Nations worldwide need to rethink their energy prices and emissions taxes in light of the long-term cost of climate change, a new book from the International Monetary Fund has warned.
In the book, Getting Energy Prices Right: From Principle to Practice, the IMF says many countries’ energy prices are “set at levels that do not reflect environmental damage” including global warming and air pollution.
Among the book’s findings are that coal use is “pervasively undercharged” both for its emissions and for “the health costs of local air pollution”; and that while air pollution from natural gas use is significantly lower, “significant” tax increases are still necessary in light of its carbon emissions.
Countries should tax against the future global costs of climate damage from carbon emissions, as well as putting taxes that discourage fossil fuel use in place, the IMF said in its section for policymakers.
“Getting energy prices right” means making sure that commercial, industrial and individual fuel users pay prices that reflect “the full costs to society” of their fuel use, the book said, with market prices adjusted through “corrective” taxes.
According to the IMF, of the countries that have energy taxes in place, many “are not well targeted at sources of environmental harm, nor set at levels that reflect environmental damage”. To address this problem, the IMF recommends a tax on fossil fuel sources that is proportionate to their CO2 emissions “multiplied by the global damage from those emissions”, as well as additional charges on fuels used in power generation and heating in proportion to the air pollution they cause locally, but with credits for emissions capture. In both cases the book said the charges could also be levied directly on emissions.