The twenty-second session of the UN Committee of Experts on International Cooperation in Tax Matters, held from 19 to 28 April 2021 has approved the final chapters of the Handbook on Carbon Taxation for Developing Countries. The whole publication has therefore been approved by the Committee.

The Handbook provides guidance for developing countries on the implementation of carbon taxes to reduce carbon-based emissions and help to attain commitments on climate change. The Handbook sets out some reasons why countries may be helped by the introduction of a carbon tax; and looks at features of a carbon tax that may make it a favourable option when compared to other instruments that can be used to curb carbon emissions. The Handbook looks at the taxation of fuels and energy; investment incentives; and fossil fuel subsidies and their likely impacts.

The introduction of multiple instruments to reduce carbon emissions may duplicate the effort for government and taxpayers. The requirement by industry to comply with overlapping policies would involve administrative costs, including the regulatory compliance costs, in addition to paying the price for carbon emissions that results from the policy.

The Handbook sets out considerations for the design and administration of a carbon tax that would be adapted to the particular needs of a country. The Handbook contains practical examples and various procedures such as checklists to guide the process of designing a carbon tax. It also takes a look at the international framework in the context of which a country would introduce a carbon tax.

The Handbook looks at the importance of obtaining public acceptability for a carbon tax. The attitude of the general public towards a carbon tax becomes very important when the policy is implemented, and public acceptance must be maintained into the future. Support from the public can grow if the objectives of the policy are clear and if the tax is seen to be achieving its intended effects. The Handbook looks at the role of political and institutional trust and perceived fairness in public acceptance of the tax. The design of the tax will need to achieve a balance between effectiveness, cost efficiency and public acceptability.

The use to which the revenues from a carbon tax are applied can help to gain public acceptance for the tax. The revenue from the tax could become part of the overall State budget, or be used to finance specific items, for example commitments to a specific purpose. The Handbook considers some important purposes for which revenues from a carbon tax can be used, such as compensation for affected households or industrial sectors; environmental spending; or reduction of other taxes.