Taxing energy use: Patterns and incoherencies in energy taxation in Europe and the OECD

Abstract

This article compares effective tax rates, in energy and carbon terms, on the full spectrum of energy use in 21 European Union countries and across all OECD countries. The analysis highlights the different tax rates that apply to energy in both groups, with higher and more consistent taxation of energy being observed in the EU-21 countries than in the OECD as a whole. Nonetheless, differences in the taxation of fuels used for similar purposes, or between users of fuels are observed across and within all countries examined. From an environmental policy perspective differences of particular note include the common tax preference provided to diesel relative to gasoline for road use and the low tax rates applied to many fuels employed for heating and process use, and particularly to coal. The analysis suggests that countries are not fully harnessing the full power of taxes on energy use for environmental purposes and that realignment of energy taxes could help to ensure that countries pursue their environmental, social and economic goals as effectively as possible.