The International Monetary Fund (IMF) has released a new book, Getting Energy Prices Right: From Principle to Practice.

It begins with the statement: “Many energy prices in many countries are wrong. 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.”

Chapter 1, the executive summary, can be downloaded here. The take home messages can be found in the graphs on pages 6 and 7 and pretty much boil down to this:

  • None of the countries listed (which includes Australia) are taxing coal and some are subsidising it. Coal use is “perversely undercharged”.
  • Although highly subject to the assumptions that underpin its calculations the IMF comes up with an “illustrative charge” just for the carbon emissions from coal of US$3.30 per gigajoule (GJ). That is roughly equivalent to US$29.40 per tonne of coal or (I won’t bore you with the arithmetic) and about US$11.70 per tonne of carbon dioxide.
  • For several countries, the cost of local air pollution is a multiple of the cost of the carbon emissions. In Australia, the air pollution cost is quite small.
  • The carbon cost for natural gas is considerably lower – around US$2.00 per GJ. Its pollution costs are also lower (no surprises there), but “significant tax increases are still needed to reflect carbon emissions”.
  • Petrol and diesel are interesting because the IMF calculations take account of the costs of not just carbon emissions and local pollution, but also road accidents and congestion. Afew countries, notably Germany, levy taxes that exceed these costs. Australia doesn’t, and it won’t surprise city commuters to learn that most of our costs relate to congestion.

The IMF message can be boiled down further: increase taxes on fossil fuels.

That the book was released in the same month that Australia axed its carbon tax only goes to further highlight the utter folly and disgrace of that deed.

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