Global Climate Change, Energy Subsidies and National Carbon Taxes

Abstract

We are still no closer to answers on whether the buildup of “greenhouse” gases in the atmosphere could trigger a significant warming of the earth’s surface. Nor do we know with any precision what the social and economic consequences of global warming might be. Yet countries all over the world are increasingly showing a willingness to act now, rather than wait for further scientific evidence:

• At the June 1992 “Earth Summit” in Rio de Janeiro, more than 150 countries signed a treaty aimed at stabilizing greenhouse gases -- mainly carbon dioxide (CO₂), which is by far the largest contributor to the greenhouse effect. The UN Framework Convention on climate change specifies a series of obligations for participating countries to respond to this problem. Those obligations took effect when the Convention entered into force on 21 March 1994. Nineteen OECD countries and the European Union (EU) have ratified the treaty as of 1 May 1994 and face a later deadline to submit their climate change action plans to the Convention Secretariat.

• Most industrial countries have adopted national targets of stabilizing CO₂ emissions at 1990 levels by the year 2000.

• Between January 1990 and January 1991, Finland, the Netherlands, and Sweden imposed “carbon taxes” -- that is, taxes on the carbon content of fossil fuels.

• The European Union is considering levying a Union-wide tax on both carbon and energy in general.

• Many developing countries are beginning to weigh the various options, because although industrial counties account for around 43 percent of total CO₂ emissions from fossil fuel consumption, the developing world is fast contributing an increasing proportion.

• Most industrial countries have adopted national targets of stabilizing CO2 emissions at 1990 levels by the year 2000.

The findings, interpretations and conclusions expressed in this paper do not necessarily represent the views of the World Bank, its affiliates or its member countries. The authors are grateful for comments by two anonymous referees on a previous draft of the paper.