Greenhouse Gas Emissions, Fossil Fuels and Taxes

Over the past decade, a key environmental concern has been the growing threat of global warming. This has been closely linked to fossil fuel use, especially oil and coal, and the accelerating increase in greenhouse gas emissions (GHG). At the Kyoto Conference held in December 1997 most industrialised countries agreed to legally binding targets for limiting the future growth of GHG emissions. The aim is that during the period 2008 to 2012 the average annual level of GHG emissions will be 7% below 1990 levels.

To achieve these ambitious aims a very broad policy approach will be required embracing a wide range of technical, economic and political factors. A wide range of both international and domestic policy and market mechanism strategies has been proposed to contain and reduce GHG emissions without significantly lowering living standards. These policies include command-based systems for achieving targets to market-based approaches. These include a tradable-permit system, preferential technology transfer, compensatory financing, carbon taxes, the creation of carbon sinks and joint implementation. At the present time the existing international institutions have a very limited capacity to respond to these challenges.

Alongside the many international environmental proposals, there are a large number of domestic policy proposals aimed at reducing the dependence on fossil fuels and lowering energy production and use, particularly in the transport and industry sectors. Often these revolve around carbon/energy taxes aimed at achieving environmental objectives at least social cost - although they often lead to considerable political resistance. Thus, efforts in 1999 to further raise UK fuel duties lead to considerable resistance from the transport sector which which argued that it made it even more uncompetitive with other European countries where excise duties are lower. With the dismantling of tariff barriers and other obstacles to the free flow of capital and goods, tax differentials between countries are becoming much more important in maintaining international competitiveness.

For a variety of reasons, but often justified for environmental reasons, various industrialised countries, particularly the US and EU members, have imposed or proposed carbon taxes on various types fossil fuels. These carbon taxes are domestic taxes and are not tariffs. The rate of tax can vary according to the amount of carbon residuals that are contained. Thus, the UK has proposed a climate change levy to be introduced in April 2001, Germany has introduced various tax increases on petrol, heating oil, electricity and gas measures, while Italian fuel duties are to be raised every year from 1999 to 2004 to reduce carbon emissions. Taxes and other controls are being placed on petroleum and other fuels not only to control emissions but also to raise government revenues, since demand for oil products is often very demand inelastic.

See Also:

Increased Use of Fossil Fuel for Transport and Processing of Concentrates

Increased Use of Fossil Fuel for Inputs (Mechanization, Fertilizers and Agro-chemicals)

Carbon Sinks

Carbon Sequestration

Carbon Sequestration on Pasture Land

OECD. (1997) CO2 Emissions from Road Vehicles. Expert group on the UN Framework Convention on Climate Change. Working Paper 1. Click here to see this document in Acrobat format (881KB)

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