Rhein on Energy and Climate

Whatever the outcome of the Copenhagen Climate Conference, humanity will need a simple and effective tool for making fossil energy increasingly more expensive and renewable energies relatively cheaper.

An excise tax on coal, oil and gas would constitute such a tool.

The tax should be specific and not ad valorem, levied at the import or the production stage.

It should reflect the C02 contents of these three fossil energies. Thus it would have to be highest on coal and lowest on gas.

It should be introduced at low rates to start with, say no more than € 10 per ton of C02, corresponding to about five cent per litre gasoline, but rise automatically, say every two years, to attain at least € 40 in 2030 and € 60 – 100 in 2050. This progression is extremely important in order to send the right signals to investors and users of fossil energy: prepare for a continuous price rise of fossil energies and invest in energy efficiency and renewable energies.

For all countries involved in international trade fossil fuel taxation would have to be mandatory; and they should apply roughly the same rates, independent of their level of development in order to put all economic operators on the same competitive footing.

The least developed countries with per capita C02 emissions of less than 1.5 ton and minimal international merchandise trade might obtain derogation for the first 20 years.

In parallel, all countries should phase out their direct and indirect subsidies on fossil energy sources, which add up to more than $ 300 billion annually. This issue is being discussed for the first time at the Pittsburgh G20 Meeting. According the IEA their abolition might reduce global C02 emissions by as much as 12 percent.

The charm of a fossil energy tax lies in its simplicity. It treats every country alike; its impact will only be very soft in the beginning allowing business and consumers to get used to it. Its revenues would boost the budget receipts of the countries raising tax, leaving it up to each country to devise modalities for sparing the very poor from being hit excessively, e.g. fuel for cooking and heating.

It will work very quietly on two fronts:

It will discourage further exploration of new oil or gas reserves.

It will encourage investments in alternative energies, (wind, solar, nuclear, biomass, geothermal) and energy efficiency.

The universal carbon tax should not be a substitute to national measures against climate change, but rather constitute a complement.

How can such a tax come into force? The big players in climate issues will have to discuss about it, and if they conclude it is worth while having a closer look, they should invite a “Wise Committee to examine its feasibility, as the French President has done when calling upon former French Prime Minister Michel Rocard to elaborate a proposal for a national carbon tax.

It would be naïve to believe that it will be easy to introduce a universal carbon tax. Any new tax will encounter opposition. This goes even more so for a universal tax, which some 100 governments will have to introduce in parallel, subject to UN monitoring.

But maybe in their frustration, after the unsuccessful outcome of the Copenhagen Climate Conference, world leaders will be more inclined to search for alternative ways to address climate change.

Brussels, 23. 09.09 Eberhard Rhein

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  1. The simplicity of carbon tax!

    What a comment …

    Carbon tax = higher electricity prices, which benefit precisely no-one!


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