|Taxation could prove to be a
key method for combatting global warming
Global revenue from carbon pricing rose by 50% in 2017
compared to 2016, says a new report from the World Bank. While
companies can expect green taxes to keep rising, this statistic
doesn't quite tell the whole story.
The report, said that 45 national jurisdictions and 25
sub-national jurisdictions have adopted carbon pricing
initiatives, raising $33 billion in 2017 – 50% up from
the $22 billion raised in 2016.
China is set to enact its emissions trading scheme (ETS) in
2018, which will make a big difference to the numbers, and this
could contribute to the total annual value (not revenue) of
carbon pricing initiatives rising 58% from $52 billion to $82
billion in 2018.
"Governments at all levels are starting to see the
effectiveness of carbon pricing in their efforts to cut harmful
carbon pollution while also raising revenues for climate and
other policies, including environmental action," said John
Roome, World Bank senior director for climate change.
"As countries take stock of their Paris
Agreement commitments and set a path towards increased
ambition, carbon pricing mechanisms with robust pricing levels
are proving to be essential elements of the toolkit."
The global environmental tax take will continue to
A key accelerator of growth is the rise of carbon tax rates
in jurisdictions that already have such policies in place, most
notably France. France's carbon tax was first introduced on
April 1 2014 at a rate of €7 ($8.20) per tonne of carbon
dioxide (CO2) equivalent. The tax rose incrementally to
€14.5/tonne in 2015, €22/tonne in 2016 and then
€30.50/tonne in 2017.
Such increases are particularly significant as at lower
levels there is no direct price impact for companies as
France's domestic consumption tax (DCT), of which the carbon
tax is a component, is already higher than the carbon tax and
the two components do not 'stack'.
France's carbon tax will continue to rise, having already
jumped to €44.60/tonne for 2018, to €55/tonne in
2019, €65.40/tonne in 2020, €75.80/tonne in 2021 and
€86.20/tonne in 2022.
"That's going on an upward, quite ambitious path," Kurt van
Dender, head of the tax and environment unit at the OECD, told
International Tax Review. "They [France] increased it
in 2017 and 2018 and will keep doing so. That will have a big
Van Dender said that he is not surprised by the 50% rise in
global carbon tax/ETS revenue, but cautioned that "it's a big
percentage change of a very small number". In the example of
France, the senior tax economist said: "That's a high tax, and
if you start from a low base then it's a big percentage
Another key driver of rising green tax revenues is the
implementation of new initiatives in jurisdictions in the
Americas such as Chile and Colombia, as well as the US states
of California, Massachusetts and Washington and the Canadian
provinces of Ontario and oil-rich Alberta.
"Off the top of my head, all of these taxes are certainly
below €7 per tonne," said van Dender. "Often, these taxes
are set with the ETS price of €7 in mind. So these are
very, very low numbers."
"But given that all of the other carbon taxes and ETSs also
show quite low numbers, it's still quite a big percentage
In December 2017, China announced a plan to phase in its
national emissions trading scheme (ETS). This would be done
sector by sector, in a similar manner to which the country
brought in VAT, and the power sector will be the first to come
under the ETS.
EU emissions trading scheme
Another driver for increased carbon pricing revenues will be
the EU's ETS. The scheme, which Iceland, Liechtenstein and
Norway also take part in, operates on a 'cap and trade'
principle. Companies receive or buy 'emission allowances',
which they can trade among themselves. Having a market-based
system means, theoretically, that emissions will be cut most
where it costs least to do so.
The EU ETS is in its third phase, spanning from 2013 until
2020. In this phase, more industry sectors are included and
auctioning emission allowances, rather than giving them out for
free, is the standard. Both of these changes increase the tax
It's also worth noting that carbon dioxide emissions rose in
the EU in 2017, in tandem with the economy grew.
"As the economy does better, the cap becomes more stringent
– that's quite an important effect, an important
explanation, in terms of the upward pressure on prices in
emissions trading systems and how they actually work," said van
But, despite companies having to pay a higher market rate
for emission allowances, as they are buying from each other in
a market system this does not lead to an increase in revenue
from the ETS, just in its 'value'.
California, which emits the most carbon dioxide of any US
state apart from oil-rich Texas, is among the jurisdictions
which has brought in an ETS recently.
"You'll also have higher prices in the emission trading
scheme in California beginning to show in 2017 and probably
more strongly in 2018," said van Dender. "There's a bit more
|Emission trading schemes are
also part of the World Bank’s report
Excise taxes dwarf carbon taxes and ETSs
Where the 50% increase in green taxes figure becomes
misleading is that there are other taxes – excise
taxes, mainly – which have the same economic effect as
taxes usually considered 'green' or 'environmental' taxes on
"You have carbon taxes and ETSs, which are instrumental for
putting taxes on carbon," said van Dender. "But then, you can
also look at excise taxes on energy, which can also put a price
"Even if they're not introduced with that intention, they
still have the same economic effect. That's what we here at the
OECD call the effective carbon rate," he continued. "The
effective carbon rate, to us, is the sum of: specific excise
taxes on energy use, carbon taxes and ETSs."
The global excise tax take on carbon-related goods is $421
billion, according to the OECD, dwarfing the $33 billion sum of
carbon pricing initiatives.
As the $421 billion figure remained effectively static in
2017, the $11 billion increase in carbon-related tax take can
be expressed as a far more modest 2.6 percentage point
"If you really think of excise taxes – as we
should, from an accounting point of view – as being
part of the overall carbon pricing system, excise taxes
completely dominate the picture compared to carbon taxes and
ETSs," said van Dender.
In addition, in many jurisdictions VAT/GST is charged on
goods after excise rates are applied, compounding the price
Carbon taxation in the future
This is not to say, however, that progress in the carbon
pricing arena is negligible. Van Dender expects changes to
become more significant in numerical as well as percentage
terms in the coming years, for many of the reasons explained
He also adds that China's roll-out of its ETS, starting this
year with the power sector, "will make a huge difference".
If revenues from such initiatives continue to rise, they
could even be a shot in the arm for government revenues in the
context of falling corporate tax rates around the world.