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Why Tax Energy? Towards a More Rational Energy Policy

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  • Newbery, D.

Abstract

The same fuels are taxed at widely different rates in different countries while different fuels are taxed at widely different rates within and across countries. Coal, oil and gas are all used to generate electricity, but are subject to very different tax or subsidy regimes. 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.

Suggested Citation

  • Newbery, D., 2005. "Why Tax Energy? Towards a More Rational Energy Policy," Cambridge Working Papers in Economics 0508, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0508
    Note: CMI, IO
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    File URL: http://www.econ.cam.ac.uk/electricity/publications/wp/ep72.pdf
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    References listed on IDEAS

    as
    1. W. J. Corlett & D. C. Hague, 1953. "Complementarity and the Excess Burden of Taxation," Review of Economic Studies, Oxford University Press, vol. 21(1), pages 21-30.
    2. Deaton, Angus & Stern, Nicholas, 1986. "Optimally uniform commodity taxes, taste differences and lump-sum grants," Economics Letters, Elsevier, vol. 20(3), pages 263-266.
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    Cited by:

    1. Peters, Jörg & Thielmann, Sascha, 2008. "Promoting biofuels: Implications for developing countries," Energy Policy, Elsevier, vol. 36(4), pages 1538-1544, April.
    2. repec:eco:journ2:2018-04-29 is not listed on IDEAS
    3. Alberto Gago & Xavier Labandeira & Xiral López Otero, 2014. "A Panorama on Energy Taxes and Green Tax Reforms," Hacienda Pública Española, IEF, vol. 208(1), pages 145-190, March.
    4. Corinne Chaton & Anna Creti & Bertrand Villeneuve, 2005. "The Economics of Seasonal Gas Storage," Working Papers 2005-52, Center for Research in Economics and Statistics.
    5. Parry, Ian, 2015. "Designing Fiscal Policy to Address the External Costs of Energy," International Review of Environmental and Resource Economics, now publishers, vol. 8(1), pages 1-56, May.
    6. Labandeira, Xavier & Labeaga, José M. & Rodríguez, Miguel, 2009. "An integrated economic and distributional analysis of energy policies," Energy Policy, Elsevier, vol. 37(12), pages 5776-5786, December.
    7. José M. Labeaga & Miguel Rodríguez & Xavier Labandeira, 2006. "A Macro and Microeconomic Integrated Approach to Assessing the Effects of Public Policies," Working Papers 2006-02, FEDEA.
    8. Zhang, Yan, 2008. "Tariff and Equilibrium Indeterminacy--(I)," MPRA Paper 8338, University Library of Munich, Germany.
    9. Zhang, Yan, 2008. "Tariff and Equilibrium Indeterminacy," MPRA Paper 11370, University Library of Munich, Germany.
    10. Pavel Semerad, 2015. "How to stop VAT frauds on the fuel market: a usual price rule," MENDELU Working Papers in Business and Economics 2015-54, Mendel University in Brno, Faculty of Business and Economics.
    11. Santos, Georgina, 2017. "Road fuel taxes in Europe: Do they internalize road transport externalities?," Transport Policy, Elsevier, vol. 53(C), pages 120-134.
    12. Vollebergh, Herman R.J., 2008. "Lessons from the polder: Energy tax design in The Netherlands from a climate change perspective," Ecological Economics, Elsevier, vol. 64(3), pages 660-672, January.
    13. Zhang, Yan, 2008. "Tariff and Equilibrium Indeterminacy--(II)," MPRA Paper 10043, University Library of Munich, Germany.
    14. Fridstrøm, Lasse & Østli, Vegard, 2017. "The vehicle purchase tax as a climate policy instrument," Transportation Research Part A: Policy and Practice, Elsevier, vol. 96(C), pages 168-189.
    15. Mallika Chawla & Michael G. Pollitt, 2013. "Energy-efficiency and Environmental Policies & Income Supplements in the UK: Evolution and Distributional Impacts on Domestic Energy Bills," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    16. Batlle, C. & Pérez-Arriaga, I.J. & Zambrano-Barragán, P., 2012. "Regulatory design for RES-E support mechanisms: Learning curves, market structure, and burden-sharing," Energy Policy, Elsevier, vol. 41(C), pages 212-220.
    17. Zhang, Yan & Chen, Yan, 2008. "Tariff and Equilibrium Indeterminacy--A Note," MPRA Paper 10044, University Library of Munich, Germany.
    18. Strand, Jon, 2010. "Taxes and caps as climate policy instruments with domestic and imported fuels," Policy Research Working Paper Series 5171, The World Bank.
    19. Alberto Petrucci, 2010. "Second-Best Optimal Taxation of Oil and Capital in a Small Open Economy," Working Papers 2010.20, Fondazione Eni Enrico Mattei.

    More about this item

    Keywords

    tax; energy; oil; optimal tariff; externalities; exhaustible resources; global warming; road charges;

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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