Energy Prices, Taxes and Carbon Dioxide Emissions

Taxes levied on the carbon content of fuels (carbon taxes) are being considered in many OECD countries as a possible policy instrument to reduce carbon dioxide emissions. This paper first reviews the policy response in Member countries to the threat of global warming. It then discusses the link between carbon emission intensities and current energy prices, touching also on the relative price effects of current energy policies and the implicit carbon taxes reflected in present energy taxation for different fuels. Finally, the likely size of carbon taxes and associated tax revenue is illustrated by simulations of OECD's GREEN model for equiproportionate emission cuts and a global permit trading system ...