Energy Subsidy Reform in Action | Total Carbon Pricing for Energy Consumption: The Importance of Energy Taxes and Subsidies

Faced with the urgency of climate change mitigation, many governments around the world are considering and deploying different approaches to pricing greenhouse gas emissions. The efforts to put a price on carbon, aiming to reflect the social and environmental costs resulting from these emissions, have traditionally focused on carbon taxes and emissions trading systems. Governments use a broader set of energy, climate, and fiscal policy instruments that affect the price signal on carbon emissions, even when sending such a signal is not stated as an explicit objective. In addition to decisions related to emissions trading or carbon taxes, governments take actions that influence the prices of the fuels that generate those emissions, whether by directly setting retail prices, providing energy consumption subsidies, or levying energy taxes. Carbon price signals resulting from the combination of multiple policy instruments at one time are often unclear. Building on this observation, this report asks: how do different energy, climate, and fiscal policy instruments that affect the price of carbon interact?; and what overall price signal do these direct and indirect ways of pricing carbon send to the economy? To answer these questions, the report adopts the concept of the total carbon price (TCP), introduced in Agnolucci et al. (2023a; 2023b), to estimate the net carbon price signal resulting from the most deployed energy, climate, and fiscal policy instruments that affect the price of carbon emissions. To show how the concept of TCP can be applied to understanding the interaction of these different policy instruments, this report carries out illustrative calculations using best-available multi-country data sets, with a special focus on energy subsidies.

Learn more about ESMAP's Energy Subsidy Reform Facility.

ENERGY SUBSIDY REFORM IN ACTION

From Ambition to Action: Practical Insights on Energy Subsidy Reforms

• Cash Transfers in the Context of Energy Subsidy Reform: Insights from Recent Experience
• Distributional Analysis for Informing Energy Subsidy Reforms: Review of Recent Approaches
• Macroeconomic Modeling and Energy Subsidy Reform Policy Dialogue: Recent Experience, Insights, and Perspectives
• Political Economy Analysis and Communications for Energy Subsidy Reform: Approaches and Insights from Recent Technical Assistance
• Approaches and Insights from Recent Research on Energy Subsidy Reform
• Total Carbon Pricing for Energy Consumption: The Importance of Energy Taxes and Subsidies
• Firm-Level Effects of Energy Price Increases: Evidence and Insights from Recent Research