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Why Tax Energy? Towards a More Rational Policy

Abstract:
The same fuels are taxed at widely different rates in different countrieswhile different fuels are taxed at widely different rates within and across countries. This paper considers what tax theory has to say about efficient energy tax design. The main factors for energy taxes are the optimal tariff argument, the need to correct externalities such as global warming, and second-best considerations for taxing transport fuels as road charges, but these are inadequate to explain current energy taxes. EU energy tax harmonisation and Kyoto suggest that the time is ripe to reform energy taxation.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Petroleum – Policy and Regulation; Energy and the Environment – Policy and Regulation

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q40: Energy: General, Q35: Hydrocarbon Resources, Q53: Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling, Q52: Pollution Control Adoption and Costs; Distributional Effects; Employment Effects, Q38: Nonrenewable Resources and Conservation: Government Policy

Keywords: Energy taxes, policy, oil, road charges, optimal tariff, externalities, climate change, exhaustible resources

DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No3-1


Published in Volume 26, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.