Increasing Taxes on Fossil Fuel Consumption

This case study examines the use of consumption taxes on fossil fuels in Saudi Arabia, China, and South Africa to raise government revenue and support clean energy transitions.

• Global under-taxation of fossil fuel use was estimated at USD 5.3 trillion in 2015 due to the failure to internalize negative impacts such as climate change, traffic congestion, and air pollution.
• China utilizes a Renewable Energy Surcharge to fund the integration of renewable energy sources, shifting the financial burden from the national budget to consumers. In 2016, this surcharge reached CNY 0.019/kWh, generating approximately CNY 112 billion (USD 16 billion), which represented about 0.7 per cent of total tax revenues for that year. These funds support feed-in tariffs, and the surcharge is managed by the National Development and Reform Commission (NDRC).
• Saudi Arabia introduced a 5 per cent value-added tax (VAT) on January 1, 2018, to address budget deficits that reached 14.8 per cent in 2015, 12.8 per cent in 2016, and 8.9 per cent in 2017. Because the VAT applies to all goods and does not differentiate between fuel types, its primary purpose was revenue generation rather than encouraging a switch to different fuels.
• South Africa employs a variety of fossil fuel consumption taxes for both fiscal and regulatory purposes, including the Fuel Tax, Road Traffic Levy, and an Electricity Levy introduced in 2009. The country also uses a carbon dioxide tax on new motor vehicles to encourage a more energy-efficient vehicle fleet. In the 2016/17 financial year, total environmental consumption tax revenues totaled ZAR 72,446 million (USD 4,821 million), accounting for approximately 6 per cent of total tax revenues.

APA

International Institute for Sustainable Development (n.d.). Increasing Taxes on Fossil Fuel Consumption. https://www.iisd.org/system/files/publications/stories-g20-saudi-arabia-china-south-africa-en.pdf

Chicago

International Institute for Sustainable Development. Increasing Taxes on Fossil Fuel Consumption. n.d. https://www.iisd.org/system/files/publications/stories-g20-saudi-arabia-china-south-africa-en.pdf.

Wikipedia

{{cite report |author=International Institute for Sustainable Development |title=Increasing Taxes on Fossil Fuel Consumption |url=https://www.iisd.org/system/files/publications/stories-g20-saudi-arabia-china-south-africa-en.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{internationalinstituteforsustainabledevelopmentndincreasing, author = {{International Institute for Sustainable Development}}, title = {{Increasing Taxes on Fossil Fuel Consumption}}, institution = {International Institute for Sustainable Development}, url = {https://www.iisd.org/system/files/publications/stories-g20-saudi-arabia-china-south-africa-en.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }