to the types of fuel. For example, some countries reduce tax rates on diesel fuel but increase on petrol, while this is generally known that diesel fuel is one of the dirtiest types of energy.  

Or, for example, the coal industry, responsible for nearly a half of all energy sector’s emissions of carbon dioxide, is taxed in only one of 42 countries, and even there, the rates are the lowest, no more than 5 euro per one ton of CO2.   

Of the “non-transport” sectors of energy industry, practically 81% are subject to environmental tax.  In any case, tax rates in the energy industry stay much lower than the levels needed for covering “climate costs” practically in all countries, OECD experts claim.

“A  ‘bird's eye panorama’ of the efficiency of taxes per one ton of CO2 in all countries shows that there are practically no changes  in emission tax rates  beyond the automobile transport. Taxes are still poorly coordinated with environmental and climate costs of energy use in all world countries,” authors of the report wrote.  

OECD experts came to the conclusions stated in the Position of the representatives of public environmental organizations: investments and preferences for fossil resources and energy have reached their limits and only green technologies, carbon restrictions, and support to renewable energy can prevent stagnation of the economy and mitigate the problem of climate change.                                                 

According to the Director of the Center on Efficient Energy Use Igor Bashmakov,  there is a widespread misapprehension that introduction of carbon prices or of a mechanism of carbon quotas will put a brake on and burden the growth of the economy. “In Russia, the calculated efficient tax on carbon, depending on the sector, is from 1000 to1600 times less than in OECD countries. This means that our economy is dying without any environmental taxes, while economies of, for instance, the Great Britain or Sweden, where such taxes exist, are growing… So far, we are just trying to walk along the old path leading us in the wrong direction: the world is going into the green future, while we are stamping our feet in the present and take the risk to turn into a burial-ground of obsolete technologies.”

According to Olga Senova, leader of the Climate Secretariat of the Russian Social and Ecological Union, instead of a threat to the Russian economy and energy industry, we should see the necessity of and an opportunity for structural changes in the energy industry in the problem of the carbon tax.  And we should in the first place use the carbon tax for the development of alternative power production, which will then help employment and economic and social development in the “fossil” regions.