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Homepage (CO2) Tax | v1.2 | Hans Cappelle | August 2020

Carbon tax and funding economics

Motivation: wanted to understand how carbon pricing per tonne of CO2 emission relates to energy cost per energy unit and to energy productivity of an economy.

A carbon tax is a way to price carbon dioxide (CO2) emissions in order to reduce global warming emissions. Similarly investments to reduce CO2 emissions, such as renewables or insulation of buildings, are sometimes funded from tax income. This page investigates the financial impact of carbon taxation, as well as funding limits to reduce the carbon footprint. We do so in three parts:

Appendix A details fossil fuel price assumptions.

Appendix B shows a bar chart of energy intensity, the inverse of energy productivity, for different world regions in Figure 1.

Appendix C shows energy productivity for more European countries in Table 5.

1. Carbon tax price level per energy unit (kWh)

The amount of carbon emissions depends on the type of fossil fuel. We apply the same methodology as BP [1] to estimate CO2 output in kg per terrajoule (TJ) for coal, crude oil and natural gas. Using these values we compute the amount of kilogram CO2 per kWh, as well as the price in Euro per kWh for a carbon tax of 25, 50, 100 and 200 Euro per metric tonne of CO2. In all shown cases we speak about a few Euro-cents per kWh. For comparison we also mention the fossil fuel price in Euro per kWh for the year 2018, emphasized in color. In 2020 fossil fuel prices decreased significantly. We observe that higher carbon tax values exceed the energy price, to tax their air pollution impact.

Table 1: Carbon tax assumptions
Fossil fuelkg CO2 per TJkg CO2 per kWhprice EUR/kWh (1)25 EUR/tonne CO2 tax50 EUR/tonne CO2 tax100 EUR/tonne CO2 tax200 EUR/tonne CO2 tax
Coal946000.3410.0101 EUR/kWh0.00851 EUR/kWh0.0170 EUR/kWh0.0341 EUR/kWh0.0681 EUR/kWh
Crude oil733000.2640.0365 EUR/kWh0.00660 EUR/kWh0.0132 EUR/kWh0.0264 EUR/kWh0.0528 EUR/kWh
Natural gas561000.2020.0188 EUR/kWh0.00505 EUR/kWh0.0101 EUR/kWh0.0202 EUR/kWh0.0404 EUR/kWh

(1) Fossil fuel energy prices for the year 2018, assumptions detailed in Appendix A, Table 4.

The CO2 tax range in Table 1 has been selected on actual market values: Another way of taxing energy is using tax income to promote renewables. These subsidies can significantly exceed a carbon tax level of 200 Euro/tonne CO2, and typically decrease when renewable technologies become cheaper. This is shown for wind and solar subsidies in Belgium: When compared to human labor, fossil fuels are cheap, even with a carbon tax. Consider the daily energy intake of a person of 2700 kilo-calories, which corresponds to 3.14 kWh. Most of this energy is used to maintain body heat, but let us assume for simplicity that all this human energy is available for labor during twenty days a month. Then a fossil fuel energy cost of 0.05 Euro/kWh would result in a cost of 3.14 Euro/month. Adding a carbon tax of 0.1 Euro/kWh would triple the cost to 9.42 Euro/month. This illustrates that energy cost is cheap compared to human labor, and explains why the daily energy consumption per person in the world significantly exceeds that of a person, as shown in the part two. Still carbon taxation can have a significant impact countries with a low energy productivity (or a high energy intensity), as shown in part three.

2. Energy use per person and energy productivity

To compare different countries or regions it is convenient to normalize energy use per person, and we do so using (average) kWh per day per person (kWh/d/p). This done for gross - or primary - and final - or secondary - energy consumption in Table 2. Gross energy consumption is for the raw energy input. This raw input is transformed to final energy, typically resulting in a lower amount of final energy available for users. Examples are converting coal or natural gas to electricity, and refining crude oil to heating oil, gasoline or kerosene. Table 2 also shows energy productivity for gross and final energy. This value is obtained by dividing the gross domestic product of a region by its total energy consumption. To compute these values we use data from Eurostat [6][7][8] for Europe and the assumptions from [9] for the world. As regions of Table 2 we select the countries with lowest and highest gross energy productivity in Europe: Bosnia & Herzegovina and Ireland, as well as for the EU27 and the world. More values of normalized energy consumption and productivity are available in [8] and in Table 5 of Appendix C. The world average daily gross energy consumption per person of 58.8 kWh/d/p significantly exceeds the human energy intake of 3.14 kWh/d shown in part one. Table 2: Energy efficiency and productivity examples for year 2018

RegionGross energy consumptionFinal energy consumptionGross energy productivityFinal energy productivity
Bosnia & Herzegovina68.0 kWh/d/p38.3 kWh/d/p0.20 EUR/kWh0.35 EUR/kWh
World (1)58.8 kWh/d/p40.8 kWh/d/p0.46 EUR/kWh0.66 EUR/kWh
EU2792.7 kWh/d/p58.9 kWh/d/p0.78 EUR/kWh1.24 EUR/kWh
Ireland97.8 kWh/d/p74.0 kWh/d/p1.90 EUR/kWh2.51 EUR/kWh

(1) For the world similar estimates as in 'Energy storage' [9] are used for 2018:

3. Carbon tax expressed as GDP share

While the carbon tax per kWh from Table 1 seem low, energy productivity is also small due to the huge amount of energy that is consumed world-wide as shown in Table 2. Here we study the impact of carbon tax on GDP, assuming all gross energy consists out of coal, crude oil or natural gas. In practice any combination of these fossil fuels is possible, and renewable sources or nuclear power can also be used in the energy mix. In Table 3 we express a range of carbon taxes as share of the gross domestic product for Bosnia & Herzegovina, the world, the EU27 and Ireland. From Table 2 we see that Bosnia & Herzegovina has the lowest energy consumption per person, still the carbon tax takes the biggest share of GDP compared with the EU27 and Ireland; even when using gas instead of coal. This is mainly explained by the energy productivity that is significantly lower for Bosnia and Herzegovina.

Table 3: Carbon tax examples for year 2018
Gross energy assumption25 EUR/tonne CO2 tax50 EUR/tonne CO2 tax100 EUR/tonne CO2 tax200 EUR/tonne CO2 tax
Bosnia & Herzegovina 100% coal4.26% of GDP8.51% of GDP17.0% of GDP34.1% of GDP
World 100% coal1.85% of GDP3.70% of GDP7.39% of GDP14.78% of GDP
EU27 100% coal1.09% of GDP2.18% of GDP4.37% of GDP8.73% of GDP
Ireland 100% coal0.45% of GDP0.90% of GDP1.79% of GDP3.58% of GDP
Bosnia & Herzegovina 100% crude oil3.30% of GDP6.60% of GDP13.2% of GDP26.4% of GDP
World 100% crude oil1.43% of GDP2.86% of GDP5.73% of GDP11.45% of GDP
EU27 100% crude oil0.85% of GDP1.69% of GDP3.38% of GDP6.77% of GDP
Ireland 100% crude oil0.35% of GDP0.69% of GDP1.39% of GDP2.78% of GDP
Bosnia & Herzegovina 100% natural gas2.52% of GDP5.05% of GDP10.1% of GDP20.2% of GDP
World 100% natural gas1.10% of GDP2.19% of GDP4.38% of GDP8.77% of GDP
EU27 100% natural gas0.65% of GDP1.29% of GDP2.59% of GDP5.18% of GDP
Ireland 100% natural gas0.27% of GDP0.53% of GDP1.06% of GDP2.13% of GDP

4. Conclusion

By combining carbon tax levels with data on the gross domestic productivity as well as energy consumption per day per person we make following observations:

Acknowledgement: many thanks to

Disclaimer: This work provides a summary of the original data, converting ktoe (kilo ton oil equivalent) values to other energy units such as relative percentages, TWh (TeraWatt-hours) and normalized kWh/d/p (kiloWatt-hours per day per person) values. Values are rounded to 3 significant digits. Eurostat is not responsible for data conversion or rounding errors in doing so.


Methodology for calculating CO2 emissions from energy use
www.bp.com - Energy economics - Statistical Review of World Energy, 1965-2019
CO2 European emission allowances graph - Business Insider
Sweden’s carbon tax - updated on August 2021
Green energy production certificates for wind energy in Belgium (Dutch)
Green energy production certificates for solar energy in Belgium (Dutch)
Eurostat yearly energy balances - edition June 2020
Eurostat GDP and main components
Eurostat energy balance data for year 2018, normalized to kWh per day per person
Energy storage
World bank total world population
Hannah Ritchie (2017) - "Fossil Fuels". Published online at OurWorldInData.org
Hannah Ritchie (2014) - "Energy". Published online at OurWorldInData.org


August 2020
version 1.2, added price references, including fossil fuel prices for 2018; with assumptions detailed in appendix A
version 1.1, added energy intensity plot in appendix A (now appendix B)
version 1.0, initial version

Appendix A

Table 4 details fossil fuel price estimates for the year 2018. As a basis we use the fossil fuel prices from Figures 1,2.3 from OurWorldInData.org [11] and an exchange rate of 1.2 Euro/USD for 2018. Fossil fuel prices fluctuate over time, and can different between different regions in the world. For example in 2020 fossil fuel prices decreased significantly.

Table 4: Fossil fuel price estimates for 2018
Fossil fuelPrice assumptionPrice 2018Conversion to kWhUSD/kWhEUR/kWh
CoalNorthwest Europe - bituminous60.68 USD/tonne5000 kWh/tonne0.0121 USD/kWh0.0101 EUR/kWh
Crude oilGlobal price71.31 USD/barrel1628.2 kWh/barrel0.0438 USD/kWh0.0365 EUR/kWh
Natural gasAverage German import6.62 USD/MMBtu293.08 kWh/MMBtu0.0226 USD/kWh0.0188 EUR/kWh

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Figure 1. Price evolution of coal in different word regions.

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Figure 2. Global oil price over time.

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Figure 3. Evolution of natural gas prices for different world regions.

Appendix B

Figure 4 shows the energy intensity for different regions, as published online at OurWorldInData.org [12]. Lower values are better. Energy intensity (EI) is the inverse of energy productivity (EP) and vice versa: EP = 1/EI . Primary - or gross - energy is used, and USD as currency - currency exchange rates need to be taken into account for comparing other currencies such as the Euro. Over the past 25 years energy intensity significantly dropped, and energy productivity increased. This is good and can be shown visually by using the play button in Figure 1. Also other regions and countries can be added.

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Figure 4. Energy intensity overview for year 2015.

Appendix C

Table 5 shows energy productivity in Euro/KWh for a larger set of countries, based on Eurostat data from [6][7]. Higher energy productivity values indicate a lower energy intensity of an economy - for an identical currency unit.

Table 5: Energy productivity overview for year 2018
Country (2018)Inhabitants [million persons]GDP [billion EUR]Gross inland consumption [TWh]Final energy consumption [TWh]Gross energy productivity [EUR/kWh]Final energy productivity [EUR/kWh]
EU27508.01350017200 TWh10900 TWh0.78 EUR/kWh1.24 EUR/kWh
Albania2.8712.827.4 TWh24.6 TWh0.47 EUR/kWh0.52 EUR/kWh
Austria8.82386395 TWh303 TWh0.98 EUR/kWh1.27 EUR/kWh
Bosnia and Herzegovina3.517.187.0 TWh49.0 TWh0.2 EUR/kWh0.35 EUR/kWh
Belgium11.4460640 TWh385 TWh0.72 EUR/kWh1.19 EUR/kWh
Bulgaria7.0556.1221 TWh113 TWh0.25 EUR/kWh0.49 EUR/kWh
Croatia4.1151.6101 TWh77.7 TWh0.51 EUR/kWh0.66 EUR/kWh
Cyprus0.86421.130.6 TWh18.4 TWh0.69 EUR/kWh1.15 EUR/kWh
Czech Republic10.6211507 TWh281 TWh0.42 EUR/kWh0.75 EUR/kWh
Denmark5.78301213 TWh164 TWh1.42 EUR/kWh1.84 EUR/kWh
Estonia1.3226.073.2 TWh33.6 TWh0.36 EUR/kWh0.77 EUR/kWh
Germany82.833403660 TWh2340 TWh0.91 EUR/kWh1.43 EUR/kWh
Greece10.7185277 TWh176 TWh0.67 EUR/kWh1.05 EUR/kWh
Finland5.51234406 TWh292 TWh0.58 EUR/kWh0.8 EUR/kWh
France66.923602960 TWh1630 TWh0.8 EUR/kWh1.45 EUR/kWh
Hungary9.78134311 TWh208 TWh0.43 EUR/kWh0.64 EUR/kWh
Iceland0.34821.976.5 TWh37.2 TWh0.29 EUR/kWh0.59 EUR/kWh
Ireland4.83327172 TWh130 TWh1.9 EUR/kWh2.51 EUR/kWh
Italy60.517701830 TWh1330 TWh0.97 EUR/kWh1.33 EUR/kWh
Kosovo1.86.7330.1 TWh17.1 TWh0.22 EUR/kWh0.39 EUR/kWh
Lithuania2.8145.390.7 TWh63.3 TWh0.5 EUR/kWh0.71 EUR/kWh
Luxembourg0.60260.152.4 TWh43.5 TWh1.15 EUR/kWh1.38 EUR/kWh
Latvia1.9329.155.7 TWh46.8 TWh0.52 EUR/kWh0.62 EUR/kWh
Malta0.47612.49.82 TWh5.98 TWh1.26 EUR/kWh2.07 EUR/kWh
Montenegro0.6224.6612.5 TWh8.48 TWh0.37 EUR/kWh0.55 EUR/kWh
North Macedonia2.0810.729.9 TWh21.3 TWh0.36 EUR/kWh0.5 EUR/kWh
Netherlands17.2774906 TWh523 TWh0.85 EUR/kWh1.48 EUR/kWh
Norway5.3368342 TWh222 TWh1.08 EUR/kWh1.66 EUR/kWh
Poland38.04971240 TWh814 TWh0.4 EUR/kWh0.61 EUR/kWh
Portugal10.3204279 TWh188 TWh0.73 EUR/kWh1.08 EUR/kWh
Serbia7.042.9181 TWh98.1 TWh0.24 EUR/kWh0.44 EUR/kWh
Slovenia2.0745.879.4 TWh57.5 TWh0.58 EUR/kWh0.8 EUR/kWh
Slovakia5.4489.6198 TWh115 TWh0.45 EUR/kWh0.78 EUR/kWh
Spain46.712001520 TWh954 TWh0.79 EUR/kWh1.26 EUR/kWh
Sweden10.1471590 TWh370 TWh0.8 EUR/kWh1.27 EUR/kWh
Turkey80.86561720 TWh1150 TWh0.38 EUR/kWh0.57 EUR/kWh
United Kingdom66.324202150 TWh1420 TWh1.13 EUR/kWh1.71 EUR/kWh
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