Encouraging environmentally sustainable growth is a problem faced by all countries. The beauty of fiscal instruments such as environmental taxes or tax-like instruments is that (albeit with some important caveats about base targeting, exploiting fiscal opportunities, and use of complementary instruments) they can achieve an efficient balance between environmental and economic concerns—if they are set to reflect environmental damage.

This volume shows how environmental damage can be measured for different countries, focusing on damage related to the use of fossil fuels, and how this information can be used to put into practice the principle of “getting prices right.”

This exercise involves a multitude of caveats. From an analytical perspective, legitimate questions arise about data reliability and the methods used to quantify environmental damage. However, the accuracy of environmental damage assessments has been improving dramatically, and will continue to do so, not least because of modeling efforts elsewhere.¹ And although legitimate disagreements will remain, for example, about the appropriate values for carbon emissions and pollution- and accident-related premature deaths, spreadsheets accompanying this report can help discipline this debate by clarifying how alternative assumptions affect the economically efficient system of energy taxes.

Implementing efficient energy tax systems is highly challenging, especially because of resistance to higher energy prices. However, having some sense of the direction in which policy should ideally be headed from an economic perspective is very useful. It provides a benchmark against which other, perhaps politically easier, options can be judged, giving policymakers a better sense of the trade-offs they face, for example, in the environmental effectiveness and the revenue from well-designed tax reforms versus the weaker environmental effectiveness and lack of revenue from regulatory approaches. Moreover, the efficient scale of other, nonfiscal instruments, such as standards for energy efficiency and renewables, might be evaluated by comparing the incremental costs they impose per ton of emissions with the environmental damages per ton estimates here.

The hope is that this book will help countries move forward with policy reforms, as well as stimulate further analytical work and the data collection needed to improve the accuracy of country-by-country damage assessments, all of which promote more informed policy decisions. The findings suggest large and pervasive disparities between efficient fuel taxes and current practice in developed and developing countries alike—with much at stake for health, environmental, and fiscal outcomes. There is much to be done in getting energy prices right; the aim of this volume is to provide the tools and evidence to help achieve this in practice.