Energy Tax Expenditures in a Globalized Economy

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Countries around the world have introduced energy taxes to expand revenues, reduce energy consumption and curb greenhouse gas emissions. In that context, they have frequently also implemented tax provisions to lower the energy tax bill for certain industries, households and regions. Tax exemptions and deductions for energy intensive companies are a case in point. Tax reductions on specific fuels and electricity provide further illustration.

As tax privileges granted through any tax system, energy tax expenditures create economic distortions and raise distributive concerns. They also decrease the effectiveness of energy taxation. Moreover, in the context of international trade, they are likely to raise as much controversies as straightforward subsidies.

Against this background, the following study aims to provide an overview on the use of tax expenditures in the context of energy taxation in the G20 and the OECD, to evaluate the rationale for different tax expenditures, to review their alignment with international trade provisions, and to outline policy implications for the design of energy taxation schemes moving forward. In that context, it also highlights the important role of thorough analysis in determining the concrete features of energy tax expenditures as well as of international cooperation and increased transparency through comprehensive tax expenditure reporting.