YOUR TAXES: Using tax against global warming

Taxes on road fuel are relatively high, yet rarely fully reflect the cost of environmental harm, especially with some road transport sectors offered preferential rates.

money (photo credit: REUTERS)
(photo credit: REUTERS)
The OECD issued recently issued a report dealing with global warming using taxes (Taxing Energy Use, September 20, 2019). According to the OECD, taxing polluting sources of energy is an effective way to curb emissions that harm the planet and human health, and the income generated can be used to ease the low-carbon transition for vulnerable households.
Yet 70% of energy-related CO2 emissions from advanced and emerging economies are entirely untaxed, offering little incentive to move to cleaner energy, according to the OECD.
The OECD says 44 countries (including Israel apparently) account for over 80% of energy emissions, and taxes on polluting sources of energy are not set anywhere near the levels needed to reduce the risks and impacts of climate change and air pollution.
“We know we need to burn less fossil fuel, but when taxes on the most polluting fuels are zero or close to zero, there is little incentive to change,” said OECD secretary-general Angel Gurría. “Energy taxes are not the sole solution, but we can’t curb climate change without them.”
Taxes on road fuel are relatively high, yet rarely fully reflect the cost of environmental harm, especially with some road transport sectors offered preferential rates.
Taxes on coal – which is behind almost half of CO2 emissions from energy – are zero or close to zero in most countries. Taxes are often higher on natural gas, which is cleaner.
For international flights and shipping, fuel taxes are zero, meaning long-haul frequent flyers and cargo shipping firms are not paying their fair share.
What about Israel?
Israel, of course, is in the process of moving over from coal power to gas power from the Tamar, Karish and new Leviathan gas fields. The report does not mention the condensate cancer issue surrounding gas.
Israel is ranked in the top four for excise taxes on electricity out of 44 countries surveyed by the OECD. The OECD says electricity excise taxes often fail to favor cleaner power sources. They make all energy sources more expensive irrespective of the climate damage resulting from their use.
A country should tax combustible energy sources more than noncombustible energy – sources such as hydro, wind and solar – in order to encourage a switch to these generally cleaner sources.
However, Israel is again in the top four for taxing combustibles. In short, Israel taxes energy highly and across the board indiscriminately in the hope we won’t notice the effect on our pocket and our health.
Other countries:
Across the 44 countries studied, 97% of energy-related CO2 emissions outside of road transport are taxed far below levels that would reflect damage to the environment. Only four countries (Denmark, the Netherlands, Norway and Switzerland) tax non-road energy above EUR 30/t CO2, considered a low-end estimate of the costs to the climate of carbon emissions. Several countries have even lowered energy taxes in recent years.
OECD proposed action:
Adjusting taxes, along with state subsidies and investment, is vital to encourage a shift to low-carbon energy, transport, industry and agriculture.
What about US opposition? The OECD obliquely says: “Given the difficulties of making big changes without hurting industries or communities, factoring in potential synergies and trade-offs between emission reduction goals and broader societal objectives such as better health, jobs and affordability of services can increase the incentives for swift action to cut emissions.”
The OECD urges governments to face up to growing anger, particularly among young people, at backsliding in some countries on de-carbonizing economies – as emissions from energy are at an all-time high. Yet government support for fossil fuel production and use in the 44 countries studied was $140 billion in 2017, with subsidies rising in some countries. What’s needed is targeted taxes not subsidies.
The resulting extra tax revenues can be used for social purposes such as lowering income taxes, increasing spending on infrastructure or health, or funding direct benefits to households.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd.