Existing taxes on fossil fuels, though originally imposed for other purposes, can be conceptualized as implicit carbon taxes.
Key Messages:
  • Current implicit carbon tax rates in most countries in the Organization for Economic Co-operation and Development (OECD) are for the most part inversely related to the carbon content of fuels. The most obvious example is coal, which is often taxed at markedly lower, sometimes non-existent, rates despite having the highest carbon content.
  • The lack of link between the current tax rate and the carbon content of the fuel implicitly encourages the consumption of carbon-intensive fuels, which is not aligned with stated government environmental, fairness and efficiency objectives.
  • Large differences in implicit carbon tax rates across fuels and countries, and over time, suggest there is considerable scope for Canadian governments to increase rates on carbon-intensive fuels with little disruption to the economy, in order to bring tax policy in line with broader policy objectives (e.g. reducing emissions and stimulating the green economy).