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Title page
Contents
ABOUT THE AUTHORS 7
SUMMARY 9
1. INTRODUCTION 15
Climate change: the political context 15
Climate change: the economic context 21
Concluding comments 32
2. PROBLEMS OF CURRENT POLICY, AND ALTERNATIVE FRAMEWORKS 33
Seeking winners and picking losers 33
Seeking to ban losers 36
Taxes and subsidies 38
Coase or Pigou? 40
Carbon trading, Coase or Pigou? 44
Concluding comments 47
3. ENERGY TAXES AND SUBSIDIES: WHY THEY EXIST IN THEORY AND IN PRACTICE 49
The chaotic nature of energy taxes 49
The chaotic nature of energy subsidies 51
4. ENERGY TAXES AND SUBSIDIES IN THE UK AND EUROPE 59
Energy taxes 59
Energy subsidies 65
Net energy subsidies 75
5. FROM GOVERNMENT FAILURE TO A MORE RATIONAL CLIMATE CHANGE POLICY 81
Fuel subsidies and government failure 81
Carbon taxes and global warming 86
Practical applications of carbon pricing 97
An alternative framework for dealing with local externalities 103
Annex: The implicit cost of carbon from taxes and subsidies 105
6. CONCLUSION AND POLICY IMPLICATIONS 111
REFERENCES 118
ABOUT THE IEA 126
Table 1. Some examples of discriminatory energy subsidies 68
Table 2. National policies to shield consumers from rising energy prices 85
Figure 1. Box plots of reported tax rates for key fuels, by EU member state in 2018 62
Figure 2. Taxes on energy sources in the UK and the EU27 (2018) 63
Figure 3. Per capita energy subsidies in Europe and in the G20 in 2018 70
Figure 4. Subsidies by energy sources in the UK and the EU27 (2018) 72
Figure 5. Subsidies by renewable energy technologies in the UK and the EU27 73
Figure 6. Breakdown of incumbents' standard electricity offers for households in capital cities - November/December 2019 74
Figure 7. Net subsidies by energy source in the UK and the EU27 (2018) 76
Figure 8. Net subsidies by renewable energy source in the UK and the EU27 77
Figure 9. Net subsidies after internalisation by energy source in the UK and the EU27 92
Figure 10. Net subsidies after internalisation by renewable energy source in the UK and the EU27 93
Figure 11. Implicit cost of carbon from energy taxes and subsidies in the UK and EU27 107
Figure 12. Implicit cost of carbon from energy taxes and subsidies to renewable energies in the UK and EU27 108
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