DEVELOPING countries could raise substantial revenues while cutting emissions and air pollution, by transforming existing levies on fuel said the Organisation for Economic Cooperation and Development (OECD).

Examining energy taxation in 15 developing and emerging economies in Africa, Asia, Latin America and the Caribbean, the OECD's latest report finds that creating a carbon price could add revenue equivalent to 1 per cent of the Gross Domestic Product (GDP) to these countries.

The 'Taxing Energy Use for Sustainable Development' project examines the triple objectives of decarbonisation, domestic revenue mobilisation and access to affordable energy.

Developing and emerging economies battling to recover from the COVID-19 crisis with much lower tax revenues than advanced economies would benefit from better-designed energy taxes accompanied by targeted support to low-income groups, said the organisation.

"On average, the countries could generate revenue equivalent to around 1 per cent of GDP if they set carbon rates on fossil fuels equivalent to EUR 30 per tonne of Carbon Dioxide (CO2)," it said.

None of the 15 countries studied applies an explicit carbon price or uses a CO2 emissions trading systems.

To support poor households, fossil fuels used for heating, cooking and lighting are often taxed at low rates or subsidised, yet this weighs on public finances and in some cases can encourage excessive fuel use. In four of the 15 countries, the cost to public finances of energy subsidies exceeds income from energy taxes.

"Reducing subsidies, which tend to benefit wealthier consumers, and improving tax design could provide additional revenues for more targeted support to enhance energy access and affordability," it recommends.

Across the 15 countries in the report, 83 per cent of energy-related CO2 emissions are entirely untaxed.

Importantly, the report notes that 13 countries have experience with fuel excise taxes, meaning carbon tax reform would be relatively straightforward to implement in administrative terms.

"Providing reliable and affordable access to clean energy is crucial for strong economic development," said the Paris-based organisation.

A long-term commitment to carbon pricing and phasing out fossil fuel subsidies can incentivise infrastructure investments that are in line with low-carbon and development objectives and reduce the risk of stranded assets and jobs. Carbon pricing can also help to tackle the high levels of informality that weigh on developing country economies as energy taxes are harder to avoid than direct taxes.