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BAOPING SHANG 12 June 2016 | Geneva, Switzerland Session I: Understanding fossil fuel subsidies - where, what, why? Baoping Shang, Economist, Fiscal Affairs Department, IMF www.e15initiative.org Two notions of energy subsidies Narrow/pre-tax

  2. BAOPING SHANG 12 June 2016 | Geneva, Switzerland Session I: Understanding fossil fuel subsidies - where, what, why? Baoping Shang, Economist, Fiscal Affairs Department, IMF www.e15initiative.org

  3. Two notions of energy subsidies • Narrow/pre-tax — undercharging for supply cost of energy, including transportation and distribution costs. • Broad/post-tax — undercharging for supply cost and environmental cost (global warming, local pollution, traffic congestions and accidents etc.), as well as the failure to tax energy consumption just as other consumption goods to raise revenue.

  4. Global energy subsidies are large… $6 7 Percent of Global GDP US$ trillions (nominal) 6 $5 5 $4 4 $3 3 $2 2 $1 1 $0 0 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

  5. … reflect mostly local factors… Components of global energy subsidies, 2015 Vehicle Foregone Global externalities revenue warming 12% 6% 24% Pre-tax subsidies 6% Local pollution 52%

  6. … and are from coal Product composition of global energy subsidies, 2015 Petroleum 28% Coal 59% Natural gas 10% Electricity 3%

  7. Global energy subsidies, by region and component US$ billions (nominal) 0 1,000 2,000 3,000 4,000 5,000 6,000 World LAC Advanced Emerging Europe E.D. Asia Com. Of Ind. States Sub-Saharan Africa MENAP World LAC Advanced Emerging Europe E.D. Asia Com. Of Ind. States Sub-Saharan Africa MENAP 0 5 10 15 20 Percent GDP Pre-tax Global warming Local air pollution Vehicle externalities Foregone revenue

  8. Global energy subsidies, by region and product US$ billions (nominal) 0 1,000 2,000 3,000 4,000 5,000 6,000 World LAC Advanced Emerging Europe E.D. Asia Com. Of Ind. States Sub-Saharan Africa MENAP World LAC Advanced Emerging Europe E.D. Asia Com. Of Ind. States Sub-Saharan Africa MENAP 0 5 10 15 20 Percent GDP Coal Petroluem Natural gas Electricity

  9. Consequences of energy subsidies go well beyond fiscal costs • Depress growth • reduce investment in the energy sector • crowd-out critical public spending • over-allocate resources to energy intensive sectors • Exert pressure on balance of payments of energy importers • Create negative externalities (for example, global warming) • Reinforce inequality

  10. Distributional impact Kerosene Gasoline 2nd quintile Bottom quintile 3 6 1 9 2 1 3rd quintile 1 0 2 0 1 9 2 0 6 1 2 1 4th quintile Top quintile Diesel LPG 7 4 8 1 2 4 2 1 3 1 6 5 4 2 1 2 3

  11. Energy price reform can generate substantial health benefits… Reduction of fossil-fuel emissions-related deaths, 2015 70 Global average: 57 60 50 Percent reduction 40 30 20 10 0 Emerging E.D. Asia CIS MENAP S.S. Africa Advanced LAC Europe

  12. …and carbon emission reductions… Reduction of fossil-fuel related CO 2 emissions, 2015

  13. …as well as a significant fiscal dividend

  14. Time is now: act local, solve global! • Mispricing of energy is substantial and pervasive across advanced and developing countries • Reforms are needed for domestic reasons • 195 countries signed on to the Paris climate agreement • Low energy prices provide a window of opportunity • Reform process should start now and be gradual

  15. Some references 1. Reforming energy 2. Apply appropriate 3. Global magnitude and subsidies corrective taxes reform benefits See http://www.imf.org/external/np/fad/subsidies/ http://www.imf.org/external/np/fad/environ/

  17. PETER WOODERS 12 June 2017 | Geneva, Switzerland Session I: Understanding fossil fuel subsidies - where, what, why? Peter Wooders, Group Director, Energy, IISD & Programme Leader, Global Subsidies Initiative www.e15initiative.org

  18. Contents 1. Available estimates of Fossil Fuel Subsidies (FFS) a. By fuel, by country b. Data sources – official national estimate or other? c. Definitions, scope, benchmarks, other assumptions 2. Some views on successful reform www.iisd.org/gsi

  19. Consumer subsidies ($320 billion in 2015, IEA data) by energy type Categories of consumers: private sector, public sector, households • IEA=most-quoted source • 40 developing & emerging economies • IEA data, assumptions • IEA definition (‘subsidies change prices’) • Opaque calculations • Benchmarks based on global fuel market prices • Non-application of ‘normal’ GST/VAT is a subsidy Sources: IEA (2017)

  20. Consumer subsidies (at their highest in 2013, IEA data) by country • Countries with highest subsidies = Oil & Gas Producers • Some (strongly made) argumentation that benchmark should be production cost, not global market price Sources: IEA (2014), p. 323

  21. Producer subsidies ($70 billion on annual average in G20 countries) by energy type • Basis: OECD inventory of support measures • OECD + BRICSAM • Producer & consumer • Inventory drawn from assessment of individual polices & measures • Definition ~ OECD ASCM • Data only from govt. sources (  conservative) • Semi-official? (OECD members can object) Sources: GSI & ODI (2017) based on OECD (n.d.)

  22. Environmental impact: all fossil fuel subsidies act as a negative carbon tax • IMF figure includes some ~6-8% emissions ~2% emissions external costs, notably reduction by 2050 $320 reduction by 2050 ~$35/tCO 2 billion • $100 Producer subsidy figure billion uncertain – conservative? • GHG emission Producer subsidies (GSI global Consumer subsidies (IEA 2015 reductions approx. 10% estimate, per year) estimate, only emerging & • Higher GHG emissions developing countries) reductions if savings invested into clean energy (eg GSI-IF model) IMF 2015 global estimate, $5.3 consumer subsidies trillion incl.externalities + some Sources: GSI (n.d.), GSI & ODI (2017), IEA producer subsidies (2017), IMF (2015), NCM (2017)

  23. Civil Society Organisations and others have produced independent estimates • Typically more detailed, include more subsidies • Use other data sources beyond simply government data • Governments can refer to them as they wish • Cover selected countries – not necessarily those with highest subsidies

  24. Countries’ own figures: G20 and APEC Peer Reviews Both APEC and G20 leaders committed in 2009 to phase • Economies have put out “inefficient fossil fuel subsidies that encourage forward 3-9 policies for wasteful consumption ” review • “Inefficient” and APEC peer reviews: “wasteful consumption” • Peru, New Zealand, the remain open, undefined Philippines (completed) • Strong voluntary nature • Chinese Taipei, Vietnam (in – whether and how to progress) review • • Brunei (pending) Others have conducted Self reviews G20 peer reviews: • Useful first step • US & China (completed in 2016) • Germany & Mexico (in progress) • Indonesia & Italy (pending) Sources: GSI (2016)

  25. Underway: Methodology Development (and Data Collection) SDG Indicator 12.c.1 • • Target 12.c specifically refers to FFSR: UN Environment is Indicator custodian o Rationalize inefficient fossil-fuel subsidies that • Responsible to lead Methodology encourage wasteful consumption by removing market development, compile & distortions, in accordance with national circumstances… report data • For approval by UN MSs o https://sustainabledevelopment.un.org/sdg12 • Core partner group • Associated indicator 12.c.1 established • Meth. by March 2018 o Amount of fossil-fuel subsidies per unit of GDP • Data reported by MS 2020-2030 (production and consumption) and as a proportion of total national expenditure on fossil fuels

  26. Some views on successful reform 1. Get the prices right 2. Manage the impacts 3. Build support (within govt., externally) • Consumer subsidy reform well-understood • Electricity subsidy reform – note local and global external costs • Producers – note jobs, tax revenue, security, etc

  28. THOMA MAS S COTTI TTIER ER 12 June 2016 | Geneva, Switzerland Session I: Un Understanding anding fossil il fuel l subsidies idies – the e le lega gal l ba backgr ground ound Thomas Cottier, WTI www.e1 .e15in 5initia itiative tive.or .org

  29. The magnitude of fossil fuel subsidies Fossil fuel subsidies in numbers Fossil fuel subsidies in numbers (IEA 2015) (IMF 2015) $ 14.5bn/day $ 600m/hour $ 168,000/second $ 10m/minute June 12, 2017 29

  30. The impacts of fossil fuel subsidies on CO2 emissions June 12, 2017 30

  31. Overview of energy subsidies June 12, 2017 31

  32. Production and consumption subsidies Consumption – non specific Production – Specific subsidies subsidies • Government assistance to • Many developing countries exploration, extraction, operate non specific fuel shipping and marketing subsidies, instead of targeted • ASCM disciplines respond to social policies in support of this type of subsidies consumers • Problem to identify trade • Shows political complexity of distorting effects inducing fossil fuel subsidy reductions countervailing duties • What data available? • What data available?

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