Dirk Heine

Getting energy prices right : from principle to practice

IMF economists work closely with member countries on a variety of issues. Their unique perspective on country experiences and best practices on global macroeconomic issues are often shared in the form of books on diverse topics such as cross-country comparisons, capacity building, macroeconomic policy, financial integration, and globalization.

How Much Carbon Pricing is in Countries’ Own Interests? The Critical Role of Co-Benefits

This paper calculates, for the top 20 emitting countries, how much pricing of carbon dioxide (CO2) emissions would be in their own national interests due to domestic co-benefits (leaving aside the global climate benefits). On average, second-best domestic prices are substantial,

Environmental Tax Reform : Principles from Theory and Practice to Date

57.5 per ton of CO2 (for year 2010), reflecting primarily health co-benefits from reduced air pollution at coal plants and, in some cases, reductions in automobile externalities net of fuel taxes/subsidies. Pricing co-benefits reduces CO2 emissions from the top 20 emitters by 13.5%. However, co-benefits vary dramatically across countries (e.g., with population exposure to pollution) and differentiated pricing of CO2 emissions therefore yields higher net benefits (by 23%) than uniform pricing. Importantly, the efficiency case for pricing carbon’s co-benefits hinges critically on weak prospects (for the foreseeable future) for comprehensive internalization of other externalities through other (more efficient) pricing instruments.

Augmenting Forest Sustainability Certificates with Fiscal Instruments

This paper recommends a system of upstream taxes on fossil fuels, combined with refunds for downstream emissions capture, to reduce carbon and local pollution emissions. Motor fuel taxes should also account for congestion and other externalities associated with vehicle use, at least until mileage-based taxes are widely introduced. An examination of existing energy/environmental tax systems in Germany, Sweden, Turkey, and Vietnam suggests that there is substantial scope for policy reform. This includes harmonizing taxes for pollution content across different fuels and end-users, better aligning tax rates with values for externalities, and scaling back taxes on vehicle ownership and electricity use that are redundant (on environmental grounds) in the presence of more targeted taxes.

Carbon Taxation for International Maritime Fuels: Assessing the Options

Many developed countries have the declared objective of supporting forest sustainability around the globe, but the world’s most important forests are, in fact, outside their jurisdictions. Actions to protect these forests are therefore constrained by the legal problem of extraterritoriality. To legally act outside their borders, developed countries have supported voluntary certificates on production practices and price-based instruments, but, unfortunately, neither instrument reached beyond niche market shares, administration and compliance costs were high, the environmental gains variable, and the two types of instruments work alongside each other without much synergies.In this paper, we use a Law and Economics methodology to develop a mechanism design that integrates forestry certificates with price-based instruments, in a way that exploits synergies, and provides dynamic incentives for sustainable use of forests while keeping down the costs of compliance and administration. It is a mechanism that satisfies legal extraterritoriality constraints while nevertheless allowing countries to act outside their borders. The mechanism consists of a tax imposed by a timber-importing country on a default assumption regarding the sustainability of the timber, combined with a tax discount that is provided on proof that the sustainability was higher than assumed. The proof is established by showing a sustainability certificate to the customs authority when the timber is imported.This Feebate mechanism reduces a range of standard problems in the literatures on certification and taxation of overseas forestry, such as the problems of threshold costs, free-riding and consumer recognition in markets with competing sustainability certificates, and the problem to compute efficient Pigouvian tax rates in a sector marked by data unavailability. We show that a combination of price-based instruments with certificates can lead to greater sustainability of timber production than each of the instruments alone, without infringing the sovereignty of nations in the South in an extraterritorial manner.

Drying Up Tax Havens - A Mechanism to Unilaterally Tax Maritime Emissions While Satisfying Extraterritoriality, Tax Competition and Political Constraints

The International Maritime Organization (IMO) announced in April 2018 a target of cutting greenhouse gas (GHG) emissions from the sector by 50 percent below 2008 levels by 2050 and subsequent meetings of the IMO will develop a strategy for making headway on this commitment. This paper seeks to inform dialogue about the possibility of a carbon tax as a key element of GHG mitigation policy for international maritime transport. The paper discusses the case for the tax over alternative mitigation instruments, options for the practical design issues, and then presents estimates of the impacts of carbon taxation and other instruments from an analytical model of the maritime sector.

Environmental Tax Reform: Principles from Theory and Practice

Among academics and policymakers, it is generally agreed that implicit tax subsidies for maritime fuels — which are currently granted around the world — are inefficient, but that their abolishment requires a unanimous international agreement. Such an agreement is deemed indispensable because any unilateral action would be impossible due to massive tax competition in this industry, competitiveness effects and the legal limits on regulating an industry operating mostly in international waters, thus outside of any state’s jurisdiction. However, an international agreement to solve these problems has proven impossible to reach, thus resulting in the conservation of the status quo. To break this deadlock, we propose a mechanism whereby a small coalition of countries, to start with, can abolish these implicit tax subsidies even in the absence of an international agreement. The effects of acting without a world-wide agreement are analyzed from an economic perspective, taking into account the current legal framework. The coalition considered in this article focuses on EU member states, although the mechanism is applicable more widely.