January 9, 2017 – The average tax on gasoline throughout the world is declining, meaning that governments are collectively failing to discourage fossil fuel consumption, according to a paper published today in Nature Energy by a Georgetown professor and his colleagues at UCLA.
Paasha Mahdavi, an assistant professor at Georgetown’s McCourt School of Public Policy, worked with Michael L. Ross and Chad Hazlett of UCLA to conduct a four-year study of fossil fuel policies from 2003 to 2015 in 157 countries.
The research focused on a key question – whether governments are taxing or subsidizing the price of gasoline.
“Our data provides the most comprehensive and accurate account of how consumer taxes and subsidies on gasoline are changing in each country, and for the first time we can really see who is moving in which direction and where reforms are ‘sticking,’ so to speak,” says Mahdavi, who is writing a book on the relationship between petroleum and governance as mediated by oil-related institutions. “We see this a critical step toward holding governments accountable for their actions.”
Surprising and Worrisome
Mahdavi says the study has “surprising and worrisome implications” for efforts to deal with global climate change.
The study comes about a month after the one-year anniversary of the Paris 2015 United Nations Climate Change Conference, also known as COP 21.
“Governments often claim to be taking action on climate change – and at the Paris conference, they made ambitious pledges – but no one has previously been able to measure their policies with much precision,” Mahdavi says. “Until now, we haven’t known whether governments are taking meaningful actions to reduce greenhouse gas emissions because they often publicize their positive actions and hide their negative ones.”
The professor says that one of the big surprises of the research is that China has made what he calls “remarkable” reforms.
“We see an increase in 43 cents in real U.S. dollars per liter on the net implicit tax of gasoline in China from 2003-2015,” he says.
Another surprise was that Sub-Saharan Africa turns out to have the second highest net gasoline taxes over the study period.
He says some of lowest income countries have some of the highest taxes on gasoline, and many governments use price-smoothing formulas that can weather shocks in global oil prices.
In contrast, the United States, which doesn’t assign such formulas, has failed to raise taxes on gasoline since 1993, with the current tax at roughly 5 cents a liter.
“The fact that the federal gasoline tax has stayed constant for 23 years is really quite egregious, at least compared to the other Organization for Economic Cooperation and Development (OECD) countries,” Mahdavi says.
Fossil Fuel Price Reform
The professor says the high-frequency data developed for the Nature Energy article provide the “most and accurate and comprehensive study of consumer gasoline taxes and subsidies to date,” with prices recorded at monthly intervals during the study period for nearly every country with a population greater than 1 million.
The data is also the first, he says, to develop a measure of the global mean tax and price fixity, which is the degree to which governments either keep gasoline prices fixed or allow them to fluctuate with market forces.
The study also had some good news – the researchers determined that about two-thirds of all countries increased their gas taxes during the study period.
Raising Serious Questions
“Even though these countries increased their gas taxes, the mean tax on gasoline has been going down largely because consumption is shifting toward countries where gasoline is subsidized or taxed at low levels,” Mahdavi explains. “So once we account for consumption patterns, the overall trend is negative."
"When calculating the global average, we can’t just treat a small country such as Singapore the same as China,” he adds.
Mahdavi says this pattern “raises serious questions about whether governments are prepared to follow through on their Paris pledges.”
The study, called “Global progress and backsliding on gasoline taxes and subsidies,” also determined, not surprisingly, that the highest net taxes are highest in Europe and North America and lowest in oil-rich countries such as those in the Middle East.
Mahdavi notes that the countries with the largest subsidies are all exporters, but not all exporters subsidize gasoline.
“It’s a mixed picture,” he says. “The good news is that many countries have made important reforms, with China being at the top of the list in global significance. But overall the world’s governments are moving in the wrong direction, which is bad news.”