Carbon Tax-Breaks

Why we should end them:

According to IMF calculations issued earlier this year, global fossil-fuel subsidies in 2011 cost $1.9 trillion — fully 2.5% of global gross domestic product — and the biggest single source of subsidies was the United States. Eliminating these subsidies globally, the IMF said, would cut energy-related carbon-dioxide emissions a whopping 13%.

Fuel subsidies are terrible primarily because, by “reducing the cost consumers pay for oil, natural gas and coal, subsidies promote the wasteful use of these polluting — and, at least in theory, finite — resources.” But they can also be harmful in a multitude of other ways. For example:

Earlier this year, Iran devalued its currency — the rial — against the US dollar. But when it did the devaluation, it failed to compensate by raising the rial-denominated price of fuel. As a result, the devaluation reduced the price in real terms that consumers in Iran pay for fuel. The market responded swiftly and sensibly: Massive amounts of diesel fuel are being smuggled out of Iran and into neighboring Pakistan, where the price of diesel at the pump now is 10 times what it is in Iran. According to the IEA, 60,000 barrels of diesel fuel are being smuggled out of Iran, mainly into Pakistan, every day.