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Designing Fiscal Policy to Address the External Costs of Energy

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  • Ian Parry

Abstract

This paper first reviews the conceptual case for, and appropriate design of, fiscal policies to address major externalities associated with energy use—global warming, local air pollution, and various side effects (e.g., congestion) from motor vehicles. Techniques for (roughly) estimating the magnitude of these externalities, and corrective energy taxes, on a country-by-country basis are then described. The implications for reforming energy taxes, and the potential environmental, health, and fiscal benefits from reform, are then discussed. A theme of the paper is the critical role of finance ministries in administering tax reforms and ensuring efficient use of revenues.

Suggested Citation

  • Ian Parry, 2014. "Designing Fiscal Policy to Address the External Costs of Energy," CESifo Working Paper Series 5128, CESifo.
    • Handle: RePEc:ces:ceswps:_5128
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    Cited by:

    1. Pereira, Alfredo & Pereira, Rui, 2016. "On the Optimal Use of Revenues from a CO2 Tax and the Importance of Labor Market Conditions," MPRA Paper 77630, University Library of Munich, Germany.
    2. He He & Kim,Chaeyoung, 2023. "Vehicle and Fuel Taxation for Transport Demand Management : Learnings from the Literature through a Development Lens," Policy Research Working Paper Series 10647, The World Bank.
    3. Hany M. Elshamy & Khaled I. Sayed Ahmed, 2017. "Green Fiscal Reforms, Environment and Sustainable Development," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 1(1), pages 48-52.
    4. Tovar Reanos, Miguel, 2020. "Car ownership and the distributional and environmental policies to reduce driving behavior," Papers WP673, Economic and Social Research Institute (ESRI).
    5. András Vincze & Nóra Hegedűsné Baranyai & Henrik Zsiborács & Szilvia Csányi & István Háber & Gábor Pintér, 2020. "Communicating Renewable Energy in the National Action Plans of the Member States of the European Union," Sustainability, MDPI, vol. 12(3), pages 1-24, January.
    6. Coady, David & Parry, Ian & Sears, Louis & Shang, Baoping, 2017. "How Large Are Global Fossil Fuel Subsidies?," World Development, Elsevier, vol. 91(C), pages 11-27.
    7. Tovar Reaños, Miguel A., 2020. "Initial incidence of carbon taxes and environmental liability. A vehicle ownership approach," Energy Policy, Elsevier, vol. 143(C).

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    More about this item

    Keywords

    externalities; energy taxes; getting prices right; air pollution; global warming;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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