OECD Series on Carbon Pricing and Energy

Taxation

Pricing Greenhouse Gas

Emissions 2024
GEARING UP TO BRING EMISSIONS DOWN
 OECD Series on Carbon Pricing and Energy Taxation

Pricing Greenhouse Gas

Emissions
2024

GEARING UP TO BRING EMISSIONS DOWN

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 3

Foreword

This report was prepared by the Tax Policy and Statistics division of the OECD’s Centre for Tax Policy and
Administration. It is published as part of the OECD series on Carbon Pricing and Energy Taxation (CPET),
which earlier included the first iteration of this report, Pricing Greenhouse Gas Emissions: Turning Climate
Targets into Climate Action, and Effective Carbon Rates 2023, which focused on emissions trading
systems (ETSs) and included an in-depth analysis of the relevant free allocation and price stability
mechanisms. This report, Pricing Greenhouse Gas Emissions 2024: Gearing Up to Bring Emissions Down,
now covers 79 countries, reflecting broader coverage, and tracks the evolution of carbon and energy
pricing instruments between 2021 and 2023.
The report and underlying database provide a comprehensive stocktake of effective carbon and energy
rates. Specifically, they track and describe trends in carbon taxes, emissions trading systems (ETSs), fuel
excise taxes and their associated emission bases, and the resulting indicator: Effective Carbon Rates
(ECRs). They also track and describe electricity excise taxes and the abovementioned policies and their
associated energy bases in the Effective Energy Rates (EERs) indicator. In addition, the report captures
negative rates through fossil fuel and electricity subsidies that can reduce the price signal of carbon and
energy pricing illustrated, resulting in the additional indicators of the Net Effective Carbon Rate (Net ECRs)
and Net Effective Energy Rates (Net EERs) that altogether form the basis for the Carbon Pricing and
Energy Taxation (CPET) database. The report uses the CPET database to analyse the latest trends and
developments in carbon pricing and energy taxation policy.
The project was led by Jacob Smith under the guidance of Assia Elgouacem and the overall responsibility
of Kurt Van Dender. The report was drafted by Jacob Smith, Insa Handschuch and Lotta Hambrecht with
critical inputs from Konstantinos Theodoropoulos, Mark Mateo and Stéphane Buydens.
The CPET database design and maintenance are coordinated by Konstantinos Theodoropoulos. Database
updates were conducted by Konstantinos Theodoropoulos, Astrid Tricaud, Insa Handschuch, Nathan
Ducrocq, Lotta Hambrecht, Jacob Smith and Tina Aubrun. Information on ETSs from 2022 were from the
Effective Carbon Rates 2023 database, updated by Anasuya Raj and Konstantinos Theodoropoulos.
The integration of selected fossil fuel support measures from the OECD Inventory of Support Measures
for Fossil Fuels into the Taxing Energy Use and Effective Carbon Rates database is the result of a
collaboration with Dylan Bourny and the Data and Modelling Division in the OECD’s Trade and Agriculture
Directorate.
The authors would like the thank the large team of OECD colleagues that assisted with feedback and data
collection at different stages of the production of the report, including but not limited to Anasuya Raj and
Jonas Teusch.
The OECD is grateful to the Kingdom of Belgium Federal Public Service, Foreign Affairs, Foreign Trade
and Development Cooperation for a voluntary contribution that has supported this work.

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4

Table of contents

Foreword 3
Executive summary 6
1 Introduction and methodology 9
1.1. The time for deep emissions reductions is fast approaching 10
1.2. Methodology: A systematic stocktaking of carbon pricing and energy taxation 11
1.3. Methodologies for in-depth analysis 17
References 20
Notes 21

2 Pricing carbon: Developments in Effective Carbon Rates (ECRs) 22

2.1. Trends in carbon pricing and coverage 23
2.2. Considerations in the practical implementation of carbon pricing 35
2.3. Promoting public acceptability and the role of carbon revenues 41
References 48
Notes 55

3 Taxing energy use: Developments in Effective Energy Rates (EERs) 56

3.1. The Effective Energy Rate and its components 57
3.2. Trends in EERs and their coverage 59
3.3. Trends in Net Effective Energy Rates 62
3.4. Impacts of the energy crisis on Net Effective Energy Rates 67
3.5. Transitioning tax bases from combustibles to electricity 75
References 82
Notes 88

Annex A. Country and energy definitions 89

FIGURES
Figure 1.1. Achieving net-zero requires deep reductions before 2030 10
Figure 1.2. The evolution and elements of the Pricing Greenhouse Gas Emissions report 12
Figure 1.3. Net Effective Carbon and Net Effective Energy Rates: how they relate 16
Figure 2.1. Minimal changes in emissions coverage of carbon pricing instruments 23
Figure 2.2. Additional emissions coverage can be unlocked from explicit carbon pricing instruments under
development 25
Figure 2.3. Across countries, changes in the coverage of carbon pricing vary in direction and magnitude 27
Figure 2.4. Broad dispersion in the coverage of emissions across sectors remains 29

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 5

Figure 2.5. A decline in Net ECR, driven by fuel excise taxes and fossil fuel subsidies 30
Figure 2.6. Minimal increase in Net ECR across countries 31
Figure 2.7. Fossil fuel subsidies substantially decrease Net ECRs for some countries 33
Figure 2.8. The energy crisis triggered substantial reductions in the Net ECR of buildings and road transport
between 2021 and 2023 34
Figure 2.9. A number of countries are developing or considering new carbon pricing instruments 36
Figure 2.10. Carbon Rate Gap 38
Figure 2.11. Substantial revenue could be unlocked from carbon pricing reform needed to reach climate
targets 43
Figure 2.12. Raising Effective Carbon Rates is key driver of additional revenue potential from carbon pricing
reforms 45
Figure 3.1. Back to steady growth, global energy demand overshot pre-pandemic levels in 2021 and are set to
remain high in the future 58
Figure 3.2. The Net Effective Energy Rate (Net EER) and its components 59
Figure 3.3. A large share of energy use is not covered by an energy tax or carbon price 60
Figure 3.4. Across countries, fuel excises dominate EERs but explicit carbon prices are on the rise among
OECD members 61
Figure 3.5. On average, fossil fuels face a higher Net EER than other energy sources 62
Figure 3.6. Most countries levy a positive fossil fuel surcharge, but sizes vary substantially 64
Figure 3.7. Electricity taxes and subsidies play a minor role in net revenues from Net Effective Energy Rates 66
Figure 3.8. Governments ramped up fossil fuel and electricity subsidies during the energy crisis 70
Figure 3.9. Overall cost and VAT burden on energy used by households 72
Figure 3.10. Households prefer targeted, rather than non-targeted, support measures for carbon taxes 74
Figure 3.11. The share of electricity in energy consumption surges in a decarbonising world 76
Figure 3.12. The rapid road transport electrification brings substantial tax revenue losses 79

TABLES
Table 1.1. Policy instruments covered and databases used in this report 13
Table 1.2. Definitions of CPET sectors 14
Table 1.3. Counterfactual scenarios 18
Table 2.1. Uses of carbon pricing revenues go beyond environmental/climate objectives 47
Table 3.1. Examples of government relief measures during the energy crisis 67

Table A.1 Energy product definitions 89

Table A.2. CPET database country coverage 90
Table A.3. World Bank Country Classification 92

BOXES
Box 2.1. The Carbon Rate Gap: a proof of concept using ECRs 38
Box 3.1. The interaction of VAT on energy products and specific taxes on energy use 72
Box 3.2. The shift from combustible fossil fuels to electricity in the IEA Scenarios 75

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6

Executive summary

To progress the transition to net-zero emissions, countries must ramp up action to meet climate goals.
Achieving the 2030 Nationally Determined Contributions (NDCs) targets, as well as peak fossil fuel use
and GHG emissions, requires narrowing the implementation gap in current climate policies. In this context,
although progress in carbon pricing and transforming energy taxation slowed down or even regressed
amidst the global energy crisis, a number of jurisdictions are now preparing for progressing carbon pricing
with a view to achieving their climate goals.
Pricing Greenhouse Gas Emissions 2024: Gearing Up to Bring Emissions Down tracks how explicit carbon
pricing instruments as well as specific taxes and subsidies on energy use have evolved between 2021 and
2023 across 79 countries, covering approximately 82% of global greenhouse gas (GHG) emissions. This
report focuses on emissions trading systems (ETSs), carbon taxes, fuel and electricity excise taxes, as
well as subsidies that lower pre-tax prices on emissions or energy products. The tax rates for this edition
reflect rates applicable on 1 April 2023 while emissions trading systems implemented throughout 2023 are
also included. While these instruments represent an important subset of instruments with important
implications for emissions outcomes, governments take diverse approaches to meet their climate targets.
At first glance, momentum in carbon pricing and energy taxation appears to have stalled since 2021.
Although some countries have introduced new carbon pricing instruments, and some have been expanded,
or tightened emissions caps, overall progress on expanding emission coverage has slowed. This is due to
a large share of emissions already covered by major economies, as well as lasting effects from the
response to the shock of the global energy crisis in 2022. The energy crisis caused countries to increase
support measures, including through rate reductions or exemptions of energy taxes, subsidies and
delaying or cancelling planned advancements in carbon and energy pricing. While these reductions in
overall carbon rates dominate results, a closer look shows that these are concentrated in implicit carbon
pricing such as fuel excise taxes, whereas explicit carbon pricing through ETSs and carbon taxes have
made modest increases. Meanwhile, economies are introducing new, and expanding existing, carbon
pricing instruments. Increasingly, they are paying attention to international effects of asymmetries across
borders and are introducing or considering introducing instruments such as Border Carbon Adjustments
and investment subsidies for low-emission technologies as part of plans to meet fast-approaching climate
targets in 2030. Additionally, progress is being made through expansion to include additional industries in
carbon pricing schemes. Finally, governments are considering the public acceptability of mitigation policies
like carbon pricing, including through revenue use and tax base shifting strategies.
The report also finds that:
Overall, the share of emissions covered by an explicit carbon price and fuel excise taxes in 2023 has
remained unchanged compared with the share of emissions covered in 2021. Approximately 42% of GHG
emissions across the 79 countries covered in this report are subject to a positive Net Effective Carbon
Rate (Net ECR), accounting for carbon taxes, emissions trading systems, fuel excise taxes and fossil fuel
subsidies. About 27% of GHG emissions in 2023 are covered by explicit carbon prices – an ETS, a carbon
tax, or both - while the share covered by fuel excise taxes, an implicit form of carbon pricing, is lower at
23%.

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 7

The change in rates has been mixed. Overall, the average Net ECR declined to EUR 14.0/tCO2e in 2023
from EUR 17.9/tCO2e in 2021. Explicit carbon prices increased, primarily reflecting the increase in average
ETS permit price and modest carbon tax increases. Implicit carbon prices in the form of fuel excise taxes
remain the strongest price signal, despite decreasing relative to 2021 levels. This was accompanied by an
increase in fossil fuel subsidies.
To a large extent, the downward shift in Net ECRs reflect countries’ responses to the shock of the energy
crisis of 2022. In an effort to address concerns over energy affordability and security, governments ramped
up fossil fuel subsidies and introduced rate reductions and exemptions to fuel excise taxes. As a result,
the Net ECR of road transport, buildings and agriculture strongly declined between 2021 and 2023. Road
transport remains priced at the highest average Net ECR across sectors, despite a substantial decrease
of 24%.
Currently, an increase in the introduction of new carbon pricing instruments is expected over the next five
years. In particular, ETSs are likely to become more widely used and diverse, with new systems under
development that could lead to an increase in coverage of global emissions of 7 percentage points, i.e. an
increase by about one quarter. Expansions of existing carbon pricing instruments to more complex sectors
such as waste incineration have also moved into focus.
Assessing the taxation of fuel and electricity use through the Effective Energy Rate (EER) shows that more
than half of energy use remains untaxed in 2023. Measured in EUR/GJ, the EER applies to energy use as
a base, accounting for fuel and electricity excise taxes and explicit carbon pricing instruments. On average,
high-income countries taxed energy use at EUR 4.96/GJ in 2023, while low-upper and middle-income
economies levied on average EUR 0.54/GJ. In both groups, the EER’s distribution remains heavily skewed
due to differentiated rates across sectors, fuels and consumer groups within a country and differences of
tax levels between countries.
Fuel excise taxes continue to dominate EER in 2023, contributing on average 74% to a country’s EER.
However, for the first time, four countries increased their level of explicit carbon pricing to the extent that
they levy a higher explicit carbon price than fuel excise taxes per GJ.
Fossil fuel use is subject to a higher Net EER than low-carbon electricity sources. The road transport fuels,
gasoline and diesel, continue to face the highest rate. A notable change since 2021 was the Net EER of
coal becoming higher than natural gas in 2023 due to higher subsidies for the latter. All low-carbon
electricity sources are subject to the lowest Net EERs, with solar, wind and nuclear power effectively being
subsidised.
Hikes in fuel and electricity prices during the energy crisis in 2022 triggered many governments to adopt
large fiscal support packages, including both significant cuts to fuel excise taxes and increases in subsidies
for fossil fuels and electricity. Similar to the Net ECR, this has driven the Net EER downwards since 2021
in many countries. While many countries have phased out temporary measures, some have chosen to
maintain support.
Untargeted price-suppressing policies such as cuts to fuel excise tax or VAT rates and caps on energy
retail prices dominated government responses to the energy crisis. Broad-based measures effectively
subsidised the energy consumption of all households, not providing important incentives to reduce energy
demand.
Global revenue losses from displaced oil consumption due to rapidly electrifying road transport sector
stood at EUR 13.2 billion in 2023 and could in increase to more than EUR 155 billion in 2035. Governments
started adjusting policy frameworks, with recent examples resulting in a shift away from energy taxes
towards other pricing mechanisms such as distance-based road user charges.

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8

At the time of writing this report, 42% of emissions are covered by a positive Net ECR and 27% by an
explicit carbon price, though the pricing level remains at a Net ECR of EUR 14.0/tCO2e. This will require
an increase from between EUR 60/tCO2e and EUR 120/tCO2e by 2030 to meet climate goals, or the use
of other policies that may induce similar emission reductions as these carbon price levels.
While the overall emissions coverage has changed little, underlying changes such as the introduction of
new ETSs in middle-income countries, the expansion of existing instruments to cover new sectors such as
waste incineration, the introduction of instruments to cover carbon content in imports and supporting
policies for investment in low-emission assets are resulting in a web of complementary policies to achieve
countries’ political, economic, social and environmental goals.
In addition, the effects of the energy crisis have negatively impacted the Net ECR via reductions in fuel
excise tax rates and increases in fossil fuel subsidies. While these changes were not the direct result of a
change in carbon pricing policy – explicit carbon rates through carbon taxes and ETSs have seen moderate
increases in rates since the last edition – they weaken incentives to reduce emissions.
It has become clear in recent years that there is no silver bullet for carbon pricing and energy policy as
countries have opted for a complex array of policy instruments to mitigate climate change that suit their
economic, political and social circumstances. As policy action ramps up, the challenge increasingly is to
understand policy interactions internationally. In relation to climate policy effectiveness, governments are
exploring options to reduce carbon leakage concerns e.g. in the form of free allocation of emission permits
and Border Carbon Adjustments.

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 9

1 Introduction and methodology

This chapter outlines the current state of carbon pricing and energy taxation
and describes the methodology underpinning the Pricing Greenhouse Gas
Emissions series. It provides an overview of the Carbon Pricing and Energy
Taxation database including the coverage of instruments, countries and
sectors. The chapter then details the methodology for computing the key
indicators – Net Effective Carbon Rate and Net Effective Energy Rate – that
are used to measure changes in global carbon pricing and energy taxation.
The analysis covers carbon taxes, emissions trading systems, fuel excise
taxes, electricity taxes and subsidies that lower pre-tax energy prices for
79 economies in this edition, representing 82% of global emissions. Last, the
chapter outlines the methodologies for additional analyses presented in the
subsequent chapters.

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10 

1.1. The time for deep emissions reductions is fast approaching

It is widely acknowledged that addressing the risks of climate change demands significant economic and
structural transformations and these can be incentivised by the implementation of carbon pricing and other
climate policies to steer economies towards a net-zero future. The IPCC, in their latest findings and with a
high level of confidence, report that greenhouse gas (GHG) emissions have unequivocally caused global
warming through unsustainable energy use, lifestyles and patterns of consumption and production (IPCC,
2023[1]). In response, the Paris Agreement offers countries the flexibility to chart their paths toward these
ambitious goals and as a result, the global economy could be on track to reach peak emissions before
2030 (IEA, 2023[2]). In order to further reduce emissions while at the same time managing growth in total
energy supply, governments must close the gap between existing policies and those under development
(the ‘implementation gap’), as well as the gap between the current and necessary level of ambition required
to meet global climate goals (the ‘ambition gap’) (Figure 1.1). As outlined in this report, in order to achieve
climate goals, the need for a deep reductions in emissions – a period of rapid and drastic reductions in the
generation of emissions through climate policies - is imminent (IPCC, 2023[1]).

Figure 1.1. Achieving net-zero requires deep reductions before 2030

Emissions and energy consumption pathways for net zero by 2050

A. CO2 Emissions B. Total Energy Supply

40000 800

35000 700

implementation
30000 600
gap

25000 500
ambition
gap
Mt CO2

20000 400
EJ

15000 300

10000 200

5000 100

0 0
2010 2021 2022 2030 2035 2010 2021 2022 2030 2035

Stated Policies Announced Pledges Net Zero

Note: The IEA models three scenarios for the global energy sector. The Stated Policies Scenario (STEPS) gives a sense of the energy system
progression, based on a detailed review of the current policy landscape and provides a conservative benchmark for the future by not taking for
granted that governments will achieve all announced climate ambitions. The Announced Pledges Scenario (APS) illustrates the extent to which
announced ambitions and targets can deliver the emissions reductions needed to achieve net zero emissions by 2050. The Net Zero Emissions
by 2050 Scenario (NZE Scenario) is a normative scenario that shows a pathway for the global energy sector to achieve net zero CO2 emissions
by 2050. (IEA, 2023[3]).
Source: (IEA, 2023[4]).

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  11

While Effective Carbon Rates have been increasing over recent years, in many countries rates remain low
relative to the level needed to achieve upcoming climate targets (OECD, 2022[5]; Stiglitz et al., 2017[6]).
Emissions trading systems (ETS) in particular are gaining traction, but still a large number remain in their
pilot or transitory phases and offer high levels of free allocations that reduce incentives to invest in cleaner
technologies (OECD, 2023[7]). Carbon pricing instruments can drive behavioural changes across industries
and households, aligning economic activities with the urgent need to mitigate climate change impacts. The
shift from preparation to action is critical as the window for preventing the most catastrophic outcomes of
climate change narrows, requiring increasingly decisive action (IPCC, 2023[1]).
This report provides an in-depth analysis of the current global trends in carbon pricing and energy taxation
based on 79 covered countries, shedding light on both the progress that characterise today’s carbon pricing
and energy taxation landscape, as well as examining some pathways forward. By measuring the price and
coverage of various carbon pricing and energy taxation instruments, the report aims to provide a clear
picture of how these tools are being utilised. It highlights the uneven implementation of carbon pricing and
energy taxation and the diversity in system design across different regions and sectors, underscoring the
complex dynamics that may influence the effectiveness and efficiency of these measures in reducing
emissions.
The report begins with an overview of the context that surrounds carbon pricing and energy taxation,
followed by an explanation of the indicators and methodology of the analysis (Chapter 1). It then explores
the trends in carbon pricing and coverage since 2021, an estimation of upcoming emissions coverage, and
delves into the practical consideration for the implementation of carbon pricing and the role of revenues
use in public and political feasibility (Chapter 2). Next, the report outlines trends in energy taxation,
including coverage and price trends, and then explores how energy taxation can be better aligned with
climate policy and other goals. This includes the role of energy affordability and security as well as
transitioning tax bases as the energy mix shifts from combustibles to renewables (Chapter 3).

1.2. Methodology: A systematic stocktaking of carbon pricing and energy

taxation

1.2.1. Overview of the report series, databases and covered policy instruments

The Pricing Greenhouse Gas Emissions report – first published in 2022 – is an evolution from the Taxing
Energy Use report and includes data and findings from the Effective Carbon Rates report which together
make up the OECD Series on Carbon Pricing and Energy Taxation. The respective databases of the two
series have been merged to form the Carbon Pricing and Energy Taxation database (CPET) (Figure 1.2).
Although the Pricing Greenhouse Gas Emissions series draws on the most up-to-date data from the
Effective Carbon Rates series, the data collection exercises and focus of the reports differ. The Effective
Carbon Rates series comments on changes related to the Effective Carbon Rates indicator, mainly
focussing on those resulting from developments in ETSs, including the interaction between free allocations
and Effective Carbon Rates (OECD, 2023[7]). The Pricing Greenhouse Gas Emissions series is broader
and collects data on carbon taxes, fuel excise taxes, energy taxes and complements this with the OECD’s
Effective Carbon Rates database on ETSs, the OECD’s Inventory of Fossil Fuel Support database on fossil
fuel subsidies and other emissions and energy use data from the IEA. Due to a time lag in fossil fuel
subsidy data (2022 data in this case), this edition notes that the ongoing changes in subsidy measures
sometimes may not reflect the most up-to-date policy measures. These main data sources are used to
produce two distinct indicators, the Net Effective Carbon Rate (Net ECR) and Net Effective Energy Rate
(Net EER). They are the basis to produce a comprehensive analysis of the latest development in carbon
pricing and energy taxation policies across the world.

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12 

Figure 1.2. The evolution and elements of the Pricing Greenhouse Gas Emissions report
A timeline of the OECD’s Taxing Energy Use, Effective Carbon Rates, and Pricing Greenhouse Gas Emissions
reports

OECD Series Carbon Pricing and Energy Taxation Pricing GHG Emissions

Products 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Taxing
TEU TEU TEU TEU
Energy Use
PGHG PGHG
Effective
ECR ECR ECR ECR
Carbon Rates

Source: Authors.

1.2.2. Coverage update

The CPET database focuses on pricing instruments that apply to a base that is proportional to an energy
or GHG emissions base (Table 1.1). It therefore excludes taxes and fees that are only partially correlated
with energy use or GHG emissions. Common examples of policy instruments that fall outside the scope of
the database include vehicle purchase taxes, registration or circulation taxes, and taxes that are directly
levied on non-GHG emissions. Some countries also apply production taxes on the extraction or exploitation
of energy resources (e.g., severance taxes on oil extraction). Since these supply-side measures are not
directly linked to domestic energy use or emissions, the database does not cover them.
Similarly, the database does not include value added taxes (VAT) or sales taxes as in principle these rates
apply equally to a wide range of goods and therefore do not change the relative prices of products or
services. In practice there are some exceptions to these whereby preferential rates are applied to products
such that they change the relative price of carbon- or energy-intensive products, compared to less carbon-
or energy-intensive products. Although this does not warrant including VAT explicitly in the database, it is
explored briefly in this report to demonstrate how VAT rates can play a role in carbon pricing in some
specific cases.
In addition, explicit carbon pricing and energy taxation are not the only instruments necessary or available
to achieve net-zero. Many countries are opting for a complex mix of policies that do not directly price
emission or energy bases, such as subsidies for low-emission investment. These policies can also
influence the relative prices of emissions and energy products through other channels and, in turn, the
behaviour of households and firms. Such policies must be acknowledged as part of the climate policies
package, along with carbon pricing and energy taxation, that will lead to the climate goals with different
considerations and means for different countries.

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  13

Table 1.1. Policy instruments covered and databases used in this report

Policy Definition Examples Composite Dataset

Instrument indicator
ETS The price of tradable emission Emissions trading systems are most Component of Included in both
permits in mandatory emissions commonly used for larger emitters from the Effective Carbon GHG emissions
trading and cap-and-trade systems power and industry sectors and are in Rate (ECR) and dataset (expressed
representing the opportunity cost of operation in, e.g., California (United States) Net ECR per tCO2e,
emitting an extra unit of CO2e., and Québec (Canada), China, and the (Chapter 2) as well (Chapter 2) and
regardless of the permit allocation European Union as Effective energy content
method Energy Rate (EER) dataset (expressed
and Net EER per GJ, Chapter 3)
(Chapter 3)

Carbon tax All taxes for which the rate is Most countries administer explicit carbon Component of Included in both
explicitly linked to the carbon taxes in the same way as fuel excise taxes ECR, Net ECR, GHG emissions
content of the fuel or where the tax (e.g. France, Sweden). Countries that follow EER, and Net EER dataset (expressed
is levied directly on GHG this fuel-based approach do not actually tax per tCO2e) and
emissions (irrespective of whether CO2 directly, but rather calculate the energy content
the resulting carbon price is corresponding rate in common commercial dataset (expressed
uniform across fuels and GHGs.) units, for instance by reference to kilograms per GJ)
The term carbon tax is thus equally for solid fuels, liters for liquid fuels, and
used for taxes that apply to GHGs cubic meters for gaseous fuels. Fuel-based
other than CO2 carbon taxes are often levied as a
component of fuel excise taxes. There are a
number of countries that tax GHGs directly.
Countries that pursue such an emissions-
based approach include Chile, Estonia,
Latvia and South Africa.
Fuel excise All excise taxes that are levied on Almost all countries tax gasoline and diesel Component of Included in both
tax fuels and that are not carbon taxes used for road transport. The tax rate is ECR, Net ECR, GHG emissions
typically specified per litre or gallon of fuel. EER, and Net EER dataset (expressed
per tCO2e) and
energy content
dataset (expressed
per GJ)
Fossil fuel Budgetary transfers that decrease There are countries that regulate the price of Component of Net Included in both
subsidy pre-tax prices for domestic fossil fossil fuels below supply costs and then ECR and Net EER GHG emissions
fuel use. compensate fuel suppliers for the resulting dataset (expressed
losses (e.g. LPG in Morocco). per tCO2e) and
energy content
dataset (expressed
per GJ)
Electricity All excise taxes that are levied on Mandatory for residential and commercial Component of Only included in
excise tax electricity. electricity use in the European Union. Often EER and Net EER energy content
specified per kWh of electricity end use. dataset (expressed
per GJ)
Electricity Budgetary transfers that decrease In some countries, such as Nigeria, the Component of Net Only included in
subsidy pre-tax prices for domestic government provides budgetary transfers to EER energy content
electricity use. electricity suppliers to finance the shortfall dataset (expressed
resulting from electricity tariffs that are set per GJ)
below supply costs.

Note: Data on the tax policy instruments are collected via publicly available official sources; government officials are provided with the opportunity
to review and refine the data. Excises are taxes levied as a product specific tax on a predefined limited range of goods (OECD, 2023[8]). For
details on emissions trading systems, see the OECD’s (2023[7]) Effective Carbon Rates 2023. For details on fossil fuel and electricity subsidies,
see (OECD, 2023[9]; Garsous et al., 2023[10]).
Source: (OECD, 2022[5]).

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This edition of the CPET database covers 79 countries, an increase in geographic coverage from 71 in
2022, and from 44 in 2019. The database coverage has been expanded to additional countries including
Croatia, Bulgaria, Romania, Kazakhstan, Malta, Mauritius, Singapore and Zambia. This edition includes
all OECD and G20 countries except Saudi Arabia, and for the first time, also covers all European Union
(EU) member states. As a result, the database covers approximately 82% of global GHG emissions
(excluding emissions from land use change and forestry). Where time trends with regard to previous
editions are presented (concerning data for 2018 and 2021), the coverage and country composition of the
database differs year-by-year, which sometimes does not allow for direct comparisons.
As in previous editions, the database covers six economic sectors that account for CO2 emissions from
energy use in road transport, off-road transport, industry, agriculture and fisheries, buildings, electricity
(Table 1.2). GHG emissions and energy use are assigned to the sector in which the primary energy is
consumed. A seventh sector captures other GHG emissions, which are separated due to data limitations
and to facilitate comparisons with previous vintages. Table A.1 in the Annex contains further details on
how energy products are aggregated in the database. In line with previous editions, this report presents
results that exclude emissions from the combustion of biofuels, consistent with the practice that the other
GHG emissions (emissions from CH4, N2O, F-gases and process CO2 emissions) that were added to the
emissions base exclude LUCF.

Table 1.2. Definitions of CPET sectors

Sector Base definition in GHG emissions dataset (Chapter 2) Base definition in energy content dataset (Chapter 3)
Road Fossil fuel CO2 emissions from all primary energy used in road Energy content (in joules) of all primary energy used in road
transport transport.
Off-road Fossil fuel CO2 emissions from all primary energy used in off-road Energy content (in joules) of all primary energy used in off-
transport (incl. pipelines, rail transport, aviation and maritime road transport (incl. pipelines, rail transport, aviation and
transport). Fuels used in international aviation and maritime maritime transport). Fuels used in international aviation and
transport are not included. maritime transport are not included
Industry Fossil fuel CO2 emissions from primary energy used in industrial Energy content (in joules) of all primary energy used in off-
facilities (incl. district heating and auto-producer electricity plants). road transport (incl. pipelines, rail transport, aviation and
maritime transport). Fuels used in international aviation and
maritime transport are not included.
Agriculture Fossil fuel CO2 emissions from primary energy used in agriculture, Energy content (in joules) of all primary energy used in
& Fisheries fisheries and forestry for activities other than electricity generation industrial facilities (incl. district heating and auto-producer
and transport electricity plants).
Buildings Fossil fuel CO2 emissions from primary energy used by Energy content (in joules) of all primary energy used by
households, commercial and public services for activities other than households, commercial and public services for activities
electricity generation and transport. other than electricity generation and transport
Electricity Fossil fuel CO2 emissions from primary energy used to generate Energy content (in joules) of all primary energy used to
electricity (excl. auto-producer electricity plants which are assigned generate electricity (excl. auto-producer electricity plants
to industry), including for electricity exports. Electricity imports are which are assigned to industry), including for electricity
excluded. exports. Electricity imports are only used for the calculation
of net energy tax revenues (as imported electricity is
typically also subject to electricity excise taxes where they
exist).
Other GHG All other GHG emissions include methane, nitrous oxide from Not applicable.
(excl. LUCF) agriculture, fugitive emissions from oil, gas and coal mining
activities, waste and industrial processes, as well as non-fuel
combustion CO2 emissions from industrial processes (mainly
cement production) and F-gas emissions. Excludes LUCF
emissions. Excludes CO2 emissions from fuel combustion which
are reported in the agriculture & fisheries sector.

Note: Estimates of primary energy use are based on the territoriality principle, and include energy sold in the territory of a country but potentially
used elsewhere (e.g. because of fuel tourism in road transport).
Source: Own classification based on information on energy flows contained in the IEA’s (2023[11]) extended world energy balances and “other
GHG” reported in Climate Watch’s (2024[12]) GHG emissions dataset.

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Indicators of Pricing Greenhouse Gas Emissions and their components

Pricing Greenhouse Gas Emissions features two main indicators – the Net Effective Carbon Rate (Net ECR),
representing the effective tax rate on GHG emissions (measured in EUR/tCO2e), and the Net Effective
Energy Rate (Net EER), representing the effective tax rate on energy use (measured in EUR/GJ), both net
of subsidies. Although these indicators are related through the overlap in policy instruments included, the
rates collected under these indicators apply to different bases – emissions versus energy. These different
bases do not cover the same economic activities and therefore cannot be directly compared or converted
into each other, even though energy use and emissions are correlated. As a result, the Net ECR and Net
EER indicators cannot be compared to each other (Figure 1.3). For this reason, this report discusses the
indicators separately, with Chapter 2 focussing on the Net ECRs and related developments in carbon pricing
policies, while Chapter 3 focussing on Net EERs and related trends in energy taxation.
Both indicators are a representation of effective rates, meaning tax exemptions, rate reductions and refunds
and other preferential tax treatment are accounted for in the final estimate. These measures are common in
carbon pricing and energy taxation systems, as certain emitters or energy users often receive preferential
treatment that reduces the effective tax paid on emissions or energy use.
The net effective rates take into account negative carbon pricing or energy policy instruments resulting from
consumption subsidies that lower pre-tax energy prices below reference prices. Changes in subsidies result
from not only from policy changes, such as changes in the regulated pre-tax price, but also from changes in
the reference price and therefore fluctuate with market conditions (e.g. an increase in the reference price, all
else equal, would result in an increase in the subsidy amount and thus a higher negative price). This is unlike
instruments such as carbon taxes and fuel excise taxes, which are not normally driven by broader market
forces, but more by policy intervention. Together with preferential treatment, subsidies lower the price paid
on emissions and energy.

The Effective Carbon Rate (ECR) and the Net Effective Carbon Rate (Net ECR)
The ECR is the sum of carbon taxes, ETS permit prices and fuel excise taxes, representing the aggregate
Effective Carbon Rate paid on emissions. To combine the marginal price signals of the various instruments,
fuel excise tax and fuel-based carbon tax rates (which are typically expressed in physical units such as litres
or kilogrammes) are converted into tax rates per tonne of CO2-equivalent based on the carbon content of the
fuels that they apply to. Other emission-based carbon taxes, as well as ETS permit prices do not need to be
converted, as they are typically expressed in tonne of CO2-equivalent.
The ECR indicator in this report is primarily the Effective Marginal Carbon Rate (EMCR, referred to as ECR
in this report unless otherwise noted), which is distinct from the Effective Average Carbon Rate (EACR). The
difference between these two measures is that the EACR accounts for free allocation of permits in ETSs by
including emissions that are covered with free allocations as part of the total emissions base. This reduces
the average permit price across the emissions base, compared to EMCR. This is further outlined in detail in
the Effective Carbon Rates 2023 report (OECD, 2023[7]).
The Net ECR is a different indicator that attempts to account for negative carbon prices in the form of fossil
fuel subsidies that decrease pre-tax prices of domestic fossil fuel use and may counteract the price signals
from fuel excise taxes, carbon taxes and ETS permit prices. These subsidies are collected through the CPET
database, drawing on direct budgetary transfer data of the OECD Inventory of Fossil Fuel Support Measures
database for OECD and G20 countries, and other desk research. They are mapped onto the CO2 emissions
from domestic energy use that are directly affected by the measures and are then converted into a negative
tax rate per tonne of CO2. This process excludes tax expenditures on taxes that are already recorded as the
effective rates through tax reductions, exemptions and refunds in the CPET database, but adds budgetary
transfers to fuel suppliers, electricity suppliers and end users (Garsous et al., 2023[10]).

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This creates a distinct indicator from the ECR, where the Net ECR includes policy instruments applying to
a base not strictly proportional to emissions, and estimates the negative prices resulting from subsidies
and how these evolve over time across countries, fuels and sectors.

The Effective Energy Rate (EER) and Net Effective Energy Rate (Net EER)

The EER is composed of carbon taxes, ETS permit prices, fuel excise taxes and electricity excise taxes
that are applied to an energy base that results in an effective rate. The rates are converted into tax rates
per gigajoule of energy, based on the energy content of the energy product of which they apply. Like the
previous ECR indicator, the rates used in this report, unless otherwise stated, are marginal effective rates
and therefore do not account for free allocation.
The Net EER is a distinct indicator that attempts to estimate and account for fossil fuel subsidies and
electricity subsidies as negative energy rates. In general, electricity excise taxes and subsidies tend to not
treat fossil fuels in a differential manner compared to lower-emitting energy sources and are typically also
applied to energy sources that do not emit CO2 emissions such as hydro, solar, as well as nuclear (OECD,
2019[13]; OECD, 2022[5]). Altogether, the Net EER captures the interaction of both positive and negative
price signals on energy use, including electricity, but does not include the comprehensive range of levies
that apply to electricity.

Figure 1.3. Net Effective Carbon and Net Effective Energy Rates: how they relate
The components and the different bases used

Net Effective Net Effective

Definition component
Carbon Rate Energy Rate

Electricity Excise Tax All excise taxes that are levied on electricity.

All taxes for which the rate is explicitly linked to the fuel’s
Carbon Tax Carbon Tax carbon content, irrespective of whether the resulting carbon
price is uniform across fuels and uses.

Average ETS allowance price, resulting from auctioning or

ETS Permit Price ETS Permit Price
the spot market including free allocation.

All excise taxes that are levied on fuels and that are not
Fuel Excise Tax Fuel Excise
carbon taxes.

Subsidies that reduce the pre-tax price of the electricity

Electricity Subsidy
consumed domestically.

Subsidies that lower pre-tax energy prices of fuels and

Fossil Fuel Subsidy Fossil Fuel Subsidy
uses domestically.

Emissions Energy
Tax Base
(EUR / tCO2e) (EUR / GJ)

Source: Authors.

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1.2.3. Mapping tax rates to their respective GHG emission and energy bases

The first step of the methodology is collecting data on carbon pricing and energy taxation rates, as detailed
above. The second step is to map tax rates and subsidies to their respective emissions and energy bases,
in order to compute both the ECR and EER, and then the Net ECR and Net EER. This is done through
assigning tax rates to the latest available information on energy use, by energy product, adapted from the
IEA’s World Energy Statistics and Balances (2023[11]). This is also used to calculate CO 2 emissions from
energy use, together with non-CO2 GHG emissions from energy use sourced from Climate Watch
(2024[12]). To produce the final indicators, for the Net ECR, all positive components including rates from
carbon taxes, ETS and fuel excise taxes, are summed with the negative pricing components resulting from
fossil fuel subsidies. For the Net EER, the positive components also include electricity taxes and the
negative components also include electricity subsidies. After mapping of net tax rates to the
emissions/energy bases, the weighted rates can be aggregated to create net effective rates by country,
instrument, and sectors. All rates are therefore in EUR/tCO2e for the Net ECR or EUR/GJ for the Net EER
based on the carbon content and energy content of the product, respectively. Official OECD exchange
rates and inflation data are used to express all prices in real 2023 euros.
The mapping accounts for overlaps between policy instruments, which is common across countries and
instruments. In some cases, policies are implemented to take effect together (e.g. a carbon tax applied to
emissions that are also covered by an ETS, as in the case of the United Kingdom), whereas in other cases,
policies are implemented to cover specific sectors or uses (e.g. a carbon tax applied only to emissions that
are not already covered by an ETS, as in the case of France). Ignoring such interactions, which vary across
countries and levels of governance (supranational, national, subnational), would be an inaccurate
representation of the coverage and prices of countries’ carbon pricing and energy taxation policies.
In most countries, carbon pricing and energy taxation is applied at the national level. However, there are
some exceptions, such as the United States, Canada, Mexico and China, where subnational instruments
play a significant role and are included. To assign subnational rates to their corresponding emissions or
energy use bases, it is necessary to split countries’ emissions and energy bases by subnational
jurisdictions, as the IEA’s World Energy Statistics and Balances report energy use data at the country
level.1 Where possible, CPET relies on energy use data from official sources, however simplifying
assumptions are required to account for some of these instruments.

1.3. Methodologies for in-depth analysis

In addition to the main indicators, this edition of Pricing Greenhouse Gas Emissions presents several
counterfactual exercises, bringing together data from the CPET database with other policy developments
in carbon pricing and energy taxation (Table 1.3). These exercises include an estimate of changes to the
coverage of Effective Carbon Rates resulting from policies that are currently under development; revenue
potential from comprehensive carbon pricing reform (including phasing out free allocation, fossil fuel
subsidies, and setting a minimum Effective Carbon Rate); and effects on revenue through a shift in the tax
base from combustibles to electricity in the road transport sector. These counterfactual scenarios provide
an in-depth exploration of a selection of possible developments across carbon pricing and energy taxation
and demonstrate the potential for further analysis that can be conducted using this database.

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Table 1.3. Counterfactual scenarios

Outline of additional quantitative analyses undertaken

Counterfactual Indicator Goal Chapter

Implementation of Effective Marginal Estimate an upper bound of the changes in coverage of emissions that may occur 2
carbon pricing Carbon Rates – from the implementation of explicit carbon pricing policies that are currently under
instruments currently Coverage development (and may be implemented in coming years) across countries,
under development illustrating the in-progress efforts across countries.

Carbon pricing policy Net Effective Demonstrate the additional revenue that could be raised from a comprehensive 2
reform Average Carbon reform of carbon pricing policy, that includes the phasing out free allocations,
Rates – Revenue phasing out fossil fuel subsidies and setting a minimum Effective Carbon Rate of
potential EUR 60-120/tCO2e.
Tax base shifting Effective Average Inform about changes in tax bases and estimated revenue impacts through a shift 3
Energy Rates - of energy consumption from combustibles to electricity, with a focus on the road
Revenue transport sector.

1.3.1. Emissions coverage from carbon pricing instrument under development

With countries progressing carbon pricing at different rates, there are a large number of instruments, mostly
ETSs, that have not been implemented but are still under development and likely to take effect in the
coming years. To illustrate the ongoing efforts in carbon pricing policies, this edition of Pricing Greenhouse
Gas Emissions estimates the change in the share of emissions subject to a positive price that could result
from these instruments being implemented.
A stocktake of instruments that are under development are drawn from the World Bank’s State and Trends
of Carbon Pricing Dashboard, whereby instruments are categorised as such if the country’s government
is actively working towards the implementation of the instrument, a mandate may have been established,
but regulated entities do not yet face compliance obligations, and this has been formally confirmed by
government sources (The World Bank, 2024[14]). Instruments at the regional, national and subnational level
for countries covered by the CPET database, are considered. Available details on the planned coverage
of these instruments, primarily in terms of fuels and sectors, are matched to the IEA’s (2023[11]) World
Energy Balances and Statistics and Climate Watch (2024[12]) data as is done in the general methodology
of Pricing Greenhouse Gas Emissions. While some countries have more granular information on the
planned emissions threshold determining which entities are covered by the instrument, these are not
accounted for in this exercise due to data constraints. Where there is a lack of information on planned
implementation, additional assumptions are made to be able to model the instrument. Overlaps between
the emissions coverage of new instruments and existing explicit carbon pricing instruments are accounted
for. All policies are assumed to be implemented under the current environment, although the timeline of
implementation is not finalised for most of the instruments covered.
Given the variability in available information and assumptions made, the estimates should be interpreted
as an upper bound of the expected change in emissions coverage as some instruments under development
may not be implemented or the actual implementation may result in smaller changes than estimated in this
exercise due to the assumptions made. However, it is possible that additional new schemes are also
implemented. Nevertheless, the analysis can provide an indicative quantitative estimate of the ongoing
developments in carbon pricing around the world, which are otherwise not captured by the standard
indicators of this report.

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1.3.2. Revenue from carbon pricing policy reform

Current revenue from current carbon pricing policies

The Net ECR and Net EER indicators can be used to estimate government revenue from carbon pricing
and energy taxation policies, including for different benchmark prices. To calculate total revenue from
current carbon prices and energy taxes, each positive pricing component of the respective indicator is
multiplied by the coverage base that it applies to, and then summed with the other components to capture
all prices paid on the base.
To calculate net revenue, the sum is adjusted to account for free allocation of permits in ETS and fossil
fuel subsidies (and electricity subsidies for the Net EER). Free allocation refers to the allocation of emission
permits to certain entities or sectors without charge and are generally used to address competitiveness
concerns for entities that are deemed vulnerable to the increased production costs resulting from carbon
pricing policies. As this reduces the size of the emissions base subject to a price, it lowers the average
price of permits in an ETS. It is also relevant to include in these estimates as free allocations represent
revenue foregone compared with the auctioning of permits. Thus, to calculate net revenue, revenues from
ETS are multiplied by only the share of permits that are auctioned, rather than total permits allocated. Due
to accounting for free allocation, the net effective rates presented in revenue estimates represent an
average, rather than marginal rate, as is used elsewhere in the report. In addition, the fossil fuel (and
electricity) subsidies are subtracted from the respective effective carbon (and energy) rates and the
resulting net effective rate is multiplied by its coverage base. All components are then summed to compute
total net revenues.

Revenue potential from carbon pricing reform

The report then estimates revenue potential – the additional revenue that could be earned from raising the
tax rates (or reducing subsidies) of countries’ carbon pricing and energy taxation policies under different
scenarios. This is broken down into several measures including: the phasing out of free allocation, phasing
out of fossil fuel (and electricity) subsidies and setting a minimum Effective Carbon Rate. Benchmark
values for a carbon rate follow the recommendations of the High Level Commission on Carbon Prices,
which concluded that carbon prices must reach a level of at least EUR 60/tCO 2 to EUR 120/tCO2 by 2030
(converted to real 2023 EUR and rounded) for countries to remain on track with keeping global warming
to below 2 degrees Celsius (Stiglitz et al., 2017[6]). These values provide an indicative range of revenue
potential if countries pursue their targets under the Paris Agreement using carbon pricing policies, noting
that other policy mixes of price-based and non-priced based measures can also be used to achieve
emissions reductions targets
To calculate the additional revenue potential from phasing out free allocation, the ETS permit price is
multiplied by the respective emissions base as before, and then multiplied by the share of free allocations.
The phasing out of free allocations is assumed to not lead to a short-term behavioural change. Calculating
the revenue potential from phasing out subsidies and setting a minimum carbon price requires more steps
to account for the emissions elasticity to carbon prices (i.e. emissions responsiveness leading to
behavioural change). The OECD ECR dataset is used to estimate long-run elasticities (separate for OECD
and non-OECD countries) capturing the responsiveness of emissions to carbon pricing. 2 The elasticities
are then used to compute a reduction factor for the coverage base of the indicator, before being multiplied
by the respective ECR (adjusted for phasing out fossil fuel subsidies or minimum rate). In this exercise,
the reforms are implemented sequentially, beginning with the phase out of fossil fuel (and electricity)
subsidies, followed by the phase out of free allocations and then raising the Effective Carbon Rate.
Revenues presented in this report are based on bottom-up estimations using carbon rates and emissions
coverage and hence may differ from actual revenue figures collected by public authorities. In addition, the
scenario analysis is an indication of the level of revenue potential from carbon pricing reform and does not
represent a dynamic revenue forecast, which requires more complex considerations of changes over time
in economic conditions, supporting policies, technological developments and behavioural responses,
among others.

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1.3.3. Revenue impacts from shifting energy tax bases in road transport

Section 3.5 in Chapter 3 includes an in-depth assessment of revenue impacts from the road transport
sector’s electrification. Assuming that every electric vehicle sold displaces the purchase of a comparable
vehicle with an internal combustion engine (ICE), charging this electric vehicle with electricity also
displaces the diesel or gasoline consumption of the replaced ICE vehicle. Such a counterfactual analysis
requires taking into account differences and improvements in fuel economy across all vehicle types. Data
on projected electricity consumption in the road transport sector and resulting displaced oil consumption
is taken from the IEA’s Global EV Outlook 2024 (IEA, 2024[15]). The IEA dataset covers for the years 2025,
2030 2035, the four vehicle segments, cars, vans, buses and trucks, while excluding two- and three-
wheelers due to modelling uncertainties. Data is grouped in five geographical regions: Europe, China,
India, the United States (US) and the rest of the world. Impacts on the revenue generation potential of
specific taxes on energy use are estimated by applying Effective Marginal Energy Rates, aggregated by
fuel and country, to the projected electricity demand and displaced oil consumption. The revenue impacts
are then converted to shares of GDP using 2023 data from the IMF (International Monetary Fund, 2023[16])
and does not attempt to forecast or account for future growth in GDP. The analysis does not provide
information on the impact on emissions due to data limitations on the carbon intensity of electricity
generation and upstream losses of electricity and petroleum products (i.e. through transmission and
distribution grids as well as pipelines).

References

Climate Watch (2024), GHG Emissions, World Resources Institute, [12]

http://www.climatewatchdata.org (accessed on 24 June 2024).

D’Arcangelo, F. et al. (2022), “Estimating the CO2 emission and revenue effects of carbon [17]
pricing: New evidence from a large cross-country dataset”, OECD Economics Department
Working Papers, No. 1732, OECD Publishing, Paris, https://doi.org/10.1787/39aa16d4-en.

Garsous, G. et al. (2023), “Net effective carbon rates”, OECD Taxation Working Papers, No. 61, [10]
OECD Publishing, Paris, https://doi.org/10.1787/279e049e-en.

IEA (2024), Global EV Outlook 2024 Data (database), International Energy Agency, Paris, [15]
https://www.iea.org/reports/global-ev-outlook-2024 (accessed on 24 June 2024).

IEA (2023), Global Energy and Climate Model, IEA, https://www.iea.org/reports/global-energy- [3]
and-climate-model.

IEA (2023), Terms and Conditions, http://www.iea.org/terms (accessed on 6 June 2024). [4]

IEA (2023), “World energy balances (Edition 2023)”, IEA World Energy Statistics and Balances [11]
(database), https://doi.org/10.1787/4a0c7aae-en (accessed on 8 July 2024).

IEA (2023), World Energy Outlook 2023, https://www.iea.org/reports/world-energy-outlook-2023 [2]

(accessed on 6 June 2024).

International Monetary Fund (2023), World Economic Outlook 2023: Navigating Global [16]
Divergences.

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  21

IPCC (2023), Climate Change 2023: Synthesis Report, Intergovernmental Panel on Climate [1]
Change, https://doi.org/10.59327/IPCC/AR6-9789291691647.

OECD (2023), Effective Carbon Rates 2023: Pricing Greenhouse Gas Emissions through Taxes [7]
and Emissions Trading, OECD Series on Carbon Pricing and Energy Taxation, OECD
Publishing, Paris, https://doi.org/10.1787/b84d5b36-en.

OECD (2023), OECD Inventory of Support Measures for Fossil Fuels 2023, OECD Publishing, [9]
Paris, https://doi.org/10.1787/87dc4a55-en.

OECD (2023), Revenue Statistics 2023: Tax Revenue Buoyancy in OECD Countries, OECD [8]
Publishing, Paris, https://doi.org/10.1787/9d0453d5-en.

OECD (2022), Pricing Greenhouse Gas Emissions: Turning Climate Targets into Climate Action, [5]
OECD Series on Carbon Pricing and Energy Taxation, OECD Publishing, Paris,
https://doi.org/10.1787/e9778969-en.

OECD (2019), Taxing Energy Use 2019: Using Taxes for Climate Action, OECD Publishing, [13]
Paris, https://doi.org/10.1787/058ca239-en.

Stiglitz, J. et al. (2017), Report of the High-Level Commission on Carbon Prices, International [6]
Bank for Reconstruction and Development and International Development Association/The
World Bank, https://doi.org/10.7916/D8-W2NC-4103.

The World Bank (2024), State and Trends of Carbon Pricing Dashboard, The World Bank, [14]
https://carbonpricingdashboard.worldbank.org/compliance/instrument-detail (accessed on
10 June 2024).

Notes

1
China’s subnational ETS is able to be modelled without the disaggregation of the national energy use
data, under the assumption that the local energy mix is representative of the national energy mix.

2
See reference for detailed information on methodology (D’Arcangelo et al., 2022[17]).

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2 Pricing carbon: Developments in

Effective Carbon Rates (ECRs)

This chapter offers a comprehensive overview of the evolving trends in

carbon pricing including emissions trading systems (ETS), carbon taxes, fuel
excise taxes and fossil fuel subsidies. The chapter highlights little change in
emissions coverage and decreases in price levels captured by Net ECRs.
Responses to the recent energy crisis have overshadowed increases in
explicit carbon prices, while many jurisdictions are exploring the
implementation of new or expansion of existing ETSs. In addition, this
chapter addresses some of the practical considerations that countries are
facing in implementing carbon pricing policies, including the choice of
instruments, addressing cross-border emissions and pricing hard-to-abate
industries, as well as the potential role for carbon revenues and public
acceptability.

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2.1. Trends in carbon pricing and coverage

2.1.1. Trends in coverage

Limited progress in the coverage of emissions subject to a positive ECR

Approximately 42% of GHG emissions across the 79 countries covered in this report are subject to a
positive Net ECR – positive price coverage has not changed significantly from 2021 to 2023 (Figure 2.1).
About 27% of GHG emissions in 2023 are covered by explicit carbon prices – an ETS, a carbon tax, or
both - while the share covered by fuel excise taxes, an implicit form of carbon pricing, is 23%. Coverage
by explicit pricing instruments therefore exceeds that of implicit pricing instruments, with a similar difference
compared to previous years. Among explicit instruments, coverage through ETSs is much larger than
through carbon taxes, reflecting the higher number of countries with this instrument in place. There are 40
countries with an ETS in place, compared to 27 countries with a carbon tax, and the preference for ETSs
as an explicit carbon price continues to grow (discussed further in Section 2.2).

Figure 2.1. Minimal changes in emissions coverage of carbon pricing instruments

Share of GHG emissions subject to a positive price, in %, by instrument, all 79 countries, 2018-2023

Note: ETS coverage estimates are based on the OECD’s (2023[1]) Effective Carbon Rates 2023, with adjustments to account for recent
coverage changes. Fossil fuel subsidy estimates are based on the OECD’s Inventory of Fossil Fuel Support, where available, and original
research for the other countries (Garsous et al., 2023[2]). Due to data limitations, fossil fuel subsidy estimates for 2023 are based on data for
2022. GHG emissions are the sum of fossil-fuel related CO2 emissions, calculated based on energy use data for 2021 from the IEA (2023[3])
and other GHGs from Climate Watch (2024[4]). All 79 countries are covered for 2023, with varying country composition according to the coverage
of previous editions in other years. Percentages are rounded to the first decimal place.

StatLink 2 https://stat.link/cu1bfh

The emissions coverage of ETSs has increased by 0.7 percentage points and the coverage of carbon
taxes has increased by 0.3 percentage points, accompanied by an almost identical coverage of emissions
from fuel excise taxes from 2021 to 2023. These developments are mostly driven by only very modest
expansions or no change of coverage of explicit carbon instruments across the majority of countries with
the exception of Australia, Indonesia, Austria and Slovenia 1 which introduced new schemes. The largest
change overall from 2021 to 2023 is in the expansion of fossil fuel subsidies, which increased by
1 percentage point from 24% in 2021 to reach 25% in 2023, strongly counteracting the coverage by positive
price signals from carbon taxes, ETSs and fuel excise taxes.

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At first glance, the expansion of carbon pricing seems to have plateaued. However, there has been modest
progress in expanding the coverage of emissions within some sectors such as industry, while other sectors
are beginning to be included such as waste incineration (Section 2.2). The focus among many jurisdictions
has been on preparing for broader coverage and higher carbon prices and the consequences from these
increases. This preparation involves addressing challenges in the administration and compliance of existing
systems, addressing cross-border emissions (Section 2.2), as well achieving public acceptability (Section 2.3).
Stalled coverage hides underlying developments in carbon pricing

Among the largest changes in the coverage of positive pricing instruments is Australia’s reform of its
Safeguard Mechanism in July 2023, transforming it into a rate-based ETS through the introduction of
tradeable permits (Parliament of Australia, 2023[5]). Indonesia also launched an ETS in February 2023,
initially covering large coal-fired power plants, with plans to implement a hybrid ‘cap-tax-and-trade’ system
with a carbon tax in 2025 (Indonesian Ministry of Energy and Mineral Resources, 2023 [6]). Earlier in
October 2022, delayed by three months due to energy crisis concerns, Austria launched a national ETS to
cover sectors that are not included in the EU ETS (Austrian Ministry of Finance, 2022[7]). In addition, in
July 2023, Hungary launched a carbon tax covering EU ETS participants that receive a proportionally large
amount of free allowances, set at EUR 40/tCO2 with retroactive effect to January 2023 (Government of
Hungary, 2023[8]). Due to data constraints and its retroactive nature, this carbon tax is not modelled in the
price and coverage estimates of the database. While the implementation of these countries’ instruments
may not result in significant increases in the average global coverage of emissions, these changes indicate
progress is still being made in the implementation of new carbon pricing instruments.
Carbon pricing instruments under development

There is a growing number of countries with carbon pricing instruments that are under development, with
a noticeable preference for ETSs. Instruments are considered to be “under development” if the government
is actively working towards the implementation of an instrument, a mandate may have been established,
but regulated entities do not yet face compliance obligations, and this has been formally confirmed by
official government sources (The World Bank, 2024[9]).2
These developments include the EU ETS 2, which will cover CO2 emission from upstream fuel suppliers
in sectors not covered by the existing EU ETS (small entities in buildings and road transport sectors), which
will take effect in all member countries (European Commission, 2024[10]). Türkiye has submitted an
Updated First NDC with explicit references to a Turkish Emission Trading System and is developing a pilot
set to launch in late 2024 (Republic of Türkiye, 2023[11]). Ukraine started the development of an ETS, for
which it established a measuring, reporting and verification (MRV) system but this was put on hold due to
Russia’s war of aggression (Ministry of Environmental Protection and Natural Resources of Ukraine,
2024[12]). At the time of writing, the MRV system is in force but on a voluntary basis for participants. In
2023, Japan introduced the GX ETS, with the first phase based on voluntary participation by companies
(Asia Society, 2024[13]). After the initial phase until 2026, the system is expected to transition to a mandatory
ETS, combined with a carbon tax on fossil fuel importers from 2028. In 2023, Canada also began
developing a federal ETS for the oil and gas sectors, currently undergoing public consultation with final
regulations expected to be released in 2025 (Canadian Department Environment and Climate Change
Canada, 2023[14]). Brazil (Feitosa, 2022[15]), India (Indian Ministry of Power, 2001[16]) and Colombia
(Colombian Ministry of Environment and Sustainable Development, 2024 [17]) have all developed national
plans or legislation that establish the institutional and regulatory framework to introduce ETSs in the future.
At the subnational level, in the United States, there are several states developing ETSs, including Oregon,
Pennsylvania, New York and Colorado (ICAP, 2024[18]). In Mexico and Spain, the state of San Luis Potosi
and region of Catalonia, respectively, are also developing subnational carbon taxes (ICAP, 2024[18]). The
development of carbon pricing mechanisms across various jurisdictions indicate a growing global interest
in market-based approaches to emissions reductions.

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The share of emissions covered by a positive carbon price could increase by approximately 7 percentage
points if the above-mentioned explicit carbon pricing instruments were implemented (Figure 2.2). There
appears greater interest in ETSs than carbon taxes; the increase in coverage estimated from ETSs under
development is 8.8 percentage points, compared to just 0.1 percentage points for carbon taxes. Several
countries that are developing new instruments already have explicit carbon pricing in place at various levels
of governance, including EU member states, Japan, Canada, Ukraine, Colombia and Spain. Taking
account for overlaps between the emissions coverage of new and existing explicit carbon pricing
instruments – whereby it is reasonably assumed that systems do not intend to cover the same emissions
with two schemes3 – results in a more modest increase in coverage for ETS of 6.7 percentage points. The
estimation of coverage relies on published information on the instruments, combined with additional
assumptions where details on the planned implementation are lacking. As such, these estimates should
be interpreted as an upper bound of the expected change in emissions coverage (Methodology in
Chapter 1). This modelling is an additional estimate and is not included in the core CPET database and
therefore is not reflected in the coverage estimates of the Net ECR.

Figure 2.2. Additional emissions coverage can be unlocked from explicit carbon pricing
instruments under development
Estimated Share of GHG emissions subject to a positive explicit carbon price, in %, by instrument, all 79 countries,
2023 onwards

6.7% gain

Note: Includes 15 major regional, national and subnational carbon pricing instruments under development: ETS systems in Brazil, Canada,
Colombia, EU (EU-ETS2), India, Japan, Türkiye, Ukraine, Colorado (US), New York State (US), Oregon (US), Pennsylvania (US), Sakhalin
(Russia) and carbon taxes in Catalonia (Spain) and San Luis Potosi (Mexico). Sectoral and gas coverage was estimated based on publicly
available information, defaulting to electricity and industry coverage if information was missing. Note that final implementation details such as
the threshold of facilities covered by an ETS, exemptions etc. can have a significant impact on instrument coverage. Thus, a middle estimate of
70% of raw emissions figures are presented.
Source: Authors’ calculations based on CPET database. (The World Bank, 2024[9]), (ICAP, 2024[19]).
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Carbon pricing instruments under consideration

There are also a number of countries that have carbon pricing instruments that are still “under
consideration”, categorised as such if the government has announced its intention to work towards the
implementation of the instrument and this has been formally confirmed by official government sources (The
World Bank, 2024[9]).4 These instruments are not modelled above or included in the core CPET database
due to a lack of certainty and details regarding their planned implementation at the time of data collection
for these measures.
Among the countries covered by CPET, for ETSs, Argentina outlined a framework for an ETS for the power
sector in an Omnibus Bill that was first submitted in December 2024, but this has been removed again in
latest iteration (as of April 2024) (Padin-Dujon, 2024[20]). In May 2023, the Philippines conditionally
approved a bill with provisions for an ETS and a technical review is ongoing (Philippines Congress of the
Republic, 2023[21]). Malaysia has also communicated intention to launch an ETS but thus far only a
voluntary carbon market has been introduced (Bursa Malaysia, 2024[22]). Nigeria also began discussions
of an ETS under the framework of its Climate Change Act in 2022 (Manuell, 2022[23]). Chile has introduced
the Green Tax Emissions Compensation System, although its classification as an ETS is ambiguous
(Enerdata, 2024[24]). At the subnational level, there are also ETS under consideration in Maryland (US) and
Manitoba (Canada) (The World Bank, 2024[9]).
Carbon taxes are also still being considered in several countries. Kenya’s Climate Change Act shapes an
administrative and institutional infrastructure for a carbon tax, but this is still under consideration
(Promethium Carbon, n.d.[25]). Côte d'Ivoire has also expressed interest in developing a carbon tax in the
context of the Partnership for Market Readiness and Carbon Pricing Leadership Coalition (2018[26]).
Paraguay has communicated intention to introduce a carbon tax on liquid fuels by May 2025 as part of a
series of reforms, but no further progress has been observed to date (IMF, 2024[27]). In 2024, the Moroccan
government re-affirmed its intention to implement a carbon tax, specifically in response to the
implementation of the EU’s Carbon Border Adjustment Mechanism (CBAM) (Padin-Dujon, 2024[28]). New
Zealand has also considered a carbon tax but has recently reverted its plans to introduce a methane tax
on agricultural emissions in 2025 (Al Jazeera, 2024[29]). Israel previously announced its intention to
gradually introduce a carbon tax on fossil fuels from 2023 to 2028, and has since begun implementation
in September 2024 (Israeli Parliament, 2024[30]; Surkes, 2021[31]). At the subnational level, several states
and provinces are also considering carbon taxes. These include the states of Colima and Jalisco in Mexico,
Hawaii in the US and Manitoba in Canada (The World Bank, 2024[9]).

Changes in coverage from carbon pricing instruments across countries

The share of emissions covered in this report that are subject to a positive Net ECR through implemented
instruments varies across countries. As in previous years, the highest Net ECRs tend to be concentrated
in high-income economies (Figure 2.3). Korea has the largest coverage of emissions with a positive Net
ECR at 99%, driven by the far-reaching coverage of its ETS, which has been gradually expanded since its
introduced in 2015. As of 2023, seven countries covered in this report have no positive carbon pricing
policies in place.
From 2021 to 2023, few countries implemented policies or reforms that resulted in a substantial increase
in the share of emissions covered by a positive explicit Net ECR with the exceptions of Australia, Slovenia
and Austria. Countries can increase coverage through the introduction of new carbon pricing instruments
that are reflected in the Net ECR, or through broadening the emissions base of existing instruments (in the
form of increasing the coverage base of positive pricing instruments or reducing the base of fossil fuel
subsidies).

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Figure 2.3. Across countries, changes in the coverage of carbon pricing vary in direction and
magnitude
Share of GHG emissions subject to a positive price, in %, by country, 2021-2023

Note: ETS coverage estimates are based on the OECD’s (2023[1]) Effective Carbon Rates 2023, with adjustments to account for recent coverage
changes. Fossil fuel subsidy estimates are based on the OECD’s Inventory of Fossil Fuel Support, where available, and original research for
the other countries (Garsous et al., 2023[2]). Due to data limitations, fossil fuel subsidy estimates for 2023 are based on data for 2022. GHG
emissions are the sum of fossil-fuel related CO2 emissions, calculated based on energy use data for 2021 from the IEA (2023[3]) and other GHGs
from Climate Watch (2024[4]). All countries are covered for 2023, with varying country composition according to the coverage of previous editions
in other years. For newly added countries in this edition (Bulgaria, Croatia, Malta, Mauritius, Romania, Singapore and Zambia), there is no
comparison to 2021 available and the arrow sign cannot be interpreted as such. Percentages are rounded to the first decimal place.
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In contrast to the modest increases in coverage, several countries faced a substantial decline in the share
of emissions subject to a positive Net ECR. In almost all cases (except Colombia, Sri Lanka, Finland,
Switzerland and South Africa), this was driven by an expansion of emissions supported by fossil fuel
subsidies, reaching up to a 40 percentage-point increase for certain countries. In large part, the expansion
in fossil fuel subsidies reflects countries’ emergency measures taken in response to the energy crisis
shock, starting in the second half of 2021 following the post-pandemic economic recovery and spiking with
Russia’s war of aggression against Ukraine in 2022. The ramping up of fossil fuel subsidies substantially
outweighed the increases in explicit carbon pricing in most cases and led to a decline in the Net ECR.

Coverage of emissions continues to vary across sectors

The coverage of emissions by carbon pricing instruments continues to vary across sectors (Figure 2.4).
The share of emissions with a positive Net ECR is highest in the Road Transport sector at 90%, followed
by the electricity sector at 74% of emissions. In the road transport sector, fuel excise taxes as implicit
carbon prices account for a large share of the coverage, whereas in the electricity sector, explicit carbon
prices in form of ETSs are driving the high coverage. The sector encompassing other GHGs remains
difficult to address through traditional pricing instruments such as ETS, carbon taxes and fuel excise taxes
and therefore has the lowest coverage at 4%, although new efforts are being made to address these
complex industries (Section 2.2).
The latest update shows that 58% of emissions are not subject to a positive price with the largest laggards
in the buildings (67%) and industry sectors (72%), as well as the other GHGs (96%). Fossil fuel subsidies
also have a critical role in accounting for the differences across sectors. For example, the share of
emissions subject to fossil fuel subsidies in the electricity and buildings sectors is almost double of the
share in the industry and road transport sectors.
On average, the share of emissions covered by a positive Net ECR declined slightly between 2021 and
2023 with some small changes across sectors. In some sectors, a decline is driven not by a decrease in
the coverage of positive pricing instruments, but by an increase in the coverage of fossil fuel subsidies,
particularly in buildings (subsidy increase of 10 percentage points since 2021), road transport and
agriculture (subsidy increase of 6 and 7 percentage points since 2021, respectively). This primarily reflects
countries’ responses to rising fuel prices due to the energy crisis, which were targeted at the most-affected
sectors. Notably, there was a modest increase in coverage in the industry sector due to new schemes and
some expansions of current instruments.

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Figure 2.4. Broad dispersion in the coverage of emissions across sectors remains
Share of GHG emissions subject to a positive price, in %, by sector, all 79 countries, 2021-2023

Note: ETS coverage estimates are based on the OECD’s (2023[1]) Effective Carbon Rates 2023, with adjustments to account for recent
coverage changes. Fossil fuel subsidy estimates are based on the OECD’s Inventory of Fossil Fuel Support, where available, and original
research for the other countries (Garsous et al., 2023[2]). Due to data limitations, fossil fuel subsidy estimates for 2023 are based on data for
2022. GHG emissions are the sum of fossil-fuel related CO2 emissions, calculated based on energy use data for 2021 from the IEA (2023[3])
and other GHGs from Climate Watch (2024[4]). All 79 countries are covered for 2023, with varying country composition according to the coverage
of previous editions in other years. Percentages are rounded to the first decimal place.

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2.1.2. Trends in net Effective Carbon Rates

Net Effective Carbon Rates have decreased, but ETS and carbon tax rates remained
resilient

While progress in the coverage of emissions with a positive Net ECR has slowed down, the components
of the Net ECR have moved in both directions. Ultimately, the decline in the average Net ECR across
countries is driven by increases in fossil fuel subsidies and decreases in fuel excise taxes – reflecting
emergency responses to the energy crisis – rather than changes in carbon pricing policy. Explicit ECRs
increased from EUR 4.44/tCO2e in 2021 to EUR 5.44/tCO2e in 2023 (Figure 2.5). This primarily reflects
the increase in the average ETS permit price, which rose to EUR 4.66/tCO2e in 2023. In comparison, the
average carbon tax rate remains much lower, at EUR 0.78/tCO2e, having changed little since 2021.
As in previous years, implicit carbon prices in the form of fuel excise taxes represent the strongest price
signal at EUR 11.73/tCO2e, despite decreasing by EUR 2.5/tCO2e from 2021 (EUR 14.23/tCO2e). Given
that only 48 countries have explicit forms of carbon pricing (carbon tax and/or ETS) in place and for many,
at low rates, fuel excise taxes represent the strongest carbon price signal in many countries. In particular,
low- or middle-income countries are less likely to have explicit carbon pricing instruments and rely more
on fuel excise taxes. The change in fuel excise taxes was accompanied by an increase in fossil fuel
subsidies, to an average of EUR 3.12/tCO2e. Together, these changes reflect countries’ responses to rising
fuel prices, which are also evident in the decline in coverage of emissions with a positive Net ECR from
2021 to 2023.

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Figure 2.5. A decline in Net ECR, driven by fuel excise taxes and fossil fuel subsidies
Net Effective Carbon Rates, by instrument, all 79 countries, 2021- 2023

Note: Effective carbon rates are averaged across all GHG emissions of the 79 countries, including those emissions that are not covered by any
carbon pricing instrument. Due to data limitations, fossil fuel subsidy estimates for 2023 are based on data for 2022. All 79 countries are covered
for 2023 with varying country composition according to the coverage of previous editions in other years. All rates are expressed in real 2023
EUR using the latest available OECD exchange rate and inflation data; changes can thus be affected by inflation and exchange rate fluctuations.
Prices are rounded to the nearest eurocent.

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Recent changes to Net Effective Carbon Rates within countries

Net ECRs have increased notably – by more than EUR 5 – in six of the countries covered (Switzerland,
Chile, Ukraine, Norway, Costa Rica and Canada) with some smaller increases in other countries, leading
to an overall increase in the global average rates of both carbon taxes and ETSs. This suggests that
governments have not backtracked on explicit carbon pricing efforts, but instead the Net ECR has been
dominated by changes in fuel excise taxes and fossil fuel subsidies, largely due to the energy crisis. Some
governments chose to tackle energy crisis concerns with different instruments, of which only some are
included in the CPET dataset, such as fossil fuel subsidies and fuel excise taxes.
Other notable changes are reflective of large changes in exchange rates to the euro and inflation due to
lack of indexing, such as those in Türkiye and Argentina, that can affect the ECR comparisons overtime.
After the cut-off of 1 April 2023 for this edition of the CPET database, Türkiye announced a large increase
in the fuel excise rate to compensate for this and to raise revenue, while Argentina has delayed fuel excise
rises due to shortages in fuel and inflation concerns (Reuters, 2023[32]; Heath, 2023[33]).

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Figure 2.6. Minimal increase in Net ECR across countries

Changes in Net Effective Carbon Rates, by country, 78 countries, 2018-2023

Note: Effective carbon rates are averaged across all GHG emissions, excluding LUCF, of the 78 countries, including those emissions that are
not covered by any carbon pricing instrument. Due to data limitations, fossil fuel subsidy estimates for 2023 are based on data for 2022. All
countries are covered for 2023 with varying country composition according to the coverage of previous editions in other years. For the newly
added countries in this edition (Bulgaria, Croatia, Malta, Mauritius, Romania, Singapore, and Zambia) and the previous addition, there is no
comparison to 2021 and 2018 available and the arrow sign cannot be interpreted as such. All rates are expressed in real 2023 EUR using the
latest available OECD exchange rate and inflation data; changes can thus be affected by inflation and exchange rate fluctuations. Prices are
rounded to the nearest eurocent.
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Although explicit carbon pricing remained largely resilient throughout the energy crisis shock, there were
some countries that paused or reversed advancements on their explicit carbon pricing policies. For
example, Austria delayed the launch of its national ETS, planned for 1 July 2022, for three months
(Parliament of Austria, 2022[34]). Germany temporarily froze the planned annual price increase of its
national ETS, keeping the price of 30 EUR for 2022 and 2023 (German Emissions Trading Authority,
2017[35]). Portugal suspended the planned increase in its carbon tax rate from March 2022 until the end of
2022 (Government of the Republic of Portugal, 2022[36]). Slovenia also repealed its carbon tax from August
2022 until May 2023 (Government of the Republic of Slovenia, 2023[37]). Indonesia, which planned to
implement a carbon tax for the coal-fired power generation in April 2022, postponed this twice and instead
launched in 2023 (Agung Swadana, Vianda and Tumiwa, 2023[38]).
In addition to changes in explicit carbon rates, there were also countries that increased subsidies to fossil
fuels. Some emerging and developing economies, such as Ecuador, Sri Lanka, Morocco and Colombia,
have long-standing subsidies, while others introduced new schemes amidst the shock of the energy crisis.
These include France and the United Kingdom (UK) that spent upwards of EUR 40/tCO2e on fossil fuel
subsidies, followed by Lithuania (EUR 25.5/tCO2e), Japan (EUR 19.8/tCO2e) and Greece (EUR
18.3/tCO2e). It should be noted that many changes have occurred that are not reflected in the CPET data
due to ongoing revisions in support measures, whereby some measured have been discontinued and
others introduced. For methodological reasons, the current fossil fuel subsidy data reflects 2022 measures.

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Figure 2.7. Fossil fuel subsidies substantially decrease Net ECRs for some countries
Net Effective Carbon Rates, by component and country, 78 countries, 2021 and 2023

Note: Effective carbon rates are averaged across all GHG emissions, excluding LUCF, of the 79 countries, including those emissions that are
not covered by any carbon pricing instrument. Due to data limitations, fossil fuel subsidy estimates for 2023 are based on data for 2022. All rates
are expressed in real 2023 EUR using the latest available OECD exchange rate and inflation data; changes can thus be affected by inflation
and exchange rate fluctuations. Prices are rounded to the nearest eurocent.
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Net Effective Carbon Rates continue to greatly vary between sectors

The level of carbon pricing continues to vary substantially between sectors, with road transport continuing
to have a Net ECR at least four times higher than other sectors (Figure 2.8). However, countries’ responses
to the energy crisis have brought about a significant reduction in the Net ECR of buildings, road transport
and agriculture, while marginally higher explicit carbon prices increased the Net ECR of industry and
electricity. This reflects the difference in instrument use across sectors, where emissions from the road
transport sector and buildings are covered in large part by carbon taxes and fuel excise taxes and industry
and electricity are covered by ETSs.

Figure 2.8. The energy crisis triggered substantial reductions in the Net ECR of buildings and road
transport between 2021 and 2023
Average Net Effective Carbon Rates, by sector, all 79 countries, 2021 and 2023

Explicit carbon price Fuel excises Fossil fuel subsidies Net ECR

110
100
90
80
70
EUR per tonne of CO2e

60
50
40
30
20
10
0
-10
-20
-30
2021 2023 2021 2023 2021 2023 2021 2023 2021 2023 2021 2023 2021 2023
Road transport Off-road transport Industry Agriculture & Buildings Electricity Other GHG (excl.
fisheries LUCF)

Note: Effective carbon rates are averaged across all GHG emissions of the 79 countries, including those emissions that are not covered by any
carbon pricing instrument. Due to data limitations, fossil fuel subsidy estimates for 2023 are based on data for 2022. All rates are expressed in
real 2023 EUR using the latest available OECD exchange rate and inflation data; changes can thus be affected by inflation and exchange rate
fluctuations. Prices are rounded to the nearest eurocent. GHG emissions are the sum of fossil-fuel related CO2 emissions, calculated based on
energy use data for 2021 from the IEA (2023[3]) and other GHGs from Climate Watch.
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In the wake of the energy crisis in 2022, governments significantly reduced rates of excise taxes on motor
and heating fuels (e.g. gasoline, diesel or natural gas) and not all rebates were phased out by 2023. This
strongly decreased the Net ECR in the buildings sector and to a lesser extent in road transport and
agriculture (Figure 2.8). While road transport continues to face the highest Net ECR across all sectors –
EUR 78/tCO2e in 2023 – the rate is 24% lower than in 2021. Similarly, the Net ECR of agriculture dropped
by 52% to EUR 16/tCO2e in 2023. In both cases, more than 50% of the decrease results from lower fuel
excise taxes. In addition to fuel excise rate reductions, many governments strongly subsidised households
to mitigate negative social effects of soaring energy bills. This has substantially driven down the net carbon
pricing level in (mainly residential) buildings. While the Net ECR of buildings was higher than the one of
industry and electricity in 2021, fossil fuel subsidies decreased it by more than 155% to a negative Net

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ECR of EUR -5.8/tCO2e, the lowest Net ECR across all sectors. While fuel excise taxes dominated
buildings’ Net ECR in 2021, fossil fuel subsidies became the indicator’s largest component, accounting for
58% of the rate predominately from a few countries – new measures in France, UK, Germany. Spain and
Japan as well as expanded measures in Kazakhstan and Indonesia. The Net ECR of off-road transport
decreased by 34% between 2021 and 2023 primarily driven by an increase in fossil fuel subsidies as well
as the lowering of excise tax rates.
In contrast, the Net ECR of industry, electricity and other GHG emissions marginally increased between
2021 and 2023. Emissions in these sectors are more commonly priced by explicit carbon taxes and ETSs,
where prices increased in the past years and free allocations have been phased down. Nonetheless, the
Net ECR of industry and electricity remain at EUR 7.0/tCO2e and EUR 8.9/tCO2e, respectively. Other GHG
emissions are also only priced at EUR 1.4/tCO2e in 2023. Consequently, these sectors face significantly
lower rates than road transport, despite each emitting more than double the amount of emissions.

2.2. Considerations in the practical implementation of carbon pricing

Recent trends in carbon pricing policies reveal a complex landscape. While the expansion of emissions
coverage and price level increases have decelerated – and in some cases regressed – this apparent
slowdown masks significant underlying developments that could facilitate the ramping up of climate action.
To achieve the medium-term emissions reductions targets, a sharp increase in climate policy stringency,
including carbon pricing, is essential.
There are a number of considerations government must take into account for the implementation of carbon
pricing policies. These range from the choice and design of instruments, addressing cross-border carbon
pricing in the face of international spillovers, and designing policies that are able to cover emissions in
additional sectors such as waste incineration. These challenges help explain the current trends in carbon
pricing policy and point to further efforts required going forward.

2.2.1. The choice and design of explicit carbon pricing instruments

Several factors can influence the preference for carbon taxes or ETSs, including administrative capacity,
political feasibility, preference for certainty in price or quantity of emissions reductions and compatibility
with economic growth. Overall, carbon taxes have significant practical, environmental and economic
advantages, due to their ease of administration, price certainty and revenue-generating potential (OECD,
2023[1]). However, among countries that are planning or considering introducing new carbon pricing
instruments, there appears to be a strong preference for ETSs. Eight countries are developing ETSs and
another five have ETSs under consideration (Figure 2.9). In contrast, carbon taxes remain only under
consideration in seven countries with none under development.
The trend towards ETSs could be a result of several factors regarding the design options for these systems.
One factor may be that ETSs target emissions reductions directly (depending on design choice) by setting
a cap on emissions, for instance. In addition, most existing ETS include free allocation of allowances, which
can be used as a tool to mitigate carbon leakage or competitiveness concerns around emission-intensive
and trade exposed industries and ease public acceptability (OECD, 2023[1]). This contrasts with most
carbon taxes, except some that provide thresholds for applicability or exemptions for certain entities, as is
the case in South Africa. Another factor can be the more recent interest in rate-based ETSs, which limit
the emissions intensity of the system rather than the absolute volume of emissions (mass-based). Among
the ETSs recently implemented in 2023, Australia and Indonesia both introduced rate-based systems.
ETSs (and carbon taxed applied on direct emissions and not fuel use) also require monitoring, reporting
and verification systems that are more amenable to linking with other ETSs and strengthen the integrity of
carbon credits used as offsets.

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Figure 2.9. A number of countries are developing or considering new carbon pricing instruments
Count of countries with explicit carbon pricing instruments, by status

Included in database (1 April 2023) Recently implemented Under development Under consideration

60

5
50

40 1

7
30
1

20

10

27 40
0
Carbon Tax ETS

Note: The count considers instruments at the national level in the 79 countries (+EU) covered in the CPET database, as of 1 June 2024.
Instruments are considered “Recently implemented” if they have been adopted through legislation after 1 April 2023; “Under development” if the
government is working towards the implementation of the instrument, a mandate may have been established, but regulated entities do not face
compliance obligations yet; and “Under consideration” if the government has announced intention to work towards the implementation of the
instrument. Hungary’s recent carbon tax is considered as recently implemented, although it is not modelled in the price and coverage data
presented in the rest of the report due to data limitations.
Source: Authors; (The World Bank, 2024[9]; ICAP, 2024[19]).
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ETS have been shown to vary greatly in design (Fischer, Mao and Shawhan, 2018[39]). The two main types
of systems are mass-based, whereby total emissions of an industry or installation are capped, and rate-
based systems, whereby the emissions intensity is capped. In both systems, the cap can be declining over
time. Mass-based systems include cap-and-trade systems. The largest mass-based system, by emissions
coverage, is the EU ETS, while the largest rate-based system is operating in the People’s Republic of
China (hereafter ‘China’). Among other countries, Australia and Canada have also introduced rate-based
systems. At the time of writing, there is a mix between plans for mass-based and rate-based systems,
among the countries that have ETSs under development and that have provided details on these design
features.
There are numerous other elements that can vary between mass-based and rate-based ETSs. The
additional considerations are the coverage of sectors, reduction factor of emissions cap, method of
allocating free allowances, market stabilisation mechanisms and more, which result in a diverse array of
ETS design. These differences, along with other elements such as the cost-effectiveness, ease of
administration, scope and price predictability are key factors in choosing the best-suited carbon pricing
instrument with respect to a country’s domestic context.

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2.2.2. Growing attention on cross-border carbon pricing instruments and international

cooperation

Beyond design choices for domestic carbon pricing instruments, increased attention is being drawn
towards tools for addressing cross-border emissions embodied in international trade. These emissions
embodied in trade can be between economies with different levels of climate policy stringencies and carbon
intensities of goods. Thus, the role of international cooperation and instruments such as border carbon
adjustment mechanisms (BCAs) are being considered to help achieve global emissions reductions targets.
Net ECRs across countries remain diverse, and although their dispersion appeared to be growing larger
in the previous edition of this report (OECD, 2022[40]), this edition does not see the same pattern with only
a handful of mixed countries significantly increasing Net ECRs (by greater than EUR 5) since the last
edition (Switzerland, Chile, Ukraine, Norway, Costa Rica and Canada). In addition, there appears to be no
trend in the reduction of Net ECRs with many economies decreasing Net ECRs across the spectrum of
high and low rates.
Following the diversity of carbon pricing across countries, some jurisdictions are seeking a more targeted
approach to addressing carbon leakage. The EU’s Carbon Border Adjustment Mechanism (CBAM) entered
into force in its transitional phase in October 2023. The compulsory regime that is set to start in 2026 will
require importers to pay a fee on emissions associated with imported products based on the carbon price
of domestic production. In its current phase, importers of covered products (aluminium, cement, electricity,
fertilisers, hydrogen and iron and steel) must report the direct (scope 1) emissions and part of indirect
(scope 2) emissions from purchased electricity, as well as some emissions embodied in relevant precursor
products for complex goods, but at the time of writing did not have payment obligations (European
Commission, 2023[41]). Starting in 2026, importers will be required to purchase emissions certificates for
imports based on the differential between the EU ETS emissions allowances and the effective carbon price
already paid during production elsewhere, accounting for free allowances and other forms of financial
support (European Commission, 2023[41]).
In December 2023, the UK announced its intention to implement a CBAM by 2027 (Burnett et al., 2024[42]).
Still in design, current plans present similar coverage to the EU CBAM, including scope 1 and scope 2
emissions, as well as select precursor product emissions embodied in imported products from the
aluminium, cement, ceramics, fertiliser, glass, hydrogen, iron and steel sectors. The fee charged to
importers will be an effective rate (similar to the ECR indicator) based on the price of emission allowances
in the UK ETS adjusted for free allowances (therefore lower than the explicit UK ETS price), and the
differential to other countries’ domestic explicit carbon price (UK Treasury, 2024[43]). Further consultations
are planned for 2024 to determine design and implementation plans.
There have been several proposals for BCAs in the United States, despite the country not having a federal-
level explicit carbon price. The proposals and their various design features differ. The more recent proposal
(re)introduced in December 2023,5 the Clean Competition Act, would levy a charge on both domestic
producers and importers of goods on the share of the good’s emissions that exceed a sector-specific US
baseline emissions intensity (Joint Economic Committee, 2024[44]). The Clean Competition Act was drafted
to cover fossil fuels, refined petroleum products, petrochemicals, fertiliser, hydrogen, adipic acid, cement,
iron and steel, aluminium, glass, pulp and paper, and ethanol starting from 2025, with expansion to other
goods after 2027 (Sheldon Whitehouse, 2024[45]).

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Box 2.1. The Carbon Rate Gap: a proof of concept using ECRs
A proof-of-concept analysis produces a new indicator, the Consumption Carbon Rate, using the OECD
Embodied Emissions Estimates in International Trade (Yamano and Guilhoto, 2020[46]) and Effective
Carbon Rates (OECD, 2021[47]) databases for 2018 to compute effective carbon rates paid on emissions
embodied in trade, and hence on final demand. This is an effective carbon rate in final demand, following
consumption-based emissions accounting. The proof-of-concept uses an input-output model to trace
Effective Carbon Rates along the production chain, revealing the Carbon Rate Gap - the difference
between the average rate on emissions produced domestically and emissions embodied in final demand
or consumption.
The report provides first results that demonstrate that countries with higher production-based effective
carbon rates tend to import goods for consumption from countries that have applied a relatively lower
carbon rate on emissions. This results in more similar consumption carbon rates across countries, which
could shift if border adjustment mechanisms are put in place or carbon pricing stringency converges.
The proof-of-concept points to further analyses that can be used to inform climate policy decisions where
issues of carbon leakage and other trade-related costs of carbon pricing have an important role. In
particular, the methodology could be used to conduct counterfactual analysis, for instance, to model the
effects of border carbon adjustment mechanisms on effective carbon rates, through the lens of complex
global production chains that would add an additional indicator for the effects of these policy changes.

Figure 2.10. Carbon Rate Gap

Production-based Carbon rates less Consumption-based Carbon Rates, by country, 2018

Note: Selected G20 countries, unlabelled.

Source: (OECD, forthcoming[48]).

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There have also been new initiatives that aim at fostering global cooperation on climate change mitigation
policies. In February 2023, the OECD launched the Inclusive Forum on Carbon Mitigation Approaches
(IFCMA) (OECD, 2024[49]), designed to help optimise the global impact of emissions reduction efforts
around the world through better data and information sharing, evidence-based mutual learning and
inclusive multilateral dialogue. It brings together senior officials and technical experts from governments,
as well as representatives from other international organisations, and is composed of 59 members
(including all OECD members, the EU and 20 Project Associates). In December 2023, the Climate Club
(2024[50]) was launched, a high-level forum for cooperation on the acceleration of climate action in industrial
decarbonisation, consisting of 39 countries under the interim secretariat of the OECD and IEA. These
initiatives mark growing effort towards global cooperation on climate change mitigation.

2.2.3. Practical challenges for sectors: The case of waste incineration

In addition to considerations regarding the choice of domestic carbon pricing instruments and new tools to
address cross-border emissions, there are also practical challenges to implementing carbon pricing across
some industries, such as waste incineration. Eventually, all carbon emissions must be drastically reduced
through either pricing or other climate policy mechanisms. This section outlines the trends and practical
implementation problems for the case of waste incineration, as an example of growing efforts to expand
carbon pricing instruments to new sectors.
Waste incineration is a source of both energy and emissions. On average, the disposal of waste through
incineration accounted for 29% in OECD countries and 19% globally in 2019 as a waste management
category of plastics, making it the second most important waste management practice after landfilling
(OECD, 2022[51]). Waste incineration coupled to a power plant (waste incineration with energy recovery)
allows for the generation of heat and electricity. Countries covered in the CPET database generated more
than 15 500 TJ from non-renewable municipal and industrial waste in 2021 (IEA, 2022[52]).
Taxes on waste incineration are generally used to recover the costs of waste treatment and disposal but
can also act as a tool to internalise environmental costs and encourage behavioural changes. By increasing
the cost of environmentally harmful treatment methods, it creates incentives to use alternative treatment
methods such as recovery and recycling (OECD, 2019[53]). Among OECD countries, higher solid waste
taxes are strongly correlated with reduced waste volumes and increased recycling levels (Matheson,
2019[54]). These taxes are generally charged on incineration facility operators by the weight of waste
incinerated, measured in tonnes. Only a limited number of advanced economies have implemented taxes
on waste incineration. While such environmental taxes are generally more likely to be adopted by
governments with a robust environmental policy framework and a structured and monitored waste sector,
they also require a country to operate waste incineration facilities, in contrast to alternatives such as open
burning. Among EU Member States, nine levy a tax on waste incineration. Ordered by the highest minimum
tax rate, these are Denmark, the Netherlands, Latvia, Belgium, France, Spain, Austria, Portugal, and Italy
(European Environment Agency, 2023[55]). In addition, Norway introduced in 2022 a tax on incinerated,
non-renewable waste.
As an emitting activity, waste incineration has recently moved into focus for climate policy. Advanced
economies have started extending coverage of their ETSs to waste incineration or are redesigning their
taxes on waste incineration. Integrating waste incineration as a new sector into an ETS or covering it with
a carbon tax requires some methodological considerations.

Methodological considerations for taxing carbon emissions of incinerated waste

The redesign of waste incineration taxes and the activity’s inclusion in ETSs impact the scope of both the
Effective Carbon Rate and Effective Energy Rate. A waste incineration tax, levied on the carbon content
of waste, is an excise duty levied on CO2 emissions rather than on waste uniformly. Measured this way,

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this policy instrument uses emissions factors to approximate a proportionality between the weight of a
specific type of waste and its energy and carbon content, effectively mimicking the design of a direct carbon
tax. The impact of waste incineration activities covered by a carbon price on the ECRs and EERs implies
two main considerations, its contribution to energy use and the precision of applied emissions factors.
The common method for estimating CO2 emissions from incineration of waste is based on an estimate of
the carbon content in the waste combusted, multiplied by the oxidation factor, and converting the product
to CO2 emissions. Volume 5 of the 2006 IPCC Guidelines provides methodological guidance for the
estimation of GHG emissions from the waste sector (IPCC, 2006[56]). However, waste is a highly
heterogenous commodity. Types of waste incinerated include municipal solid waste, industrial waste,
hazardous waste, clinical waste and sewage sludge (IPCC, 2006[56]). The amounts of waste produced,
their composition and their origin vary among countries as they relate to the structure of the economy and
the level of investment in innovation and cleaner technologies. In many countries, information remains
insufficient to monitor total waste streams, their recovery and the use of secondary raw materials in the
economy (OECD, 2020[57]). This makes the estimation of precise energy content and GHG emissions
factors for incinerated waste a highly complex and difficult task. This is in contrast to petroleum products
where energy and carbon content of products are easier to determine and vary less across countries.
Although not all countries align these fuel taxes with carbon content, emissions factors can be estimated
by using default values. Increasing in precision as well as data requirements, these can be i) general, ii)
country-specific and iii) incineration-facility-specific. To respect the proportionality principle between weight
of waste and emissions, the highest possible level of granularity is required.
Two additional methodological considerations are needed when assessing how changes in policy
instruments impact the scope of the ECR and EER. Adopting a carbon price on emissions from waste
incineration, either through changes in design of taxes or the activity’s inclusion increases the coverage of
both indicators – but not by the exact same share. Following the IEA’s World Energy Balances, the CPET
database distinguishes waste-related emissions and energy use in four categories: renewable versus non-
renewable as well as municipal versus industrial waste. However, the IEA’s World Energy Balances only
include energy generated from incinerated waste, that is, they only cover waste incineration with energy
recovery across all four waste categories. In contrast, data on emissions also include non-energy related
greenhouse gases. The CPET methodology stipulates that only non-renewable municipal or industrial
waste is a fossil fuel that generates emissions. Consequently, coverage of ECRs only increases through
taxes or ETSs covering emissions from incinerated non-renewable waste, while the coverage of EERs
would be increased by both, the incineration of renewable and non-renewable waste but only where it is
coupled to a power plant (with energy recovery).

Governments are expanding coverage of waste incineration

In the past years, multiple advanced economies have started extending coverage of their ETSs to waste
incineration. This entails a change of the tax base from weight (measured in tonnes of waste) to carbon
emissions (measured in tonnes of CO2). Further, two OECD countries assessed in the CPET database
have introduced or transitioned to emissions-based waste incineration taxes, Norway and Denmark.
In 2022, Norway introduced an excise duty on CO2 emissions from waste incineration. The objective of
the excise duty is to internalise the cost of CO2 emissions associated with the activity. In 2023, the tax rate
amounted to EUR 22.1 (NOK 238)/tCO2. Since beginning 2024, the tax sets differentiated rates between
EU ETS and non-EU ETS covered facilities, which stand at EUR 82 (NOK 882)/tCO2 and EUR 16.4 (NOK
176)/tCO2, respectively. The tax is calculated by multiplying the amount of waste delivered to an
incineration facility measured in tonnes by a standard emissions factor of about EUR 0.051
(NOK 0.5498)/tCO2 per tonne of waste. To incentivise sorting and recycling of fossil materials, incineration
facility may apply for the use of a facility specific emission factor, if they can prove to the Norwegian
Environment Agency that the fossil material content of the incinerated waste is lower than the assumed

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standard share of 55%. Incineration facilities that treat hazardous waste or capture and store generated
emissions are exempted from this incineration tax (Norwegian Tax Agency, 2024[58]).
In 2009, Denmark converted its weight-based tax on waste incineration to one based on energy and CO2
content to provide a stronger incentive to recycle the most energy-intensive waste. The tax is a combined
input-output tax, charged via two elements: an incineration tax, levied based on the energy content in the
input waste, which amounted to EUR 7.03/GJ (DKK 52.5/GJ) in 2022. This component consists of a tax
on heat generated from waste incineration (EUR 2.77/GJ (DKK 20.7/GJ)), which is indexed annually with
the net price index and an additional incineration tax (EUR 4.26/GJ (DKK 31.8/GJ)), which is not indexed.
Further, a CO2 tax is levied on incinerated, non-biodegradable waste which is indexed annually with the
net price index (European Environment Agency, 2023[59]). This tax rate amounted to EUR 26.19/tCO2 in
2024 and is scheduled to increase to EUR 95.23/tCO2 (DKK 711.6/tCO2) in 2025 (Danish Parliament,
2024[60]). Waste from biomass and processing of meat waste are exempted and an exemption for
hazardous waste was abolished in 2010 (OECD, 2019[61]).
Waste incineration also became a core component in plans to expand the coverage of existing ETSs. If
waste incinerators are included in an ETS, such facilities will have to buy emission allowances for each
tonne of CO2 emitted when processing non-renewable municipal or industrial waste. This additional cost
of incineration can act as an incentive for waste prevention and recycling, which will then become relatively
more competitive than incineration. At the end of 2022, the European Parliament approved the inclusion
of municipal waste incinerators within the scope of the EU ETS as of 2026. EU member states must report
and verify emissions from such facilities from 2024 onwards. It is estimated that the inclusion of municipal,
non-renewable waste incineration in the EU ETS could decrease CO2 emissions by 4.3 MtCO2 by 2030
(Warringa, 2021[62]).
Germany amended its national ETS at the end of 2022 to include waste-derived fuels from 2024 onwards
(German Federal Office of Justice, 2022[63]). According to a study commissioned by the German
government this expansion in coverage would affect about 100 waste incineration plants, which incinerated
26.3 Mt of waste in 2019 to generate electricity and heat (German Federal Ministry for Economic Affairs
and Climate Action, 2022[64]). By including this sector, Germany intended to close gaps in the emissions
coverage and thereby create a level playing field with other power plants, which are already subject to a
carbon price under the EU ETS (German Federal Ministry for Economic Affairs and Climate Action,
2022[65]). Likewise, Austria launched a national ETS in October 2022, which has similarities to the design
of the German ETS. This system also covered emissions from waste incineration since its launch (ICAP,
2022[66]). Depending on the scope of the EU ETS after 2026, the EU system could supersede the German
system in future (ICAP, 2022[67]). Austria already decided to replace their national ETS (Simon, 2024[68]).
Furthermore, the UK seeks to gradually include emissions and energy generation from municipal waste
incineration in its national ETS from 2026 onwards, but plans face opposition by local authorities which
would bear the new, high tax burden after 2028 (Stefanini, 2024[69]; Stefanini, 2024[70]). Outside Europe,
Australia’s Safeguard Mechanism underwent major reforms in July 2023 that effectively transformed it into
an ETS and waste in form of landfills is covered by the scheme (Australian Department of Climate Change,
Energy, the Environment and Water, 2024[71]).

2.3. Promoting public acceptability and the role of carbon revenues

The next period of climate goals will soon require governments to significantly increase the stringency of
policies targeting emissions, including but not limited to carbon pricing. However, an increase in the price
level or coverage of carbon pricing may lead to additional burdens on households and firms and therefore
requires a careful balance of achieving climate targets while addressing public acceptability concerns.
There is evidence to suggest that both the choice of instrument and the use of revenue can help to mitigate
the regressive impact of carbon pricing increases on households (see e.g. (Immervoll, Elgouacem and Raj,

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2024[72]). Carbon pricing revenues could be used to create a ‘double dividend’ (see below), protecting
vulnerable groups while achieving emissions reductions (Section 3.4 in Chapter 3) and transitioning tax
bases from combustibles to electricity (Section 3.5 in Chapter 3). The political economy of carbon pricing
– including trust in government, interactions with other climate-relevant policies, level of policy-relevant
education among citizens, among other factors (Zhang, Abbas and Iqbal, 2021[73]) – varies greatly across
countries. Therefore, countries are taking tailored approaches to design carbon pricing policies, as well as
revenue use policies, that suit the needs of their economies.

2.3.1. Carbon pricing reform could unlock substantial government revenues

For some governments seeking to implement carbon pricing policies, achieving political feasibility and
securing public support remains a critical challenge. Several studies and country experiences have
demonstrated that the use of carbon revenues could help improve the reception of carbon pricing policies
(Dechezleprêtre et al., 2022[74]). This may explain one reason why it is common for economies to earmark
revenues from ETSs and carbon taxes for a range of expenditure areas (Cardenas Monar, 2024[75]).
However, a range of factors can ultimately determine the political feasibility and public acceptability of
carbon pricing, with economies choosing to earmark revenues for different reasons, such as budgeting for
new policies and/or gaining public support. In economies where tax revenue use and the financing of other
areas of public concern are prevalent issues to the public, earmarking can be one of several approaches
that can be used to improve public support for carbon pricing policies.
Overall, the level of net carbon revenues (including revenues from positive pricing instruments, less
expenditures on fossil fuel subsidies and free allocation of ETS permits) remains low, on average across
countries just 0.6% of GDP (Figure 2.11). To compare, in OECD countries, public spending as a
percentage of GDP was on average 5.3% on education, 7.6% on health and 16.9% on social protection in
2021 (OECD, 2023[76]). There is a large dispersion in net revenues from carbon pricing across countries.
These differences can be explained by the higher levels of positive carbon pricing observed particularly in
high-income countries, which generate larger revenues, as well as instances of very large fossil fuel
subsidies expenditures, mostly concentrated in lower-income countries, which conversely lower net
revenues. On the high end, net revenues reach up to 3.1% of GDP in Bulgaria. On the low end, several
countries have negative net revenues caused by relatively high expenditures on fossil fuel subsidies that
outweigh revenues collected from positive carbon pricing instruments. For example, Burkina Faso,
Ecuador and Kazakhstan have net revenues of less than -2.5% of GDP.
Further strengthening carbon pricing –through increasing the price of ETSs, fuel excise taxes and carbon
taxes, or reducing fossil fuel subsidies – could raise substantial revenues for governments while further
cutting emissions. The exact revenue potential from a carbon pricing reform depends on prices, subsidies
and several behavioural and macroeconomic factors that determine how the tax bases of instruments
change over time. Nevertheless, an indication of how carbon pricing revenues can change, at least in the
short to medium term, is useful.
Following the methodology described in Chapter 1, there is substantial revenue that could be unlocked
from a carbon pricing reform that includes the phasing out of free allocation of ETS permits, phasing out
of fossil fuel subsidies and implementation of a minimum ECR, ranging from EUR 60/tCO 2e to EUR
120/tCO2e (Figure 2.11). The less ambitious reform of countries phasing out free allocations, phasing out
fossil fuel subsidies and increasing their ECR to at least EUR 60/tCO2e, would raise net carbon revenues
to 1.7% of GDP on average. In the more ambitious scenario with a minimum ECR of EUR 120/tCO2e, net
carbon revenues would increase to 2.3% of GDP on average. This represents an almost quadrupling of
the role of net carbon revenues in countries’ GDP from today. For comparison, the median share of tax
revenues (in aggregate across all areas of taxation) as a percentage of GDP was 35% of GDP across
OECD countries in 2021 (OECD, 2023[77]).

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Figure 2.11. Substantial revenue could be unlocked from carbon pricing reform needed to reach
climate targets
Current net revenues, and total estimated revenue from carbon pricing reform (phasing out free allocation, phasing
out fossil fuel subsidies, minimum Effective Carbon Rate), in % of GDP, by country

Note: Revenue estimates may be considered an upper bound of the actual revenue potential as they are estimated on historical data (fewer and
more expensive low-carbon technologies, lower carbon prices, few developing countries in the sample). Estimates are for fossil fuel CO2
emissions and do not include the revenue potential from reforming the pricing of other GHG or biofuels. Through accounting for free allocation,
estimates are based on average Effective Carbon Rates, rather than marginal, as are used elsewhere in the report. Ukraine is excluded as an
outlier to due to an exceptionally high emissions intensity of GDP, as a result of Russia’s war of aggression.
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The revenue potential from carbon pricing reform is particularly high among a few countries, including
South Africa, Kazakhstan, Malaysia, Kyrgyzstan, China and India, where net carbon revenues can reach
5-8% of GDP. In most other countries, the net revenue potential is much lower. Differences in revenue
potential across countries to a large extent stem from pre-existing differences in countries’ Net ECRs and
for those with ETS, also the share of free allocation of permits, which tends to be higher in the earlier
stages of introduction and phased down over time. Moreover, countries’ emission intensity of GDP is a
determinant of the carbon revenues as a share of GDP.
For some countries, achieving such a high carbon price may not be realistic, for many reasons. These
include, but are not limited to, differing domestic policy priorities, focus on other climate change mitigation
instruments, and lack of administrative and compliance capacities. It is likely that countries will continue to
move at different paces, according to their domestic targets and capacities. Considering a lower
benchmark, implementing a carbon pricing reform with a minimum ECR of EUR 30/tCO2e would still raise
revenues to 1.4% of GDP on average across all countries. For several countries, especially those that
currently have negative revenues, this benchmark (including the phasing out of fossil fuel subsidies and
free allocation) represents a substantial change in carbon revenues. In Ecuador, Malaysia, Burkina Faso
and Kazakhstan, the share of carbon revenues in GDP could (as an upper bound) increase by 3-6
percentage points.
The additional revenue from a carbon pricing reform can be broken down to illustrate the components
driving countries’ revenue potential – including the share of revenue gained from phasing out free permit
allocation, phasing out fossil fuel subsidies and raising the ECR to EUR 60/tCO2e (Figure 2.12). The vast
majority of revenue potential comes from raising Effective Carbon Rates (on average across all countries,
0.9 from 1.1 percentage points), with a much smaller role for phasing out fossil fuel subsidies and free
allocations in comparison. This is in part due to few countries having ETS (and therefore free allocations),
and on a country-specific level, revenue potential from phasing out free allocations plays a more significant
role in some cases. For example, in Switzerland, Denmark, Norway, Sweden, Finland and Estonia, phasing
out free allocations represents about 75% of the total revenue potential from the described carbon pricing
reform. While different countries can pursue different strategies, depending on their national positive and
negative pricing instruments, the overwhelming potential for unlocking additional carbon revenues is
through raising effective rates.

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Figure 2.12. Raising Effective Carbon Rates is key driver of additional revenue potential from
carbon pricing reforms
Components of revenue potential from carbon pricing reform, in % of GDP, by country, 2023

Note: Revenue estimates may be considered an upper bound of the actual revenue potential as they are estimated on historical data (fewer and
more expensive low-carbon technologies, lower carbon prices, few developing countries in the sample). Estimates are for fossil fuel CO2
emissions and do not include the revenue potential from reforming the pricing of other GHG or biofuels. Through accounting for free allocation,
estimates are based on average Effective Carbon Rates, rather than marginal, as are used elsewhere in the report. Ukraine is excluded as an
outlier to due to an exceptionally high emissions intensity of GDP, as a result of Russia’s war of aggression. * The value for Kazakhstan is 8%
and has been truncated in this graph for visual readability purposes.
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2.3.2. Revenue use can serve as a policy tool to improve public acceptability

The revenue generated from carbon pricing instruments can be substantial with even higher potential if
countries align their price levels closer to those needed to achieve their commitments under the Paris
Agreement. While raising revenue is sometimes an aim and other times an outcome of taxes aimed at
reducing emissions, decisions about the use of these revenues can influence the economic and political
feasibility of these instruments (Barrez and Bachus, 2023[78]). The most efficient allocation of tax revenue
is to a government’s general budget in the absence of political economy constraints. When revenues are
instead designated to a specific spending purpose – whether in a strong form such as legal earmarking,
or weak form such as political promises – there is risk of creating economic distortions. This is in part
because the connection between governments’ sources of revenue and spending needs can be weak and
can change over time, making it difficult to plan an optimal allocation (Marten and van Dender, 2019[79]).
While in general it is economically efficient to allocate revenues to the general budget, this does not rule
out that there may be benefits to earmarking (in both the strong and weak form, hereafter), in addition to
enabling tax reform when it might otherwise have been difficult or even impossible. There are various
reasons for low public support for carbon pricing. The most prevalent relate to doubts about effectiveness,
personal and collective fairness concerns about potential negative outcomes from carbon pricing policies
(Maestre-Andrés, Drews and van den Bergh, 2019[80]; Carattini, Carvalho and Fankhauser, 2018[81];
Dechezleprêtre et al., 2022[74]), as well as public distrust in the effectiveness of government spending
(Klenert et al., 2018[82]; Dechezleprêtre et al., 2022[74]).
Earmarking is one of several tools (among e.g. educational campaigns, stakeholder consultations and
more) that governments can use to mitigate potential negative public acceptability consequences and
improve public support for carbon pricing policies. Existing studies demonstrate that individuals have a
strong preference for earmarking revenues from carbon taxes for environmental spending, such as further
emissions reduction efforts (Carattini, Carvalho and Fankhauser, 2018[81]; Baranzini and Carattini, 2017[83];
Maestre-Andrés, Drews and van den Bergh, 2019[80]). This may be due to doubts about the environmental
effectiveness of the tax, therefore warranting additional environmental spending (Baranzini and Carattini,
2017[83]), as well as a psychological preference for thematic matching between the source and spending
of the revenues (Mus, Mercierid and Chevallierid, 2023 [84]). In addition, a survey conducted by the OECD
(Dechezleprêtre et al., 2022[74]) suggests that effective communication to explain the functioning and
distributional outcomes of policies can increase stated political support for carbon pricing.
Indeed, revenues from explicit pricing, and in particular ETSs, are most often used for climate change or
related environmental purposes (Fleurence, Fetet and Postic, 2023[85]). Often, revenues are used to
finance investments in additional sectors that are not covered by the carbon pricing policies and serve as
complementary to the carbon price. These measures can include for instance, investments in low-carbon
technologies, expansion of green transport infrastructure, biodiversity protection and more (in the EU, for
instance, Member States are mandated to spend at least 50% of ETS auction revenues for climate- and
energy-related purposes (European Commission, 2024[86]). However, climate-related spending is not the
only, or necessarily most optimal, area for expenditure (Table 2.1). The most effective form of earmarking
will be unique to each country and dependent on a number of factors, including but not limited to public
concerns, the existing tax system, existing sustainable development related policies, and the vulnerability
of businesses and households to higher carbon prices.
Existing studies demonstrate that revenue use tends to also differ by instrument type (Marten and van
Dender, 2019[79]). While revenues from excise taxes – which make up the dominant share – tend to remain
in the general budget, revenues from ETSs and carbon taxes are more commonly earmarked (both in the
strong and weak form). In addition, constraints on excise taxes revenue, when used, tend to be applied to
fuels used for specific purposes (e.g., automotive fuels), whereas constraints on revenues from ETSs and
carbon taxes more often cover all revenue.

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Table 2.1. Uses of carbon pricing revenues go beyond environmental/climate objectives

Overview of types of uses of carbon pricing revenues

Type Description Example

Tax reform The broader tax system is reformed to lower the rate of tax British Columbia’s carbon tax was introduced in 2008
levied on personal or business income with the aim of alongside additional tax reforms, including cuts to personal
boosting economic growth through reducing tax distortions and corporate income taxes. The tax reforms were designed
caused by disincentives to labour market participation, to create a revenue-neutral carbon tax, meaning costs
consumption and investment. This is also used to offset the imposed on households and businesses from higher carbon
potential negative effects of lower real wages in response to prices would be offset by a reduction in other taxes
higher prices, stemming from the increase in carbon pricing. (Government of British Columbia, 2024[87])
Compensation to Compensation measures are given to alleviate negative Austria’s Klimabonus is an annual cash transfer made to all
households and impacts from higher carbon pricing in the form of higher main residents of Austria as direct compensation for, and
firms electricity and fuel prices, as well as a loss of employment in funded by, its carbon tax that was introduced in 2022. In
emission-intensive industries. These measures can be in the 2023, the base amount (subject to an additional regional
form of direct cash transfers, subsidies or other relief allowance) equaled EUR 110 (Government of Austria,
measures such as support for occupational retraining. They n.d.[88])
may be distributed universally or to particular regions,
sectors or income groups that face a disproportionate
burden.
Prevention of This addresses international competitiveness concerns in South Africa’s carbon tax, introduced in 2019, contains a
competitiveness particular for emissions-intensive and trade-exposed firms number of tax-free allowances to account for
and carbon that have difficulties to reduce the carbon intensity of their competitiveness concerns, particularly for emissions-
leakage effects production in the short- or long-term and may be at risk of intensive and trade-exposed sectors. For example, trade-
carbon leakage. These measures can be in the form of free exposed sectors receive a tax allowance up to maximum
allocation of allowances in ETS, partial tax exemptions or 10%, based on a measure of their trade exposure (South
feebates to reduce the cost of compliance with carbon African Revenue Service, n.d.[89])
pricing policies for firms
Other Revenues can be contributed to funds for sustainable The California Climate Investments is a set of programmes
development development policies, including for example spending on across a range of sustainable development areas, funded by
objectives health, education, infrastructure projects such as public the state’s ETS revenues. In the first half of 2023, 84% of
transport, and more. This is often done as part of a policy revenues benefitted ‘priority populations’ (disadvantaged
package targeting interlinkages between environmental, and low-income communities) through projects such as low-
social and economic development carbon transit, air quality monitoring, and solar power for
schools and community centres (California Climate
Investments, n.d.[90])

Note: Examples are not exhaustive.

Source: Authors & (World Bank, 2019[91]).

As mentioned, raising the stringency of carbon pricing carries an economic burden, and earmarking could
have an influence on the public support of carbon pricing policies. Different uses of revenues have their
individual considerations regarding their administrative burden, impact on economic efficiency and political
feasibility of the revenue use itself, among other factors (Black, Zhunussova and Parry, 2022[92]). Decisions
about how and where to allocate carbon revenues require careful consideration of these factors, countries’
economic and political landscapes, as well as the potential advantages and disadvantages of earmarking
more broadly. In addition, there are several other policy tools that governments may choose to use in
addition to, or instead of, earmarking to raise public support.
Earmarking can be used to mitigate potential negative effects of carbon pricing policies, that as any other
taxes, may improve environmental outcomes but reduce overall economic benefits. It can also be used to
connect climate targets to other important (potentially different) areas of public concern. In addition,
earmarking can provide greater transparency about policy instruments for taxpayers. However, there are
also some potential disadvantages. For instance, if earmarking results in insufficient or excess tax revenue
for a particular cause, this can result in under- or over-investment in that area, distorting the optimal
spending outcomes and reducing the overall efficiency of the tax system. Governments that choose to
earmark revenues will also have reduced flexibility with expenditures to respond to changing priorities or

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48 

unforeseen circumstances. In addition, in general, allocating revenues to the general budget may be
administratively simpler and more flexible than earmarking. Some countries may even have legal
constraints to earmarking. Finally, the public visibility of earmarked expenditures may influence intended
outcomes, specifically for the case of facilitating public support for policies through earmarking.
Ultimately, countries will choose differing approaches to carbon pricing, as well as the use of carbon
revenues as a related policy instrument. A flexible approach whereby countries are able to design their
policy instruments, such as earmarking, based on their individual policy priorities and policy landscape can
help maintain the momentum needed to achieve approaching climate targets both in terms of political
feasibility and public acceptance.

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Parliament of Australia (2023), Safeguard Mechanism (Crediting) Amendment Bill 2023, [5]
Parliament of Australia,
https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Resul
t?bId=r6957 (accessed on 24 June 2024).

Parliament of Austria (2022), Teuerungs-Entlastungspaket (2662/A) [Inflation relief package [34]

(2262/A)], Parlament Oesterreich,
https://www.parlament.gv.at/gegenstand/XXVII/A/2662?selectedStage=100 (accessed on
6 June 2024).

Philippines Congress of the Republic (2023), An act promoting a low carbon economy, [21]
establishing for this purpose an emissions trading system and implementation mechanism to
achieve national climate targets.

Promethium Carbon (n.d.), Carbon pricing approaches in Eastern and Southern Africa, [25]
Promethium Carbon.

Republic of Türkiye (2023), Republic of Türkiye Updated First Nationally Determined [11]
Contribution, Republic of Türkiye.

Reuters (2023), Turkey increases fuel tax as it bolsters stretched budget. [32]

Sheldon Whitehouse (2024), Whitehouse and DelBene Reintroduce Carbon Border Adjustment [45]
Bill to Boost Domestic Manufacturers and Tackle Climate Change, Sheldon Whitehouse,
https://www.whitehouse.senate.gov/news/release/whitehouse-and-delbene-reintroduce-
carbon-border-adjustment-bill-to-boost-domestic-manufacturers-and-tackle-climate-change/
(accessed on 21 June 2024).

Simon, F. (2024), Austria to replace national CO2 pricing scheme with EU ETS2, CarbonPulse, [68]
https://carbon-pulse.com/287172/ (accessed on 24 June 2024).

South African Revenue Service (n.d.), Frequently Asked Questions - Carbon Tax, South African [89]
Revenue Service, https://www.environment.gov.za/legislation/guidelines (accessed on
6 June 2024).

Stefanini, S. (2024), UK’s ETS for waste risks raising costs for local govts and pushing rubbish to [69]
landfill, experts warn, https://carbon-
pulse.com/280056/#:~:text=The%20extension%20of%20the%20UK,years%2C%20experts%
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Stefanini, S. (2024), UK’s local govts face hefty carbon pricing bill for waste incineration, [70]
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Surkes, S. (2021), Israel to impose carbon tax, starting with fossil fuels | The Times of Israel, The [31]
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fuels/ (accessed on 21 June 2024).

The World Bank (2024), State and Trends of Carbon Pricing Dashboard, The World Bank, [9]
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10 June 2024).

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UK Treasury (2024), Factsheet: UK Carbon Border Adjustment Mechanism, [43]

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Warringa, G. (2021), Waste incineration under the EU ETS. An assessment of climate benefits, [62]
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Publishing, Paris, https://doi.org/10.1787/8f2963b8-en.

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Notes

1
Slovenia’s increase is the result of the reintroduction of a carbon tax, rather than a new instrument
entirely.

2
At the time of drafting the report.

3
It should be noted there are some exceptions to this as Hungary and the Netherlands have proposed
schemes that effectively cover the same emissions as the EU ETS but at a higher rate – this however
would not change the coverage of emissions for this exercise and therefore a reasonable assumption

4
At the time of drafting the report.

5
At the time of drafting the report.

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3 Taxing energy use: Developments in

Effective Energy Rates (EERs)

This chapter presents the current state of taxing energy use across countries,
sectors, and energy carriers through the Net Effective Energy Rates. Adding
electricity taxes and subsidies to the picture, this indicator illustrates trends
and considerations related to energy taxation and assesses requirements for
reforms to better protect vulnerable households in an energy crisis and
prepare tax systems for a growing energy demand that relies increasingly on
electricity.

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Although the energy crisis temporarily lowered effective rates on energy use and GHG emissions, it has
also spurred the investment in clean energy that may see the global demand for fossil fuels peak before
2030 (IEA, 2023[1]). This marks a turning point for the world economy as countries prepare to step up
efforts to mitigate climate change, while dealing with increasing energy demand, especially for
low-emission electricity. These developments accelerate the energy sector’s decarbonisation but bring
about challenges such as competitiveness concerns, potential exposure of vulnerable households to
higher energy prices, and tax base erosion, among other issues.
This chapter presents trends and changes in energy use taxation, focussing on their intersection with
climate goals. It explores the interactions of energy taxes and carbon prices with other policy goals such
as the protection of vulnerable households while decarbonising energy use, as well as interactions with
other tax policy instruments such as reduced VAT rates. It further analyses the shifting of tax bases and
its fiscal impacts through the rapid electrification of energy end-use with an in-depth analysis of the road
transport sector. Balancing the sometimes-conflicting objectives of achieving climate goals, building public
support, and respecting budgetary constraints requires foresight, good policy design, and flexible systems
that allow for uncertainty related to the structural shifts brought about the climate transition.

3.1. The Effective Energy Rate and its components

3.1.1. Specific taxes on energy use require better alignment with climate goals

This chapter presents estimates on how the 79 assessed economies effectively taxed energy use in 2023. 1
Together these economies account for 83% of global energy use and 82% of combustion-related CO2
emissions. To provide an informative and harmonised overview of countries’ approach tax-based energy
price signals across all forms of energy use, the OECD developed the indicator Effective Energy Rate
(EER) (OECD, 2015[2]).
The world is expected to see a considerable reduction in fossil fuel use while also an increase in energy
demand particularly in emerging economies with a growing population and with the continued electrification
of energy production (Figure 3.1). Electricity and fuel excise taxes were originally designed to raise
revenues and address distributional concerns. Today, these taxes can be important policy tools to
contribute to emissions reductions as specific taxes on energy use can change the relative price of energy-
and emission-intensive products and services. Governments should consider aligning energy taxation and
carbon pricing instruments with climate goals, accommodate shifts from combustibles to renewable energy
sources and adapt revenue raising approaches accordingly.

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Figure 3.1. Back to steady growth, global energy demand overshot pre-pandemic levels in 2021 and
are set to remain high in the future
Global energy supply and final energy consumption in EJ, historically by energy source and outlook, 2010-2040

Total Energy Supply

800
Biofuels

700
Wind, solar, etc.

600 Hydro

Nuclear
500
Natural gas
400
EJ

Oil

300 Coal

200 IEA STEPS

IEA APS
100
IEA NZE
0
2010 2015 2020 2025 2030 2035 2040

Final Energy Consumption

800
Non-energy use

700 Non-specified

Agriculture and
600 Fishing
Commercial and
Public Services
500
Residential

400
EJ

Transport

300 Industry

IEA STEPS
200
IEA APS
100
IEA NZE

0
2010 2015 2020 2025 2030 2035 2040

Note: The IEA models three scenarios for the global energy sector. The Stated Policies Scenario (STEPS) gives a sense of the energy system
progression, based on a detailed review of the current policy landscape and provides a conservative benchmark for the future by not taking for
granted that governments will achieve all announced climate ambitions. The Announced Pledges Scenario (APS) illustrates the extent to which
announced ambitions and targets can deliver the emissions reductions needed to achieve net zero emissions by 2050. The Net Zero Emissions
by 2050 Scenario (NZE Scenario) is a normative scenario that shows a pathway for the global energy sector to achieve net zero CO2 emissions
by 2050. (IEA, 2023[3]).
Source: (IEA, 2023[4]; IEA, 2023[5]).

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3.1.2. Taxing energy use across all combustible and electricity sources

The Effective Energy Tax Rate is defined as the sum of specific taxes on energy use, net of applicable
exemptions, rate reductions and refunds. Specific taxes on energy use include explicit carbon taxes, fuel
excise taxes and electricity excise taxes.2 The Effective Energy Rate (EER) includes, in addition to the
specific taxes on energy use, the energy price signals that results from ETS permits. All tax rates, which
are typically expressed in physical units (such as litres or kilogrammes) are converted into rates per
gigajoule (GJ) of energy based on the energy content of the product they apply to (this differs to the ECR,
which uses emissions as the base rather than energy). Aggregating rates and prices across different policy
instruments, energy sources, end-users or jurisdictions allows the construction of a detailed picture of the
state of taxing energy use.
Similar to the development of the ECR to the Net ECR, the Net Effective Energy Rate (Net EER) accounts
for fossil fuel subsidies and adds electricity subsidies that change the pre-tax price of energy products and
applies these to an energy base – EURs per GJ. Altogether, the Net EER captures the interaction of both
positive and negative price signals on energy use, including electricity. The Net EER gives insight into how
countries are tackling energy policy in conjunction with climate policy considerations and lead to better
policies for economies to use to learn, assess and measure the changes occurring. The trends in coverage
and the effective rates are reported, followed by analysis of several issues surrounding energy taxation
today.

Figure 3.2. The Net Effective Energy Rate (Net EER) and its components

Energy
Definition Component
(EUR / GJ)

Electricity Excise Tax All excise taxes that are levied on electricity.

All excise taxes that are levied on fuels and that are not
Effective Energy Tax Rate Fuel Excise
carbon taxes.

All taxes for which the rate is explicitly linked to the fuel’s
Carbon Tax carbon content, irrespective of whether the resulting carbon
price is uniform across fuels and uses.

Average ETS allowance price, resulting from auctioning or

Effective Energy Rate ETS Permit Price the spot market including free allocation.

Subsidies that reduce the pre-tax price of the electricity

Electricity Subsidy consumed domestically.
Net Effective Energy Rate Subsidies that lower pre-tax energy prices of fuels and
Fossil Fuel Subsidy uses domestically.

Source: Authors.

3.2. Trends in EERs and their coverage

3.2.1. A large share of energy use is not covered by a positive Effective Energy Rate

In 2023, about 53% of energy use was not subject to a tax on energy use or an explicit carbon price
(Figure 3.3). High-income countries generally levy higher rates than developing and emerging economies.3
On average, high-income countries taxed energy use at EUR 4.96/GJ in 2023, slightly down from

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60 

EUR 5.43/GJ in 2018. Covered low-upper and middle-income economies levied on average EUR 0.54/GJ
in 2023. The distribution of EERs, however, is heavily skewed in both country groups. There are many
reasons for differentiated taxation of different forms of energy use. Within an economy, revenue-raising,
energy mix and distributional considerations frequently lead to different rates across fuels, end-use sectors,
and consumer groups. Such a distribution can serve environmental goals as not all forms of energy use
impose equal external costs on society and the environment.

Figure 3.3. A large share of energy use is not covered by an energy tax or carbon price
The distribution of Effective Energy Rates across energy use, 2023

Note: Energy use data is for 2021, adapted from the IEA (2023[5]). Average tax rates do not include electricity and heating imports to avoid the
double-counting of this energy use. The vertical axis is cut off at EUR 25, but the share of energy use taxed at a higher rate is negligible. All
rates are expressed in real 2023 EUR using the latest available OECD exchange rate and inflation data; changes can thus be affected by
inflation and exchange rate fluctuations.
StatLink 2 https://stat.link/bdwaz4

3.2.2. Across countries, fuel excises dominate EERs but explicit carbon pricing is on the
rise, in particular among high-income countries

One reason for the heavily skewed distribution in EERs is that energy tax rates vary substantially by country
(Figure 3.4). Of all 79 countries covered, only four do not levy any specific taxes on energy use. In 44% of
the countries covered, energy use is subject to a positive EER below EUR 2/GJ and in 23% the rate is
higher than EUR 5/GJ. Fuel excise taxes are the most implemented policy instrument. All countries with a
positive EER levy a fuel excise tax. On average, they account for 74.5% of countries’ EER, making the fuel
excise tax currently the largest contributor to the indicator. While fuel excise taxes historically accounted
for the largest share in the EER of every country, in 2023, 12 countries levied a higher explicit carbon price
than fuel excise tax. In four of these, an increase in their carbon pricing level (as opposed to a reduction
in fuel excise tax rates) led to the change in instrument shares.
Generally, explicit carbon pricing instruments, i.e. carbon taxes and ETSs, are more common in high-
income countries. Among OECD members, only Costa Rica and Türkiye have yet to implement an explicit
carbon pricing instrument, although Türkiye has announced plans to introduce an ETS (Chapter 2). In low
to upper middle-income economies, about a quarter had not implemented an explicit carbon price in 2023.
Among these economies with an explicit carbon price are, among others, the EU member state Bulgaria,
China, Indonesia, Kazakhstan, South Africa, Singapore and Argentina. Of the 79 countries covered, 58%

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levy an electricity excise tax. Notably, all 27 EU member states have a positive rate in accordance with the
EU Energy Tax Directive of 2003, which prescribes a minimum rate. Electricity excise taxes are in almost
all countries the lowest component in the EER. A notable exception is Brazil, where electricity excises
account for 91% of the EER, as well as Sweden where they contribute 33%. OECD countries tax electricity
consumption on average at a rate of EUR 0.12/GJ. Only seven countries, all mid- and northern European
economies, levy a rate above EUR 0.5/GJ, among them the Netherlands with the highest rate of
EUR 2.21/GJ.

Figure 3.4. Across countries, fuel excises dominate EERs but explicit carbon prices are on the rise
among OECD members
Average Effective Energy Rates, by country and policy instrument, 2018 and 2023

Note: While not always discernible, all EU member countries levy electricity taxes. Energy use data is for 2021, adapted from the IEA (2023[5]).
Average tax rates do not include electricity and heating imports to avoid the double-counting of this energy use. All countries are covered for
2023, with varying country composition according to the coverage of previous editions in other years. All rates are expressed in real 2023 EUR
using the latest available OECD exchange rate and inflation data; changes can thus be affected by inflation and exchange rate fluctuations.

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3.3. Trends in Net Effective Energy Rates

This section presents the state of Net Effective Energy Rates (Net EER) across energy sources and
countries. It assesses how subsidies on fossil fuels and electricity use change the Net EER and explains
impacts on energy use patterns and countries’ revenue generation.

3.3.1. Fossil fuels face overall higher Net EERs than other energy sources

Taxing relatively carbon-intensive forms of energy use at higher net effective rates can shift energy demand
towards low-emitting energy sources. There remains scope to better align Net EERs with the carbon
content of fuels and thus GHG emissions. However, incentives for reducing the demand for emissions-
intensive combustible fuels are also affected by the relative tax burden of fossil fuels via other energy
sources that do not generate GHG emissions when used (and are hence beyond the scope of Net EERs).
Low-emission energy sources are renewable energy sources, such as hydropower, solar PV, and wind
power. Therefore, a higher relative tax treatment on fossil fuels can strengthen the economic case for
electrification in a reasonably decarbonised electricity mix, e.g. switching to electric vehicles in road
transport or electrifying industrial processes.
Figure 3.5. On average, fossil fuels face a higher Net EER than other energy sources
Net Effective Energy Rates, by energy source, 2023

Note: Fuel excise taxes levied on hydro and solar, wind, ocean consist of electricity input taxes that were been implemented in Norway as of
01 April 2023. Energy use data is for 2021, adapted from the IEA (2023[5]). Average tax rates do not include electricity and heating imports to
as the primary energy use is not known and to avoid the double-counting of this energy use. Due to data limitations, fossil fuel subsidy estimates
for 2023 are based on data for 2022. All rates are expressed in real 2023 EUR using the latest available OECD exchange rate and inflation data;
changes can thus be affected by inflation and exchange rate fluctuations.
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Comparing the compononents of the Net EER’s energy sources shows that nearly all fossil fuels face
higher rates than low-emitting energy sources (Figure 3.5). Overall, 89% of the energy use grouped by
energy sources was subject to a positive Net EER in 2023, a lower share than in 2021 where principally
all energy use faced a positive rate. As in 2021, petroleum products, mainly used in road transport (gasoline
and diesel), faced by far the highest Net EER. On average across all covered countries, gasoline and
diesel were subject to EUR 5.6/GJ and EUR 4.3/GJ, respectively. While coal, other solid fossil fuels, and
natural gas faced nearly the same Net EER in 2021. The picture has changed in 2023, where coal faces

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a higher rate than natural gas. This change was caused by the introduction of the China ETS in July 2021,
covering the country’s large, coal-intensive power sector. This increased coal’s explicit carbon price and
thus, its Net EER, while natural gas received on average more fossil fuel subsidies. Given the higher
carbon content of coal relative to gas, this is a positive development from an environmental perspective.
However, the increased subsidy level for natural gas made it also relatively cheaper than biofuels. Biofuels
have previously been exempted from fuel excise taxes in many countries, but more recently preferential
tax treatment has been phased down or connected to environmental performance, such as higher blending
ratios when used in road transport, restricting the applicable base.
The emissions-free electricity sources – geothermal, solar, wind and ocean and nuclear – are subsidised,
pointing to stronger incentives for the decarbonisation of the electricity mix and electrification. In contrast,
hydro power faces a low positive Net EER in 2023. This results from an electricity input tax, included in
this edition under fuel excise taxes that had been temporarily implemented in Norway between 2022 and
2023. With a Net EER of EUR -1.0/GJ, LPG receives the largest subsidy per GJ. Some non-OECD
economies, notably Indonesia, Egypt, Morocco, Ecuador, Malaysia and India, subsidise LPG use to
provide cleaner and affordable energy to low-income households. For instance, India supports vulnerable
households in the uptake of LPG as a clean, modern cooking fuel to reduce use of solid biomass. While
there might not be immediate and clear benefits for the climate, such measures can greatly improve health
and livelihoods through indoor air pollution reduction.
The fossil fuel surcharge – the difference between the Net EER on fossil fuels and on other energy sources
(excluding biofuels) – tends to be higher in countries with a relatively higher average Net EER on fossil
fuels (Figure 3.6). For instance, Switzerland, Denmark and Iceland have some of the highest average Net
EERs on fossil fuels, as well as some of the highest fossil fuel surcharges. In these countries, fossil fuels
are on average priced over EUR 5/GJ higher than other energy sources. However, the two indicators are
not always correlated. In Greece for example, the Net EER on fossil fuels is relatively low at EUR 0.47/GJ,
but this still represents a large surcharge of EUR 14.11/GJ relative to other energy sources, which are
effectively subsidised.
There are 13 countries in which both fossil fuels and other energy sources are effectively subsidised,
evidenced by the negative Net EER for both. While it is more desirable to send a strong price signal to
reduce fossil fuel use through a positive and relatively higher Net EER applied to fossil fuels than other
energy sources, a lower rate of effective subsidies can still maintain incentives to switch to lower-emitting
energy sources to an extent. This is the case for Nigeria, Dominican Republic, Kazakhstan, Sri Lanka and
Burkina Faso. In fact, Burkina Faso has the largest fossil fuel surcharge at EUR 16.80/GJ, although the
Net EER on fossil fuels and other energy sources are negative.
In contrast, if the Net EER is relatively lower on fossil fuels than other energy sources – representing a
fossil fuel discount – this distorts incentives to decarbonise and switch to other energy sources. This is the
case in 11 countries. On average, the fossil fuel discount is low at EUR 1.06/GJ. Most of these countries
have a negative (or otherwise very low) Net EER on fossil fuels but for some, the discount relative to other
energy sources is substantial. For instance, in Ethiopia, the fossil fuel discount is EUR 3.24/GJ. These
discounts can be driven by either relatively high taxes on the consumption of electricity (e.g. Brazil) or
because of relatively high subsidies on fossil fuels (e.g. Ecuador), or a combination of both (e.g. Morocco).
However, the fossil fuel surcharge is affected by the composition of countries’ energy use and therefore
must be interpreted with caution.

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64 

Figure 3.6. Most countries levy a positive fossil fuel surcharge, but sizes vary substantially
Fossil fuel surcharge (Average Net EER on fossil fuels – Average Net EER on other energy sources (excl. biofuels))
by country, 2023

Note: Energy use data is for 2021, adapted from the IEA (2023[5]). Due to data limitations, some fossil fuel subsidy estimates in this edition are
based on data for 2022. Average tax rates do not include electricity and heating imports to as the primary energy use is not known and to avoid
the double-counting of this energy use. All rates are expressed in real 2023 EUR using the latest available OECD exchange rate and inflation
data; changes can thus be affected by inflation and exchange rate fluctuations. Prices are rounded to the nearest eurocent.
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3.3.2. Impact of electricity taxes and subsidies on revenues

As discussed in Chapter 2, revenues from carbon and energy pricing instruments can be a substantial
source of government revenue, and the relative volume and makeup of revenues from different pricing
instruments differs across countries. Overall, revenues from energy taxes and carbon prices exceeded
expenditures on fossil fuels and electricity subsidies, resulting in net positive revenues (Figure 3.7). Almost
all OECD countries collect positive revenues from Effective Energy Rates and net revenues amount on
average to 1% of GDP, which is more than three times the relative share of other economies assessed.
The role of electricity taxes in government revenues varies substantially across countries. Of the 79
countries covered, 32 do not apply taxes on electricity use. Among those that levy an electricity excise tax,
its role in revenues is still small relative to other tax instruments – on average just 0.09% of GDP. However,
within specific countries, such as the Netherlands, Sweden and Finland, revenues from electricity taxes
make a substantial contribution to government revenues, reaching as high as 0.6%. This is caused by a
high electricity tax rate, a broad tax base due to a high degree of electrification, or a combination of both.
A similar number of countries do not subsidise electricity consumption, although there appears to be no
clear correlation between countries’ decisions to tax and subsidise the consumption of electricity. Among
the countries that do subsidise electricity, these expenditures amount to 0.4% of GDP on average. For
those that have both taxes and subsidies for electricity, expenditures tend to be larger than revenues
generated. On average, expenditure on electricity subsidises as a share of GDP is 0.3 percentage points
higher than the revenues earned from electricity taxes. In Burkina Faso, Bulgaria and Greece, where
electricity subsidies are particularly high, the expenditure on electricity subsidies is almost 3 percentage
points higher than revenues. In general, however, the role of electricity pricing instruments in net revenues
for governments remains substantially smaller than that of other instruments on average.
The relative importance of electricity taxes, both as a tool to contribute to climate change mitigation as well
as to raise government resources is set to increase. As economies are increasingly electrifying energy
use, revenues collected from electricity taxes, as well as revenues foregone due to electricity subsidies,
are likely to change. Moreover, electricity taxes and subsidies also interact with other taxes, such as explicit
carbon prices and other policy concerns that include ensuring energy security and affordability
(Section 3.4). In addition, an important determinant of energy-related government revenues and
expenditures going forward will be how the overall tax base and the share of electricity and other energy
products develop as the structure of energy sector evolves (Section 3.5).

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Figure 3.7. Electricity taxes and subsidies play a minor role in net revenues from Net Effective
Energy Rates
Net energy revenue estimates, by country, 2023

Note: Revenue estimates may be considered an upper bound of the actual revenue potential as they are estimated on historical data (fewer and
more expensive low-carbon technologies, lower carbon prices, few developing countries in the sample). Estimates are for fossil fuel CO2
emissions and do not include the revenue potential from reforming the pricing of other GHG or biofuels. Through accounting for free allocation,
the net effective rates in these revenue estimates represent an average, rather than marginal Effective Energy Rate, as is used elsewhere in
the report.
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3.4. Impacts of the energy crisis on Net Effective Energy Rates

Energy consumption can represent a significant share of household expenditure, especially for low-income
households (OECD, 2022[6]), and is closely tied to other policy concerns concerning energy poverty and
the affordability of heating or cooling, cooking, transport and others. This dual challenge became
particularly striking during the energy crisis in 2022 which had significant costs to households, and poorer
households faced a disproportional burden compared to higher-income groups (Guan et al., 2023[7];
OECD, 2024[8]). This section summarises governments’ broad responses to the energy crisis that resulted
in a substantial increase in support to households and firms and showcases the importance of targeting
such measures to support vulnerable households more efficiently.

3.4.1. Governments responses to protect households during the energy crisis decreased
the Net EER of most economies

Soaring fuel and electricity prices during the energy crisis in 2022 triggered many governments to adopt
large fiscal packages primarily to support households. These packages included a range of different
support measures, which are detailed with examples in Table 3.1. Price support measures reduce the
marginal energy prices paid by households or firms (e.g. reduced or capped energy prices or reduced fuel
excise tax rates). Income support measures are split into two categories: energy-related income measures,
which support income through discounting energy payments, and non-energy-related income measures,
which support income through channels not related to energy use reduction in income taxes. Both can be
in the form of tax measures or budgetary transfers (subsidies), and energy-related measures can also be
in the form of reduced, regulation or capped average energy prices.

Table 3.1. Examples of government relief measures during the energy crisis
Category Mechanism Example
Energy Tax measure Specific tax: In March 2022, Belgium reduced fuel excise taxes on diesel and petrol, resulting in a
price decrease of 17.5 cents per litre at the pump (VRT NWS, 2022[9]).
support Sales tax: Spain made a series of cuts to VAT rates on energy products. For electricity, the rate was
lowered from 21% to 10% in March 2022 and further to 5% in July 2022. For natural gas, the rate was
lowered from 21% to 5% in October 2022 ( (Enerdata, 2022[10]).
Reduced, regulated or In November 2022, the Netherlands introduced a support package for energy-intensive and small and
capped marginal energy medium-sized enterprises (SMEs) which compensated SMES for 50% of their energy costs above a
prices certain threshold price per energy sources (Central Government of Netherlands, 2022[11])
Income Tax measures From March 2022, fuel vouchers from private-sector firms to their employees was allowed to be exempt
support from taxation in Italy (Italian Official Gazette, 2022[12]).
(energy- Budgetary transfers France provided a one-off top-up to the means-tested energy voucher in December 2022 (Borne,
related) 2022[13]).
Reduced, regulation or In October 2022, Poland implemented a freeze on electricity prices for 2023 for household consumption
capped average energy up to 2,000 kWh per year, with higher thresholds for large families, households with disabled persons
prices and farmers (Polish Chancellery of the Prime Minister, 2022[14]).
Income Tax measures For a six-month period starting in September 2022, Canada doubled its existing federal goods and
support services tax credit to low-income households (Parliament of Canada, 2022[15]).
(non- Budgetary transfers In July 2022, Germany distributed additional cash transfers to a number of existing beneficiary groups,
energy including for instance, those receiving social assistance, unemployment benefits and basic income
related) (German Press and Information Office, 2024[16]).
Other Any mechanisms not In May 2022, the UK introduced the Energy Profit Levy which imposed a surcharge of 25% (later
classified elsewhere. increased to 35%) on the windfall profits made by companies in the oil and gas sector, on top of the
40% headline rate (UK Treasury, 2022[17]).

Note: The measures and examples listed are not exhaustive.

Source: Framework adapted from (Castle et al., 2023[18]).

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Governments responses to the energy crisis included both significant cuts to fuel excise taxes and
increases in subsidies to fossil fuels in form of budgetary transfers.4 While some countries paused or
reversed advancements of their explicit carbon pricing policies, on average across all countries, explicit
carbon pricing remained overall relatively resilient to the pressures of the energy crisis. As a result, the Net
EER decreased from 2021 to 2023 in most countries (Figure 3.8). On average, the Net EER dropped by
about 25% (EUR 0.44/GJ) between 2021 and 2023.
While some emerging and developing economies have long-standing subsidies on electricity and fossil
fuels, the energy crisis triggered in 2022 multiple OECD countries to implement such measures. In these
economies, most support was initially introduced as a temporary measure for several months but has been
extended in multiple times in many cases. Many measures were still in place in 2023 and a few continued
operating in 2024. Therefore, the full impact of the energy crisis on taxation of energy use will only manifest
in the upcoming years.
The United Kingdom and France adopted broad fiscal support packages that increased subsidies of
electricity and fossil fuels in 2022 to EUR 4.74/GJ and EUR 3.17/GJ, respectively. The United Kingdom
introduced in 2022 multiple income and energy price support measures of which most were extended or
replaced until spring 2023 or 2024. The Energy Bill Relief Scheme (October 2022 to March 2023) and then
the Energy Bills Discount Scheme (April 2023 to March 2024) provided a discount on wholesale gas and
electricity prices for non-domestic consumers (UK Government, 2023[19]; UK Government, 2023[20]). The
Energy Price Guarantee capped households’ annual bills of electricity and natural gas use (combined) at
GBP 2500 until June 2023. Afterwards, support from the Guarantee was lowered to a cap of GBP 3000.
Due to falls in energy prices, the price cap was not required until it ended in March 2024 (UK Parliament,
2024[21]). In addition, about 80% of British households benefitted from a non-refundable Council Tax
Rebate of GBP 150 on their annual energy bill and a Discretionary Fund for billing authorities provided
low-income individuals additional support between February 2022 and April 2023 (UK Government,
2022[22]). Further, the UK also reduced fuel excise taxes on petroleum products in March 2022 and
extended the measure twice until March 2025 (UK Office for Budget Responsibility, 2024[23]).
France put in place a cap on regulated prices of natural gas and electricity, adopted sectoral subsidies for
firms, lowered the electricity excise tax and introduced a one-off subsidy on gasoline and diesel
consumption of EUR 0.10 to 0.30 per litre (Government of France, 2022[24]). This one-off subsidy was fully
phased out in December 2022 and even with a new, transitionary measure, a voucher on road fuels, which
was in place over the course of 2023- support for road transport fuels strongly decreased. In contrast, other
measures such as the electricity excise tax reductions and cap on regulated prices of natural gas and
electricity have been extended multiple times (Government of France, 2024[25]; Government of France,
2023[26]).
Greece took numerous steps to shield households from soaring energy prices since autumn 2021. Efforts
include expanding existing measures targeting energy poverty and introducing broader measures to
reduce energy prices for most consumers. As a result, the Net EER dropped to EUR - 2.77/GJ from EUR
5.79/GJ in 2021. Total subsidies in the form of budgetary transfers were estimated at EUR 5.43 billion in
2022, quadrupling in only one year (OECD, 2023[27]). Between September 2021 and March 2023, Greece
strongly increased subsidies of electricity consumption for households and businesses (OECD, 2023[28]).
Support was extended on a lower level throughout 2023 (Ekathimerini, 2023[29]; Ekathimerini, 2023[30]).
Additional interventions during the year included tax reliefs for farmers’ fuel, subsidy on heating oil price
and increase of the heating benefit allowance. Responses to the energy crisis are expected to be phased
out in 2024 (Government of Greece, 2023[31]).

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Lithuania experienced a drop in its Net EER of EUR 3.66/GJ between 2021 and 2023. Lithuania introduced
support measures for firms and households’ gas and electricity bills in 2022. While electricity subsidies
were ended mid-2023, support for gas was extended until end of the year and then fully phased out
(Government of Lithuania, 2023[32]).
Japan introduced in January 2022 a new subsidy for wholesale energy distributers to limit retail price
increases of multiple petroleum products, spending over the course of the year EUR 23.32 billion. As a
result, Japan’s Net EER dropped from EUR 2.37/GJ in 2021 to EUR 0.4/GJ in 2023. The initially temporary
measure has been extended multiple times, most recently until December 2024 (Japanese Ministry of
Economy, Trade and Industry, 2024[33]). While the support rate increased in the first extensions, it has
been gradually reduced in the past months, standing in February 2024 at about JPY 20 per litre of gasoline,
diesel and kerosene (Koshoji, 2024[34]).
While the energy crisis triggered the greatest changes to fossil fuel subsidies in European countries and
Japan, other economies saw their spendings multiplying due to higher international fuel prices or had to
expand existing measures to support consumers. For instance, in Colombia, the Fuel Price Stabilisation
Fund which compensates since 2007 suppliers for discrepancies between domestic gasoline and diesel
tariffs and international prices, saw its deficit rise since 2021, leading to a surge of the country’s fossil fuel
subsidies (OECD, 2023[27]). Ecuador, Sri Lanka and Burkina Faso saw there Net EER drop by more than
EUR 3/GJ due to higher fossil fuel subsidies.
Instead of raising subsidies on energy use, a few countries also lowered rates of fuel and electricity excise
taxes. Apart from Lithuania and the United Kingdom, Israel and Ireland adopted larger decreases in their
fuel excise taxes to contain price increases during the energy crisis. While Ireland’s response did not have
any budgetary transfers, the government reduced in March 2022 the fuel excises applying to automotive
diesel, petrol and marked gas oil. The measures were extended at lower levels and have been phased out
in August 2024 (Irish Department of Finance, 2024[35]). Similarly, Israel substantially reduced its fuel excise
tax rates on diesel, gasoline and coal in April 2022. Rate reductions for coal and gasoline were extended
until the end of 2023 and fully phased out as of 2024 (Dori, 2024[36]; Israeli Ministry of Finance, 2023[37]).
Denmark decreased its electricity excise tax rate in 2022 initially by DKK 0.04 to DKK 0.723/kWh and then
expanded the reduction until June 2023 to the EU minimum rate of DKK 0.008/kWh (Danish Ministry of
Finance, 2022[38]). Not having adopted any subsidies on energy use and slightly increased its explicit
carbon prices in 2023, Denmark continues to levy one of the highest Net EERs in the database.

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Figure 3.8. Governments ramped up fossil fuel and electricity subsidies during the energy crisis
Net Effective Energy Rates, by country, 2021 and 2023

Note: Energy use data is for 2021, adapted from the IEA (2023[39]). Due to data limitations, some fossil fuel subsidy estimates in this edition are
based on data for 2022. Average tax rates do not include electricity and heating imports to as the primary energy use is not known and to avoid
the double-counting of this energy use. All 79 countries are covered for 2023 with varying country composition according to the coverage of
previous editions in other years. All rates are expressed in real 2023 EUR using the latest available OECD exchange rate and inflation data;
changes can thus be affected by inflation and exchange rate fluctuations. Prices are rounded to the nearest eurocent.
StatLink 2 https://stat.link/ciybtk

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3.4.2. Targeted response measures to the energy crisis

Some countries enacted policies that provided targeted and timely support to vulnerable households in the
wake of rising fuel prices in particular for natural gas, oil and electricity (Castle et al., 2023[18]). For example,
means-tested income support through cash transfers or energy bill vouchers via existing social assistance
programmes, as well as other forms of transfers such as targeted energy efficiency transfers, work to
reduce the burden for the most vulnerable households (Sgaravatti et al., 2021[40]). The use of existing
social assistance systems allowed for measures to be introduced and received by households in a timelier
manner than where new administrative structures needed to be created.
In contrast, broad-based policies such as cuts to excise tax rates or VAT rates and caps on retail prices of
energy taxes effectively worked to subsidise the energy consumption of all households and not just
vulnerable households. This included those that had better means to cope with the energy crisis and
included non-essential expenditures such as the heating of private swimming pools, saunas, etc. Such
broad-based policies tend to be more expensive for governments, less efficient in providing relief and
weaken incentives for all households to reduce energy use or switch to renewable energies instead (Van
Dender et al., 2022[41]). Moreover, broad-based policies can have compounding effects making their effects
even larger. For example, VAT is generally applied to a tax base that includes excise duties such that a
reduction in the fuel excise tax rate will also lead to a reduced amount of VAT applicable to the fuel product
(Box 3.1).
With the exception of Chile, all OECD countries that operate a VAT apply one or more reduced rates to
pursue various policy objectives particularly to address equity concerns for necessary commodities (such
as food, education, housing, heating and electricity). To mitigate undesired social impacts of energy price
surges triggered by the energy crisis since 2021 many countries introduced further reductions in VAT rates
as part of broader policy packages to immediately relieve household budgets. Policymakers most
commonly reduced the VAT rates applied to electricity, natural gas and heating fuels though decisions also
depended on countries’ relative fuel mix. In most countries, the duration of these temporary measures was
initially set to about a few months, but rates were cut further and their duration extended in many countries
or even made permanent. As a result, countries still apply reduced VAT rates to a number of energy
products, although available evidence suggests that the application of reduced VAT rates remains a poor
tool for targeting support to lower income households since rich households have a much higher aggregate
benefit from a reduced VAT since they consume more in absolute terms (OECD/KIPF, 2014[42]). Reduced
VAT rates that have been adopted prior to or during the energy crisis and currently apply to energy products
consumed by households such as residential heating networks (Belgium, France, Greece, Hungary, Latvia,
Lithuania and Luxembourg); heating fuel oil (Iceland, Luxembourg and the United Kingdom); gas for
domestic use, either permanently (Belgium, Greece, Italy, Luxembourg and the United Kingdom) or
temporarily (Germany and Ireland); and electricity either permanently (Belgium, Greece, Iceland, Italy,
Luxembourg, Türkiye and the United Kingdom) or temporarily (Ireland, Portugal and Spain).

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Box 3.1. The interaction of VAT on energy products and specific taxes on energy use
VAT is a broad-based tax on consumption, in principle applied equally to all products, and therefore
does not change the relative price of carbon-intensive goods. However, in practice, many countries
apply preferential (i.e. reduced) VAT rates on specific products. Through this channel, VAT interacts
with Effective Energy Rates by providing a form of subsidy for certain products. Unlike other taxes
examined in this report, which are calculated on a quantity of commodities (e.g. litres of fuel, tonnes of
CO2 or kilowatt electricity), VAT is levied on the sales price of the product. If the VAT base includes fuel
excise duties (as they generally do), these duties contribute to the VAT burden. The VAT rate applicable
to a product therefore has a dual impact on the total amount of taxes collected and on their composition.

Figure 3.9. Overall cost and VAT burden on energy used by households
Selected energy carriers, consumption weighted averages by end use
60

50

40
EUR per GJ

30

20

10

0
Gasoline Diesel Natural gas Heating oil LPG Electricity
Road Transport Road Transport Heating Heating Heating Electricity Consumption

Pre-tax price Excise Explicit carbon price VAT x Price burden VAT x Taxes burden VAT reduction

Note: While VAT reductions (‘deviations from the standard rate’) are sometimes illustrated as subsidies (Agnolucci et al., 2023[43]), the CPET
database presents the reduction on the positive side of the y-axis for this application which is consistent with its approach on fuel excise tax
exemptions and refunds. Rates and prices applicable 01/04/2023. Eight countries have reduced rates on heating fuels, with seven among
them concerning natural gas. Additionally, nine countries apply reduced rates on electricity use and another seven on district heating
Source: Tax rates from CPET database. VAT standard and reduced rates from Consumption Tax Trends 2024 (OECD, forthcoming[44]).
Energy use data refers to 2021 (IEA, 2023[5]; IEA, 2024[45]; IEA, 2024[46]).
StatLink 2 https://stat.link/6in5y9

Figure 3.9 unpacks the total energy cost of selected energy carriers faced by households in 38 OECD
countries into pre-tax prices, excise taxes and explicit carbon prices, and the VAT burden. Additionally,
it illustrates what the total price would be if VAT reductions (acting as price subsidies) were not in place.
The figure demonstrates that the pre-tax, end-use prices (in EUR/GJ) for the oil products are similar,
while excise taxes dominate the tax components of gasoline and diesel in the road transport sector.
The VAT x Taxes burden is only visible in the road transport sector because that is where higher
Effective Energy Rates apply. The relatively lower VAT burden on gasoline is because the United States
account for the majority of OECD gasoline consumption but does not apply a VAT on automotive fuels.
VAT reductions have a meaningful impact on natural gas combusted by households and on electricity
use. However, taxes on electricity consumption do not transmit carbon price signals. If VAT is
decomposed into the VAT reduction into an economy-wide pre-tax price component and a taxes-burden
component, it is straightforward to note that it will be dominated by a reduction in the former rather than
the latter. In conclusion, the VAT burden or reduction is dominated by its economy-wide component.

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The OECD’s Energy Support Measures Tracker takes stock of and assesses the budgetary cost of
government interventions in response to the energy crisis since February 2021 (Castle et al., 2023[18]).
Across 41 countries assessed (all OECD members except Iceland, Hungary and Switzerland, as well as
Brazil, Bulgaria, Croatia, India, Romania and South Africa), the estimated cost of announced support
measures is about USD 400 billion in 2022 and USD 405 billion in 2023. Measures in the form of energy
price support account for about 52% of the total cost over 2022 to 2023, followed by energy-related income
(30%). Countries’ relative expenditures on targeted versus untargeted measures demonstrate that certain
types of policy measures, notably budgetary transfers, are better suited for addressing specific groups of
the population. Only 23% of the estimated costs were spent on targeted measures, as opposed to the 77%
spent on untargeted measures, meaning they benefit all households, firms or energy users the same. In
most countries, the decision to use untargeted support measures were motivated by the relatively higher
administrative burdens of developing and introducing targeted measures, which require various types of
information on energy users. Over the course of the period, however, governments shifted to a greater use
of income support measures (OECD, 2022[47]). This could reflect the relative ease with which price support
measures can be administered (since they are broad-based and do not require identifying and creating
channels of distribution to specific groups), or it may be an indication of lessons learned. The trend may
indicate that governments changed their policy approach upon evaluating the effectiveness of the two
approaches, as well public demands for more targeted measures for the most vulnerable groups of the
population.
Survey data collected by the OECD (Dechezleprêtre et al., 2022[48]) during the height of the energy crisis
(March 2021 - March 2022) on attitudes toward climate change policies demonstrate that households
themselves also have a preference for targeted, means-tested support mechanisms to be incorporated
into carbon pricing policy design, rather than broad-based support. Across all countries included in the
survey, there is greater support for a carbon tax with cash transfer for the poorest households of the
population, versus with cash transfers to all households (Figure 3.10). As described prior, social protection
measures are one form of revenue recycling that can be used to improve the public acceptability of carbon
and energy pricing policies (Chapter 2). Targeting relief measures to those who will be affected by such
policies the most can help policymakers address potential opposition to the implementation of carbon and
energy pricing policies.

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Figure 3.10. Households prefer targeted, rather than non-targeted, support measures for carbon
taxes
Support for different types of carbon taxes, in %, by country

with cash transfers to poorest households with cash transfers to all households

100
90
80
70
60
50
40
30
20
10
0

Source: (Dechezleprêtre et al., 2022[48]).

In the light of potential future energy price fluctuations, the recent energy crisis demonstrated important
considerations in protecting vulnerable households as countries to move to increasing tax rates on energy
and decreasing broad-based fossil fuel support measures. To this end, countries need to be able to identify
vulnerable households and understand their diverse patterns of energy consumption which differ across
countries (OECD, 2023[49]). Further, governments should prioritise measures that provide targeted relief to
vulnerable households, rather than broad-based support in the form of fossil fuel or energy subsidies.
While fossil fuel subsidies can support low-income households, they do so in an economically inefficient
way, encouraging emission-intensive energy consumption and reduces the fiscal room for alternative
effective policy actions. Phasing down fossil fuel subsidies requires careful considerations to protect
households from high energy prices. Steep price hikes resulting from a rapid and deep cut to fossil fuel
subsidies can severely impact the socio-economic wellbeing of low-income households. Thus, the phase
out of broad-based fossil fuel support to promote the transition to a low-carbon energy sector must be
incremental with sufficient incentives for low-carbon investment while building robust social protection
systems.
On a broader scale, the energy crisis prompted a duality of responses from governments as they sought
to address the challenge of both, ensuring energy affordability and enhance energy supply security. The
energy crisis promoted a surge in electricity and fossil fuel subsidies to protect households from soaring
energy prices. To ensure short-term energy security of energy supply, it led to a scramble to secure fossil
fuel resources, as well as investments in fossil fuel extraction and distribution infrastructure to diversify
supply chains. At the same time the energy crisis re-emphasised the imperative to transition to locally-

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deployed, renewable energy technologies and decrease the dependence fossil fuel imports for both
environmental and energy security reasons. Between 2022 and 2023, global clean energy investment
increased by 17% (BloombergNEF, 2024[50]) and in 2024, global investments in clean energy reach about
USD 2 trillion, twice as much as fossil fuels (IEA, 2024[51]). This sets the scene for long-term structural
changes to the economy that result from shifts in the composition of global energy supply which have
important implications for energy tax bases.

3.5. Transitioning tax bases from combustibles to electricity

3.5.1. Rapidly transitioning energy systems boost the share of electricity in energy end-
use

Despite the turmoil the global energy crisis created in 2022 in the energy sector, it has substantially
accelerated clean energy transitions, as governments have responded with stronger policies to improve
energy security using low-carbon sources. About 500 GW of renewables electricity generation capacity
were built worldwide in 2023. While in 2020 only one in 25 cars sold was an electric vehicle, this number
surged to one in five in 2023. Heat pump sales in Europe grew by 40% in 2022, contributing to a switch
from natural gas to electricity in buildings (IEA, 2023[52]). Further, the global energy crisis may be able to
pave the way for phasing down of fossil fuel use: The IEA estimated that the momentum behind clean
energy transitions around the world is sufficient for global oil, natural gas, and coal demand to peak before
2030 (IEA, 2023[1]). Representing two sides of the same coin, these developments bring about fuel
switching in the energy demand of an unprecedented speed and scale: from combustible fossil fuels to
electricity.

Box 3.2. The shift from combustible fossil fuels to electricity in the IEA Scenarios
In 2022, global final energy consumption consisted of 38% oil, 20% electricity, coal and natural gas
30%. The industry sector consumed 38%, followed by buildings (30%) and transport (26%). Figure 3.11
shows that in all IEA scenarios, the share of fossil fuels in global demand is set to decline, while
electricity consumption surges. In the IEA’s Stated Policies Scenario (STEPS), the share of fossil fuel
consumption decreases to about 55% as electricity demand increases by 80% to nearly 160 TJ by
2050. While global fossil fuel demand remains stable until 2050, consumption trends differ by region,
with strong demand reductions the United States and the European Union. In the IEA’s Announced
Pledges Scenario (APS), illustrating the extent to which announced 2030 climate targets and longer-
term net zero or carbon neutrality pledges, changes are more pronounced. Driven by climate action in
Europe and the United States and the carbon neutrality pledges of India and China, electricity
consumption exceeds oil demand before 2040 and accounts for more than 40% of global final energy
consumption in 2050. In absolute terms, fossil fuel use drops by nearly 45% below 2022 levels, with oil
demand contributing to more than half of the reduction. In the IEA’s most ambitious Net Zero Emissions
by 2050 Scenario (NZE), electricity consumption would surpass oil demand before 2035, accounting
for more than half of the final energy consumption (IEA, 2023[1]).

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Figure 3.11. The share of electricity in energy consumption surges in a decarbonising world
Global final energy consumption by energy source and IEA scenario, 2022-2050

Stated Policies Scenario Announced Pledges Net Zero Emissions Scenario

60% 60% Scenario 60%

50% 50% 50%

40% 40% 40%

30% 30% 30%

20% 20% 20%

10% 10% 10%

0% 0% 0%
2022 2050 2022 2050 2022 2050
Electricity Oil Natural Gas Coal Biofuels Hydrogen and related fuels

Note: The IEA models three scenarios for the global energy sector. The Stated Policies Scenario (STEPS) gives a sense of the energy
system progression, based on a detailed review of the current policy landscape and provides a conservative benchmark for the future by
not taking for granted that governments will achieve all announced climate ambitions. The Announced Pledges Scenario (APS) illustrates
the extent to which announced ambitions and targets can deliver the emissions reductions needed to achieve net zero emissions by 2050.
The Net Zero Emissions by 2050 Scenario (NZE Scenario) is a normative scenario that shows a pathway for the global energy sector to
achieve net zero CO2 emissions by 2050. (IEA, 2023[3])
Source: Based on (IEA, 2023[4]), Figure 3.4.

3.5.2. Fuel switching towards electricity requires reforms of energy taxes

Taxes on energy use are an important source of government revenue

Energy use is an important tax base for government revenues. Fuels used in road transport or electricity
in residential buildings are essential commodities for most households, making their consumption relatively
stable to price shocks and as a result, a reliable tax base in the medium-term.5 Taxes on energy use
accounted on average for 3.2% of fiscal revenues in OECD countries in 2021. While total revenues from
energy taxes have been increasing, their average share in the total tax revenues has declined down from
5.3% in 2016 (Elgouacem et al., 2019[53]).
Fuel excise taxes on road transport fuels (gasoline and diesel) account for more than 45% of total revenues
from carbon pricing and specific energy taxes. This is because, except for road transport, most of fossil
fuel energy uses are either untaxed or taxed at low or reduced rates. International aviation and sea
transport are not taxed. Off-road transport (including agricultural transport) is usually taxed at lower rates.

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Switching consumption towards clean energy sources transitions potential tax bases

Achieving national pledges and targets to reach net zero emissions mid-century requires a strong reduction
of oil, natural gas and coal consumption in nearly all major regions around the world. In the next decade,
the decline is particularly pronounced in advanced economies in Europe, the United States, Japan and
Korea where fossil fuel consumption has already peaked (IEA, 2023[1]). Advanced economies, in particular
European countries have adopted wide-ranging measures to tax energy use and price emissions and levy
the highest effective rates (Figure 3.4). Consequently, a shift away from fossil fuel use to low-carbon
sources such as renewable electricity, will see a substantial decrease in public revenues from fuel excise
taxes and carbon prices in the long-run. The speed of transition away from fossil fuels to electricity differs
by end-use sector. It is well underway in the road transport sector where some governments already face
substantial fuel excise tax revenue losses due to a declining demand of diesel and gasoline. While
countries with high effective fuel excise rates are expected to face substantial tax revenue losses in the
medium to long term, the transition to low-carbon energy sources such as electricity also can have positive
fiscal impacts for countries that subsidise fossil fuels or are depending on imports of commodities, in
particular petroleum products.
The transition away from combustibles increases electricity consumption while gradually building a new
energy tax base across all end-use sectors. Examples besides the rise in electric vehicle sales are the
uptake of heat pumps to replace natural gas boilers in buildings or the electrification of industrial processes.
Bringing to light the importance of electricity use in industrial activities, governments in the European Union
have started using reductions of levies and taxes to adjust the electricity price to steer industrial
competitiveness (McWilliams et al., 2024[54]). The power sector has also begun decarbonising. Phasing
down the use of coal and natural gas reduces fuel excise tax revenues but builds a potential tax base in
the future: renewable electricity. As the first country in the world, Norway has adopted in 2022, electricity
input taxes on renewables. The country’s electricity mix consists to 98% on hydro- and wind power. An
additional Excise Duty on Power (High-Price Contribution) was introduced from September 2022 to
October 2023 due to high electricity prices in the energy crisis. It applied to electricity generated by hydro
and wind power plants of a monthly average price above NOK 0.7/kWh. Further the Onshore Wind Power
Tax of NOK 0.023/kWh generated (2024) has been introduced in July 2022 and applies to wind power
plant operators subject to licensing. Generated revenues are circulated back to the municipalities that build
onshore wind power to create an incentive for further deployment and act as a compensation of negative
local impacts (Norwegian Tax Administration, 2024[55]).

3.5.3. Managing revenue impacts of rapid road transport electrification

In many countries, fuel excise taxes on gasoline and diesel are an important source of revenue for
governments. On the other hand, the deployment of electric vehicles is well under way in major markets,
boosted by subsidies and other measures. Transitioning vehicle fleets from models with an internal
combustion engine to electric ones may significantly reduce revenues under current tax systems as
additional revenue from electricity taxes tends to be insufficient to cover the loss. Governments need to
consider how to reform their road transport related taxes to compensate revenue losses. Vehicle taxes
and distance-based road user charges are important options for this (OECD and ITF, 2019[56]).

A surge in electric vehicles increases electricity use while displacing oil consumption

Over the past years, strong government support to decarbonise the road transport sector created a growing
demand for electric vehicles. Many countries offered subsidies and exemptions from common vehicle taxes
for electric vehicles, effectively decreasing the purchase price. Other countries allowed electric vehicles to
use bus lanes and granted favourable parking conditions, making the use of these models more attractive.
In addition, more stringent fuel economy standards increase fuel efficiency requirements and help electric
vehicles become more attractive relative to their petroleum-fuelled counterparts with an internal

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combustion engine (ICE). Finally, national, and local governments consider adopting an ICE sales ban:
Norway decided to phase out new ICE sales by 2025, while Israel and Singapore plan a ban for 2030. The
EU and UK decided to ban ICE vehicles in 2035, while California (US) and Québec (Canada) envisage to
only allow the registration of battery EVs or plug-in hybrids (ICCT, 2021[57]; European Parliament, 2023[58]).
Sales in electric models increased across all vehicle types. In 2023, nearly 14 million new electric cars
were registered globally, a 35% year-on-year increase. Electric cars accounted for 18% of all cars sold, up
from only 2% in 2018. However, sales are still concentrated in three major markets: China made up for
nearly 60% of these sales, Europe for almost 25% and the US for 10%, while other countries such as India
or Japan are still catching up. Globally, almost 50 000 electric buses were sold in 2023, about 3% of total
bus sales, however, a few countries such as Belgium, Norway, Switzerland and China achieved sales
shares above 50%. Also, sales of electric trucks increased 35% between 2022 and 2023. Total sales of
electric trucks surpassed electric buses for the first time, with China remaining the leading market,
accounting for 70% of global sales (IEA, 2024[59]).
The rapidly growing vehicle fleet consumes an increasing amount of electricity when charging. The global
EV fleet consumed about 130 TWh of electricity in 2023, about 0.5% of total final electricity demand. The
share of electric vehicles in electricity demand is expected to increase. The IEA estimates that electricity
consumption in road transport could increase to 2200 TWh in the STEPS and to 2700 TWh in the APS by
2035, accounting for less than 10% of global electricity consumption as other energy sectors electrify as
well. In the US and Europe, the share of vehicles in electricity consumption increases from about 1% to
14% by 2035 in the STEPS and 15-16% in the APS. China increases its share from 0.7% in 2023 to nearly
7% in both scenarios, but its electric vehicle fleet continues to account for the largest consumption
compared to other regions (IEA, 2024[59]).
At the same time, electric vehicles also reduce the need for petroleum products. Assuming every electric
vehicle sold replaces the sale of a comparable vehicle with an internal combustion engine, charging this
electric vehicle with electricity also displaces the diesel or gasoline consumption of the replaced ICE
vehicle, accounting for differences in fuel economy. Excluding two- and three-wheelers, the IEA estimates
that the global electric vehicle fleet displaced more than 0.8 million barrels per day (mb/d) in 2023. China
accounted for 45% of displaced oil demand, followed by Europe (25%) and the US (21%). Displaced oil
consumption could raise to nearly 11-12 md/b by 2035 (IEA, 2024[60]).

Revenue impacts of road transport electrification – balancing between losses and potential

Road transport electrification brings about substantial tax revenue losses from fuel excise taxes and carbon
prices on automotive gasoline and diesel that is not consumed due to fuel switching. In 2023, governments
around the world faced revenue losses of about EUR 13 billion due to displaced oil consumption from
electric cars, vans, buses and trucks. With an accelerating deployment of electric vehicles in all regions
around the world, revenue losses are rapidly increasing in the next decade. Assuming no changes in rates
of specific energy taxes and carbon prices, total revenue losses could amount to EUR 76 billion in 2030
and more than EUR 155 billion in 2035 (Figure 3.12). Nonetheless, in Europe, India, China and the USA,
revenue losses continue to account for less than 1.0% of national government revenues in 2023. As diesel
is taxed at lower rates than gasoline in most parts of the world, it accounts for about 15% of the tax revenue
losses. Although China leads the global EV stock expansion, Europe incurs more than half of the revenue
losses as its taxes on gasoline and diesel are about three times as high as in other regions and the uptake
of electric vehicles is already well underway. By 2030, Europe faces losses of share in revenue losses of
nearly EUR 35 billion, accounting for about 45% total revenue losses. However, as a share of GDP,6
China’s and India’s revenue losses remain below 0.15% of GDP and Europe increases to about 0.25% of
GDP in 2035.

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Figure 3.12. The rapid road transport electrification brings substantial tax revenue losses
EER revenue losses through displaced oil consumption by electric vehicles by region, 2023 – 2035
0

Europe
-30

China
-60
billion EUR

-90 India

-120
USA

-150
Rest of the World
-180
2023 2025 2030 2035
Note: Data on displaced oil consumption stems from the IEA, Global EV Outlook 2024, APS (IEA, 2024[60]). Data contains trucks, buses, vans
and cars (excluding two- and three-wheelers) for Europe, China, India, the USA and the rest of the world. GDP figures are IMF (2023[61]) as a
share of country-level GDP assuming 2023 levels throughout. See Section 1.3 “Methodologies for in-depth analysis” in Chapter 1 that includes
a detailed description of the methodology.
Source: Authors’ calculation.
StatLink 2 https://stat.link/wxokbl

Tax revenue losses can occur both on a national level and subnational level. The CPET database has
included, since 2018, US state-level taxes for road transport fuels. As a result, aggregated revenue losses
from fuel excise taxes across US states amounted to EUR 1 billion in 2023 and are estimated to increase
to a cumulative EUR 23 billion by 2035. Revenue losses are unevenly distributed across states, depending
on the EV uptake and level of tax rates. In California (US), the frontrunner in EV deployment, revenue from
the state’s gasoline and diesel excise tax as well as a diesel sales tax could decrease by USD 5.71 billion
annually over the next decade (LAO, 2023[62]). However, as the CPET database does not systematically
track subnational tax policies across all countries, global fuel excise tax revenue losses from displaced oil
consumption may be higher. For instance, in India taxes on petroleum products at the state level accounted
for 3% to 12% of net revenue receipts in 2020 (IEA; Indian NITI Aayog, 2023[63]). Furthermore, the rapid
electrification of two- and three-wheelers will further decrease gasoline consumption and related revenues,
in particular in emerging economies such as India and Indonesia. Finally, gasoline and diesel consumption
does not only decrease because of displaced oil demand from electric vehicles but also due to fuel
economy improvements in vehicles with an internal combustion engine.
Electrifying road transport also has positive fiscal impacts, which cannot fully compensate petroleum-
related tax revenue losses. Increased electricity consumption through the uptake of electric vehicles has
generated less than EUR 1 billion through Effective Energy Rates on electricity and could increase up to
EUR 8 billion in 2035. Due to relatively high carbon prices and electricity excise taxes, Europe generates
about 75% of these revenues. In addition to net changes in energy tax revenues, oil-importing countries
can benefit from reduced import requirements. Analysis shows that if India is to achieve its national target,
a 30% sales share of electric vehicles in 2030, the country could save USD 14 billion annually on crude oil
imports, about 15% of its total spending on these imports (Harikumar, Jain and Soman, 2022[64]).
Furthermore, estimates show that electrifying Rwanda’s entire motorcycle fleet could lead to net revenue

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80 

losses from energy taxes of RWF 6 billion annually but would simultaneously save RWF 23 billion in fuel
import costs (Sudmant, Kalisa and Bower, 2020[65]).
Revenues from fuel excise taxes are often used to finance road infrastructure such as road construction
and maintenance or transportation programmes. Looming revenue losses are risking reducing amount and
quality of services. For instance, Maryland (US) proposed cutting 8% (USD 2 billion) from its state
transportation budget for 2024 amid an expected structural deficit (Brey, 2023[66]). Thus, governments need
to find new ways to secure funds and fill estimated gaps from fuel tax revenue losses.

Jurisdictions have begun phasing down subsidies and preferential tax rates for electric
vehicles and adopt distance-based road charges

With increased shares of electric models in total vehicle sales, governments around the world have started
to adjust their policies to compensate for revenue shortfalls from fuel excise taxes on petroleum products
used in road transport. Governments in countries with a substantial uptake of EVs tend to first phase out
increasingly expensive purchase subsidies, then reduce beneficial tax treatment and finally start to levy
new charges on the adoption and use of electric vehicles. The reform of taxes and charges often does not
imply a transition in tax bases from petroleum products to electricity but a shift from energy taxes towards
other pricing mechanisms such as vehicles taxes and distance-based road use charges.
Reforming the national system of taxes and charges does not only serve to mitigate revenue losses but
also to increase public acceptability of the clean energy transition. As the share of EVs on the road
increases, charging EV users to contribute to the maintenance of road infrastructure and upkeep of public
transport increases the perception of fairness and equity within the population (Smyth and Chu, 2024[67]).
Norway has successfully scaled up EV sales over the past two decades and is today in the middle of
phasing out all support. In Norway, EVs accounted for 82.4% of all vehicle sales in 2023, up from 64.5%
in 2021 and expects the sales share to further increase to 95% during 2024 (Nordic EV Summit, 2024[68]).
Electric car sales reached 96% in June 2023 (Marx, 2023[69]). Since 1990, Norway boosted its road
transport electrification with a generous, broad policy package but with raising sales, the fiscal burden of
these measures dramatically increased. As a reaction to this, Norway revoked full exemptions from
charges road tolls, on ferries and free municipal parking in 2017. Between 2021 and 2023, it phased out
the exemption of annual road tax fees, its purchase taxes and the value-added tax of 25% (Norwegian EV
Association, 2024[70]).
China shifted its main policy instruments to promote the uptake of EVs from purchase subsidies to
purchase tax exemptions in 2023, which will gradually be phased out until 2027. The countries main
purchase subsidy for electric vehicles, the New Energy Vehicles 3 (NEVs) has officially ended as of 2023,
leaving vehicle manufacturers without support from national subsidies for EV purchases that have
facilitated market’s expansion for more than a decade. China’s national government had gradually scaled
back purchase subsidies in the past few years before fully discontinuing them at the end of 2022 (ICCT,
2023[71]). At the same time, China extended in June 2023 its exemptions of low-carbon vehicles from the
vehicle purchase tax, making preferential tax rates the key policy instrument to promote the uptake of
electric vehicles. In 2024 and 2025, low-carbon vehicles sold in China benefit from a purchase tax
exemption up to CNY 30 000 (about USD 4 170), afterwards the exemption is halved until 2027 (Interesse,
2023[72]; People’s Republic of China Ministry of Finance, 2024 [73]). About 90% of existing low-carbon
vehicle models continue to benefit from reduced rates or exemptions from the purchase tax under the new
technical requirements applicable in June 2024 (Global Times, 2023[74]).
The US increased overall support for electric vehicles until 2023 as the criteria established by the Inflation
Reduction Act have pushed EV sales. The revised qualifications for the Clean Vehicle Tax Credit,
alongside EV price cuts, meant that some popular models became eligible for credits in 2023. As of 2024,
however, new guidance for the tax credits means the number of eligible models has fallen to less than 30

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  81

from about 45 (IEA, 2024[59]; US Department of the Treasury, 2023[75]). At the state level, governments
start to phase out beneficial tax treatments for EVs, introduce new charges or raise fuel excise taxes to
manage increasing revenue losses. About 30 US states have started imposing annual registration fees on
electric vehicles, which amount in eight to more than USD 200 per year (Lee and Aton, 2023[76]). While
such fees help to recover revenue losses from displaced fuel consumption, assessment found that Texas’
USD 200 fee is more than twice the amount needed to replace the gas tax for an ICE vehicle. Missouri’s
fee is scheduled to grow 20% per year and will be three times the comparable fuel tax by 2025 (Preston,
2022[77]).
New Zealand, Israel and Iceland recently introduced a distance-based road use charge. New Zealand
expanded in April 2024 its distance-based road use charges to also include electric and plug-in hybrid
vehicles to compensate for fuel excise tax revenues required to finance road maintenance. Owners of light
electric vehicles face charges of NZD 76 (USD 46) per 1000 km, a fee in line with equivalent diesel-
powered vehicles. Plug-in hybrid owners must pay NZD 38 per 1000 km, a lower charge because they
already pay tax on fuel (Smyth and Chu, 2024[67]; New Zealand Ministry of Transport, 2024[78]). Iceland
introduced a new per-kilometre charge in 2024, affecting electric, plug-in hybrid, and hydrogen vehicles, in
addition to revoking its exemption of electric vehicles from the value-added tax. The kilometre charge is
paid monthly through the Iceland official online platform for public services (Government of Iceland,
2024[79]). Similarly, Israel approved in January 2024 a new usage tax on kilometres travelled, which will
apply to EVs and plug-in hybrids as of 2026 to compensate for lost revenues from excise duty on gasoline
and diesel (Ben-Gedalyahu, 2024[80]).
While reforms of electricity excise taxes do not play a dominant role, more and more jurisdictions directly
implement fees on electricity consumption at public charging stations to raise revenue explicitly from
drivers of electric vehicles and send price signal to moderate electricity demand from charging. In Europe,
most countries levy consumption fees on public charging stations (European Commission, 2024[81]). In the
US, six states have begun levying such fees in 2023 and 2024 (Glenn, 2024[82]).
Governments around the world are not just seeing changes in tax base erosion, but are beginning to
experience the largest structural shifts in energy supply and use since the industrial revolution of the 18 th
and 19th centuries. This is primarily driven by diverse changes across the world economy to reduce, and
eventually reach, net-zero emissions driven by a complex web of climate and energy policies. This report
provides indicators for assessing the progress of some of these climate policies through the pricing of
emissions and taxation of energy use. It illustrates with these indicators that the progress in carbon pricing
has slowed with the share of emissions covered by a positive price remaining stable since 2021, modest
increases in explicit carbon rates, and large reductions in overall net effective rates due to responses to
the shock of the energy crisis in 2022. In energy taxation, the Net EER also decreased due to the large
contribution of fuel excise tax rates in the indicator. However, the report outlines that progress is being
made in preparation for the next phase of pricing emissions and energy through the introduction and
development of new carbon pricing instruments – predominantly ETSs, considerations in divergent climate
policy stringencies across economies, and the consequences from the electrification transition underway.
Together, these indicators and developments represent a global stocktake of the current state of pricing of
greenhouse gas emissions and taxation of energy use. As the world looks to 2030 targets and beyond, it
is preparing for the increased stringency that will be needed to meet future climate goals – the world is
gearing up to bring emissions down.

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82 

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Notes

1
The tax rates for this edition reflect rates applicable on 1 April 2023, while ETS permit price reflect
changes over the course of 2023.

2
Electricity can be subject to multiple different taxes, charges and fees. The CPET database only models
electricity excise taxes as these consistently apply to electricity use on pre-tax, end-use prices. Other
charges and fees are not necessarily applied to pre-tax, end-use prices but are fixed costs associated with
the provision of electricity. Further, many fixed costs associated with the provision of electricity, e.g. for
network infrastructure, are recuperated at the margin (though network tariffs that are charged on a
volumetric basis).

3
The division is based on the World Bank’s country classification (Table A.3. World Bank Country
Classification). High-income economies are those with a GNI per capita of USD 13 846 or more in 2022.

4
While reductions in fuel excise tax rates are effectively subsidising the use of a specific fuel (e.g. gasoline
or diesel), they are reflected in the Net EER as lowering rates of fuel excise taxes. In contrast, fossil fuel
subsidies in form of budgetary transfers feed into the Net ECR as a negative price component.

5
Energy products have a relatively low own price elasticity of demand. The own price-elasticity is
measured by the extent to which a percentage increase in the price of a good leads to percentage decrease
in the demand for it.

6
GDP projections used in this analysis follow assumption of the IEA Global EV Outlook 2024 (IEA,
2024[60]).

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Annex A. Country and energy definitions

Table A.1 Energy product definitions

Product classification Product category Product definition Included in Included in energy
GHG emissions content dataset
dataset (Chapter 3)?
(Chapter 2)?
Fossil fuels: Coal and other solid fossil Anthracite; bitumen; bituminous Yes Yes
fuels coal; brown coal briquettes; coke
oven coke; coking coal; gas coke;
lignite; oil shale; patent fuel; peat;
peat products; petroleum coke;
sub-bituminous coal
Fuel oil Fuel oil Yes Yes
Diesel Gas/diesel oil excl. biofuels Yes Yes
Kerosene Jet kerosene; other kerosene Yes Yes
Gasoline Aviation gasoline; jet gasoline; Yes Yes
motor gasoline excl. biofuels
LPG Liquefied petroleum gas Yes Yes
Natural gas Natural gas Yes Yes
Other fossil fuels and non- Additives; blast furnace gas; coal Yes Yes
renewable waste tar; coke oven gas; converter gas;
crude oil; ethane; gas works gas;
industrial waste lubricants;
municipal waste (non-renewable);
naphtha; natural gas liquids; other
hydrocarbons; other oil products;
paraffin waxes; refinery
feedstocks; refinery gas; white and
industrial spirit
Biofuels: Biofuels Biodiesels; biogases; biogasoline; CO2 emissions Yes
bio jet kerosene; charcoal; from the
municipal waste (renewable); other combustion of
liquid biofuels; primary solid biofuels included
biofuels as memo item
only.
Non-combustible energy Hydro Hydro No Yes
sources: Geothermal Geothermal No Yes
Solar, wind, ocean Solar photovoltaics; solar thermal; No Yes
tide, wave and ocean; wind
Nuclear Nuclear No Yes
Other electricity and Electricity imports; heating imports; No Yes
heating sources other elec. & heat. sources

Note: Own classification. Energy products are as defined in the IEA’s World Energy Statistics and Balances.

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Table A.2. CPET database country coverage

Geographic coverage for years used in the report. Countries are ordered alphabetically in terms of their ISO codes.

Country ISO alpha-3 code 2018 2021 2023

Argentina ARG Yes Yes Yes
Australia AUS Yes Yes Yes
Austria AUT Yes Yes Yes
Belgium BEL Yes Yes Yes
Burkina Faso BFA Yes Yes Yes
Bangladesh BGD Yes Yes Yes
Bulgaria BGR Yes
Brazil BRA Yes Yes Yes
Canada CAN Yes Yes Yes
Switzerland CHE Yes Yes Yes
Chile CHL Yes Yes Yes
China CHN Yes Yes Yes
Côte d'Ivoire CIV Yes Yes Yes
Colombia COL Yes Yes Yes
Costa Rica CRI Yes Yes Yes
Cyprus CYP Yes Yes Yes
Czechia CZE Yes Yes Yes
Germany DEU Yes Yes Yes
Denmark DNK Yes Yes Yes
Dominican Republic DOM Yes Yes Yes
Ecuador ECU Yes Yes Yes
Egypt EGY Yes Yes Yes
Spain ESP Yes Yes Yes
Estonia EST Yes Yes Yes
Ethiopia ETH Yes Yes Yes
Finland FIN Yes Yes Yes
France FRA Yes Yes Yes
United Kingdom GBR Yes Yes Yes
Ghana GHA Yes Yes Yes
Greece GRC Yes Yes Yes
Guatemala GTM Yes Yes Yes
Croatia HRV Yes
Hungary HUN Yes Yes Yes
Indonesia IDN Yes Yes Yes
India IND Yes Yes Yes
Ireland IRL Yes Yes Yes
Iceland ISL Yes Yes Yes
Israel ISR Yes Yes Yes
Italy ITA Yes Yes Yes
Jamaica JAM Yes Yes Yes
Japan JPN Yes Yes Yes
Kazakhstan KAZ Yes Yes
Kenya KEN Yes Yes Yes
Kyrgyzstan KGZ Yes Yes Yes
Korea KOR Yes Yes Yes
Sri Lanka LKA Yes Yes Yes
Lithuania LTU Yes Yes Yes
Luxembourg LUX Yes Yes Yes
Latvia LVA Yes Yes Yes

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Country ISO alpha-3 code 2018 2021 2023

Morocco MAR Yes Yes Yes
Madagascar MDG Yes Yes Yes
Mexico MEX Yes Yes Yes
Malta MLT Yes
Mauritius MUS Yes
Malaysia MYS Yes Yes Yes
Nigeria NGA Yes Yes Yes
Netherlands NLD Yes Yes Yes
Norway NOR Yes Yes Yes
New Zealand NZL Yes Yes Yes
Panama PAN Yes Yes Yes
Peru PER Yes Yes Yes
Philippines PHL Yes Yes Yes
Poland POL Yes Yes Yes
Portugal PRT Yes Yes Yes
Paraguay PRY Yes Yes Yes
Romania ROU Yes
Russia RUS Yes Yes Yes
Rwanda RWA Yes Yes Yes
Singapore SGP Yes
Slovak Republic SVK Yes Yes Yes
Slovenia SVN Yes Yes Yes
Sweden SWE Yes Yes Yes
Türkiye TUR Yes Yes Yes
Uganda UGA Yes Yes Yes
Ukraine UKR Yes Yes Yes
Uruguay URY Yes Yes Yes
United States USA Yes Yes Yes
South Africa ZAF Yes Yes Yes
Zambia ZMB Yes

Source: Authors.

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Table A.3. World Bank Country Classification

Low income economies Lower-middle-income Upper-middle-income High income
economies economies economies
Burkina Faso (BFA) Bangladesh (BGD) Argentina (ARG) Australia (AUS)
Ethiopia (ETH) Côte d’Ivoire (CIV) Bulgaria (BGR) Austria (AUT)
Madagascar (MDG) Egypt (EGY) Brazil (BRA) Belgium (BEL)
Rwanda (RWA) Ghana (GHA) China (CHN) Canada (CAN)
Uganda (UGA) India (IND) Colombia (COL) Switzerland (CHE)
Kenya (KEN) Costa Rica (CRI) Chile (CHL)
Kyrgyztan (KGZ) Dominican Rep. (DOM) Cyprus (CYP)
Sri Lanka (LKA) Ecuador (ECU) Czechia (CZE)
Morocco (MAR) Guatemala (GTM) Germany (DEU)
Nigeria (NGA) Indonesia (IDN) Denmark (DNK)
the Philippines (PHL) Jamaica (JAM) Spain (ESP)
Ukraine (UKR) Kazahkstan (KAZ) Estonia (EST)
Zambia (ZMB) Mexico (MEX) Finland (FIN)
Mauritius (MUS) France (FRA)
Malaysia (MYS) United Kingdom (GBR)
Peru (PER) Greece (GRC)
Paraguay (PRY) Croatia (HRV)
Russia (RUS) Hungary (HUN)
South Africa (ZAF) Ireland (IRL)
Iceland (ISL)
Israel (ISR)
Italy (ITA)
Japan (JPN)
Korea (KOR)
Lithuania (LTU)
Luxembourg (LUX)
Latvia (LVA)
Malta (MLT)
the Netherlands (NLD)
Norway (NOR)
New Zealand (NZL)
Panama (PAN)
Poland (POL)
Portugal (PRT)
Romania (ROU)
Singapore (SGP)
Slovakia (SVK)

Source: World Bank Country and Lending Groups 2024

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OECD Series on Carbon Pricing and Energy Taxation
Pricing Greenhouse Gas Emissions 2024
GEARING UP TO BRING EMISSIONS DOWN
Pricing Greenhouse Gas Emissions 2024: Gearing Up to Bring Emissions Down tracks how explicit carbon
pricing instruments as well as specific taxes and subsidies on energy use have evolved between 2021 and 2023
across 79 countries, covering approximately 82% of global greenhouse gas (GHG) emissions. This report
focuses on emissions trading systems, carbon taxes, fuel and electricity excise taxes, as well as subsidies
that lower prices on emissions or energy products. The tax rates for this edition reflect rates applicable
on 1 April 2023 while emissions trading schemes implemented throughout 2023 are also included.

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