International Review of Environmental and Resource Economics > Vol 8 > Issue 1

Designing Fiscal Policy to Address the External Costs of Energy

Ian Parry, Fiscal Affairs Department, International Monetary Fund, USA, iparry@imf.org
 
Suggested Citation
Ian Parry (2015), "Designing Fiscal Policy to Address the External Costs of Energy", International Review of Environmental and Resource Economics: Vol. 8: No. 1, pp 1-56. http://dx.doi.org/10.1561/101.00000065

Published: 20 May 2015
© 2015 I. Parry
 
Subjects
Environmental Economics,  Public Economics
 
Keywords
H23Q48Q54Q58
Externalitiesenergy taxesgetting prices rightair pollutionglobal warming
 

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In this article:
1. Introduction
2. Energy Externalities and the Case for, and Design of, Fiscal Policies to Address Them
3. Quantifying Externalities
4. Corrective Energy Taxes in Different Countries and Their Impacts
5. Conclusion
References

Abstract

This paper first reviews the conceptual case for, and appropriate design of, fiscal policies to address major externalities associated with energy use — global warming, local air pollution, and various side effects (e.g., congestion) from motor vehicles. Techniques for (roughly) estimating the magnitude of these externalities, and corrective energy taxes, on a country-by-country basis are then described. The implications for reforming energy taxes, and the potential environmental, health, and fiscal benefits from reform, are then illustrated for different countries. A key theme of the paper is the critical role of finance ministries in administering tax reforms and ensuring efficient use of revenues.

DOI:10.1561/101.00000065