Introduction
The way taxes are applied to energy use is as important to a nation or regions overall fiscal health as any other tax. Many countries not only seek to bring in revenue from energy source taxation, but also utilise these measures to control and shape energy usage in their jurisdiction. This paper will discuss the concepts behind energy taxation regimes around the world, then look at the specific details of energy taxation in the European Union, United States and China, compared to the Australian energy tax system.
Concepts behind Energy Taxation
There are a number of goals which a nations or regions energy tax system can be used to achieve. The first of these is to raise revenue. Taxes increase the costs of using certain fuels or modes of transportation, and when applied on fuel sources or vehicles they are able to bring in further revenue for state coffers. This is usually accomplished through taxation of the sale of fuels, such as gasoline, diesel, and electricity, but can also be used to cover special fuel levy or vehicle registration fees.
The second key goal in terms of energy taxation is to create incentives to move towards alternative, renewable sources of energy. Some nations use their taxation system to incentivise sustainable fuel sources, such as solar and wind, by charging a lower rate of tax on renewable sources while taxing non-renewable sources at a higher rate. This approach therefore creates a disincentive to use non-renewables and encourages a switch to green energy sources.
Thirdly, energy taxes can be used to reduce the energy usage of the public by making it more expensive to drive cars and use fuel sources. This goal can be seen in the EU and US, where various forms of taxation exist to reduce the carbon emissions of vehicles. This tax is known as a carbon tax and is meant to incentivise people to switch to electric vehicles.
Finally, energy taxation systems can also be used to redistribute wealth and reduce socio-economic imbalances within a nation. Taxes on fuel sources and usage can be used as a form of wealth transfer, targeting those individuals who consume and use the most fuel to pay more in taxes. This approach helps to redistribute wealth within a jurisdiction and prevent the wealthiest individuals from consuming excessive amounts of fuel while other parts of society go without.
Energy Taxation in the European Union
The European Union has a comprehensive energy taxation system that covers many types of fuels, including natural gas, coal, electricity, kerosene and diesel. The main aim of the EU energy taxation system is to reduce carbon emissions, and in 2020 the European Commission announced plans to add an additional 10% to the existing energy tax regimes to further incentivise the switch away from fossil fuels and to green energy sources. This new tax, known as the Carbon Tax, is to be implemented in 2021, and is set to raise €1.2 billion in revenue per annum.
In addition, the European Union also has a wide range of national taxes on fuels and energy sources, known as Excise duties. These are managed by individual member states, who charge according to their own domestic tax rates, however the European Commission has put in place a minimum excise duty that all member states must adhere to.
Energy Taxation in the United States
The energy taxation system in the United States is largely focused on the taxation of fuel sources, with individual states setting the rates according to their own domestic legislation. In addition, the US Federal Government imposes an excise tax on the production of gasoline and diesel, with a fixed rate of 18.4 cents per gallon of gasoline, and a variable rate that changes according to the price of the fuel.
The federal government also levies an excise tax on the sale of electricity, with a rate of 2.3 cents/KWh for most states, however there are varying levels and regimes between the states. For instance, the State of California imposes an Energy and Carbon Tax at a rate of 3.8 cents per KWh, while other states may impose no taxes or only small taxes on electricity consumption.
Energy Taxation in China
China has a complex energy taxation regime, which levies taxes on the purchase and sale of electricity, natural gas and other fuels. There is an overarching law that sets the parameters and rules of energy taxation in the country, but individual provinces can set their own rates and taxes according to their specific needs.
The Chinese central government sets a number of taxes, including a resource tax on the production of electricity and a value added tax on the sale of electricity. In addition, some provinces impose a tax on the consumption of electricity, which is known as the electricity consumption tax.
Energy Taxation in Australia
Australia does not have a comprehensive energy taxation system, although individual states can levy their own taxes on the production and sale of energy sources. The Australian government does have a carbon pricing scheme in place, which sets a minimum level of pricing for carbon emissions from various sources, although this scheme has been controversial and is currently under review.
The most significant form of taxation on energy use in Australia is the Goods and Services Tax (GST), which is a federal tax that applies to the sale of goods and services. The GST is applied to both renewable and non-renewable energy sources, and is set at a rate of 10% on all energy sources consumed in Australia.
Conclusion
Energy taxation systems differ across the world, with each nation or region seeking to achieve its own budgetary, economic and environmental goals through the application of a fiscal regime. This paper has looked at the concepts behind energy taxation systems, as well as drawing comparisons between the taxation systems in the EU, US, China and Australia. It can be seen that while each system is tailored towards the specific needs and goals of the jurisdiction in question, there are some common characteristics, such as the use of resource and carbon taxes, that are shared among many nations and regions.
