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Aug. 4, 2014

Green Supply Chain News: As Australia Kills Unpopular Carbon Tax, IMF Says Every Country Needs One


US Needs Increase in Diesel Taxes of $1.60 per a Gallon, New Book Says with Certainty

By The Green Supply Chain Editorial Staff

It has been an interesting juxtaposition relative to "carbon taxes" in the last couple of weeks, as Australia voted out an unpopular program in July, while last week the International Monetary Fund (IMF) issued a lengthy report calling for widespread use of the technique to reduce "social costs" from carbon emissions.

The Green Supply Chain Says:
The IMF recommendations go even further, saying taxes on fuel should also be raised to account for social costs from use of cars and trucks moving on roads and highways.

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TDown under, prime minister Tony Abbott at last made good on a campaign promise that was key to putting him into office last year, as the Australian Senate voted to end the unpopular tax. Such a measure had already passed Australia's other house, but Abbott's party did not control the Senate.

However, a deal was eventually made with a minority party in the Senate to push the legislation through, ending one of the very few programs worldwide to directly tax carbon sources, rather than relying on a "cap and trade" scheme such as found in the European Union and the state of California.

Australian consumers and business saw the tax of $25.40AUS per metric ton of expected emissions as the reason energy prices have been rising in the country. The move is seen as a blow to anti-CO2 programs worldwide, though Australia is planning to pay businesses to reduce CO2 emissions as a way to meet its still in place carbon reduction targets.

Then late last week came the IMF "report," titled Getting Energy Prices Right. It is really more like a book, coming in at 288 pages and available on as a paperback or in electronic Kindle form.

"Many energy prices in many countries are wrong," the book begins. "They are set at levels that do not reflect environmental damage, notably global warming, air pollution, and various side effects of motor vehicle use. In so doing, many countries raise too much revenue from direct taxes on work effort and capital accumulation and too little from taxes on energy use."

Despite acknowledging some uncertainties about global warming theory, the IMF nevertheless believes such "social costs" of carbon emissions can be rather easily calculated, and that by putting the burden of such costs on various fuel sources, those costs will be borne by users of that energy, who would then pay the true full costs..

"A charge should be levied on fossil fuels in proportion to their CO emissions multiplied by the global damage from those emissions," the book argues.

The IMF recommendations go even further, saying taxes on fuel should also be raised to account for social costs from use of cars and trucks moving on roads and highways.

"Additional charges for local air pollution, congestion, accidents,' and pavement damage attributable to motor vehicles," should be added, the book says. "Ideally, some of these charges would be levied according to distance driven (e.g., at peak period on busy roads for congestion), and doing so should become increasingly feasible as he technology needed for such programs matures."

This idea of increasing fuel taxes, especially on truck movements, to account for various social impacts has been floated in Washington off and on, but has so far obviously not gained much traction.

The IMF has even gone so far as to calculate what those increased taxes should be, per energy source and country. Below, for example, you will find its recommended level of new tax on each liter of diesel fuel for some 15 countries, mostly but not exclusively the world's largest economies.


IMF Recommended Taxes on Diesel Per Liter by Select Countries


In the US, for example, the IMF recommends higher taxes on diesel of a little more than 40 cents per liter, or some $1.60 more per gallon.

The book actually goes through this exercise for 156 countries across the globe.

Will we see such heavy carbon taxes anytime soon? Likely not, especially after the experience in Australia, where the carbon tax was probably the biggest single factor in a change of government control there.

But the idea will be attractive to many governments desperately searching for sources of new revenue, and often ideas like this are developed slowly over years based on support from various institutions such as the IMF, academics, etc.

We'll note that many experts do believe a carbon tax is much better than cap and trade programs, because they are far simpler, costs less to initiate and maintain, and are less subject to political manipulation over time.

However, many have also argued that such carbon taxes should be revenue neutral, meaning increases in taxes on carbon should be offset by reductions say in the income tax rate. But that is when the focus is on simply using the tax to reduce consumption of energy. But when the tax is also viewed as needed to compensate for a variety of social costs stemming from energy use, then the argument is that the carbon taxes should not be offset elsewhere because the government needs the money to address the social costs.

We will certainly see more push in this direction over the next few years, Tony Abbott or not.


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