The IMF Wants Your Gas to Be More Expensive

Fuel prices don’t accurately reflect their environmental impact, the international body says in a new report.

SAN FRANCISCO, CA - JULY 22: Gas pumps are seen at a Chevron gas station on July 22, 2013 in San Francisco, California. According to AAA, the national average price for a gallon of regular gasoline rose to $3.67 as prices have surged 12 cents in the past week due in part to the unrest in Egypt and production disruptions at US refineries. (Photo by Justin Sullivan/Getty Images)
National Journal
Jason Plautz
July 31, 2014, 10:21 a.m.

Rising gas prices may be the bane of most drivers, but the In­ter­na­tion­al Mon­et­ary Fund says those costs aren’t nearly high enough.

In a book re­leased today, the IMF states simply, “Many en­ergy prices in many coun­tries are wrong.” The in­ter­na­tion­al bank backs tax re­form that would peg fuel, coal, nat­ur­al gas, and dies­el prices to the cost of glob­al warm­ing, air pol­lu­tion, and the im­pacts of mo­tor-vehicle use.

For the U.S., for ex­ample, that could mean a $1.60 per gal­lon cor­rect­ive tax on gas­ol­ine to cov­er health im­pacts from car ex­haust pol­lu­tion, traffic ac­ci­dents, and wear and tear on high­ways, plus taxes on coal and nat­ur­al gas to ac­count for the en­ergy sec­tor.

But the be­ne­fits, the re­port says, would be felt across the spec­trum. In­centiv­iz­ing people to use less-dirty fuel would lower world­wide deaths from air pol­lu­tion linked to fossil fuels by 63 per­cent (the bulk linked to coal) and slash car­bon di­ox­ide emis­sions by 23 per­cent. The gains could even be felt in gross do­mest­ic product, with an av­er­age 2.6 per­cent boost.

IMF Man­aging Dir­ect­or Christine Lagarde ad­mit­ted that im­pos­ing a fuel tax hasn’t got­ten a gen­er­ous re­cep­tion in the U.S. or in some oth­er coun­tries. And she also noted that tax re­form doesn’t ne­ces­sar­ily mean a tax in­crease (“smarter taxes” was the buzzword for the po­ten­tial to off­set taxes else­where).

“I know it’s not a par­tic­u­larly pop­u­lar sug­ges­tion, but it is our sug­ges­tion,” Lagarde said today at an event hos­ted by the Cen­ter for Glob­al De­vel­op­ment.

“In all of this, fisc­al policy must take cen­ter stage, and our mes­sage is clear: To get it right, price it right,” she ad­ded.

Echo­ing the sen­ti­ments of oth­er car­bon-tax pro­ponents, Lagarde also poin­ted out that high­er en­ergy prices wouldn’t just dir­ect more money to cli­mate-change ef­forts, but could also dir­ect people to use clean­er fuels, re­duce their en­ergy use, or shift to a fuel-ef­fi­cient car. The rev­en­ue raised could also be used to off­set taxes on in­come, pay down pub­lic debt, or ad­dress in­come in­equal­ity, she said.

The re­port meas­ures the im­pact of tax re­form on 156 coun­tries, not­ing that the en­ergy tax re­form would al­low some coun­tries to move in­de­pend­ently on cli­mate change rather than wait­ing for in­ter­na­tion­al ac­tion. In the U.S., for ex­ample, the re­port of­fers a pro­pos­al for a tax of more than $8 per giga­joule on coal, while nat­ur­al gas would see a cor­rect­ive tax of just over $3 per giga­joule.

Of course, rais­ing en­ergy prices is a huge ask. The Aus­trali­an gov­ern­ment this month nixed that coun­try’s car­bon tax. And even while Con­gress sweats through an­oth­er short-term fix to keep the High­way Trust Fund afloat this week, there’s little mo­mentum to rais­ing the coun­try’s 18.4-cents-per-gal­lon gas­ol­ine tax to cov­er the up­keep of trans­port­a­tion in­fra­struc­ture.

Lagarde—who has over­seen a shift at the IMF to tackle cli­mate change—said the eco­nom­ic ap­proach to en­vir­on­ment­al im­pact was one that made sense to the mon­et­ary body, es­pe­cially as na­tions pre­pare for cli­mate change talks in Par­is next year.

“It’s bad for an eco­nomy to be down­graded, but it’s even worse for an eco­nomy to be de­graded,” Lagarde said. “A de­graded en­vir­on­ment leads to a de­graded eco­nomy.”

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