CARBON PRICING AND FOSSIL FUEL SUBSIDY RATIONALIZATION TOOL KIT

In general, Asia and the Pacific has a long track record of using environmental taxes—including excise, sales, and import taxes on fossil fuels and other carbon-intensive products—to mobilize general revenue. This ranges from countries that do not impose any environmental tax to Solomon Islands, whe...

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Bibliographic Details
Published in:Policy File 2023
Main Authors: Jonassen, Rachael, Andersen, Mikael Skou, Cottrell, Jacqueline, Bhattacharya, Sandeep
Format: Report
Language:English
Subjects:
Carbon
Emissions trading
Fossil fuels
Regulated industries
Taxation economics
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Summary:In general, Asia and the Pacific has a long track record of using environmental taxes—including excise, sales, and import taxes on fossil fuels and other carbon-intensive products—to mobilize general revenue. This ranges from countries that do not impose any environmental tax to Solomon Islands, where environmental taxes contributed 5.4% of gross domestic product in 2019. Apart from Solomon Islands, countries with the highest revenue generated from environmental taxes in the region are Mongolia at 1.7% of gross domestic product, and Japan, New Zealand, and Fiji at 1.3%. The relationship between carbon pricing and environmental taxes is important as they overlap and complement each other, and experience with environmental taxes can be used to implement carbon taxation strategically. In addition, Kazakhstan, New Zealand, the People’s Republic of China, and the Republic of Korea implement national emission trading systems, with the Republic of Korea being the first country in East Asia to implement a nationwide mandatory emission trading scheme. A harmonized climate policy architecture should ensure that carbon pricing is implemented in tandem with the removal or phasing out of fossil fuel subsidies. The International Energy Agency estimates that, among the 25 countries dispensing the most in fossil fuel subsidies in 2020, nine are Asian Development Bank (ADB) developing member countries (DMCs). This indicates that removing existing monetary or financial subsidies for carbon-intensive products such as fossil fuels where they exist should be complementary to imposing a carbon tax.