This paper identifies the sources contributing to energy price distortion prevailing in Taiwan. These include market structure distortion, price distortion, taxation distortion, and cost distortion. A Ramsey pricing rule is developed that takes into account the environmental externalities generated by energy consumption. Empirical results indicate that the current price structure should be adjusted substantially to meet the objectives of Ramsey goals. The economic impacts from implementing the Ramsey pricing rule are evaluated by using the Dynamic Taiwan General Equilibrium Model (TAIGEM-D). The model is also used to evaluate the economic impacts of eliminating tariffs on imported energy as well as the market structure distortion.