Laura Grigolon, Mathias Reynaert, Frank Verboven, 10 January 2015

Using a rich dataset for the European car markets, this column shows that consumers moderately undervalue future fuel costs. This investment inefficiency is too small to justify upfront car taxes to promote fuel efficient cars. A car tax results in a more fuel efficient vehicle fleet than a fuel tax, but fails to induce high-mileage consumers to substitute to more fuel efficient cars. Once we take this targeting effect into account, fuel taxes turn out to be more effective.

Radek Stefanski, 30 May 2014

No comprehensive database of directly measured fossil-fuel subsidies exists at the international or the sub-national level, yet subsidies may be crucial drivers of global carbon emissions. This column describes a novel method for inferring carbon subsidies by examining country-specific patterns in carbon emission-to-output ratios, known as emission intensities. Calculations for 170 nations from 1980-2010 reveal that fossil-fuel price distortions are enormous, increasing, and often hidden. These subsidies contributed importantly to increasing emissions and lower growth.

Benedict Clements, Stefania Fabrizio, Ian Parry, 27 April 2013

Energy-subsidy reform is notoriously difficult. This column argues that the environmental and social payoff from a concerted worldwide effort to replace these subsidies with better targeted measures would be substantial. Subsidy reform is an especially attractive option for countries under pressure to bring public debt to more prudent levels. The success of reform in several countries shows that the challenge is not insurmountable.

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