How Large Are Global Energy Subsidies?
Vitor Gaspar Director, Fiscal Affairs Department
International Monetary Fund
The Brookings Institution
May 18, 2015
Background
The presentation draws from a new paper and two blogs
from the IMF:
• Provides a comprehensive, updated picture of energy
subsidies and the impacts of subsidy reform
• Focusing on the broader notion of post-tax energy subsidies,
instead of pre-tax subsidies
• The estimates of the environmental, revenue and welfare impacts
of eliminating energy subsidies are “partial equilibrium” in nature
• Points to the need to begin reform immediately while
adopting a gradual reform strategy
2
0
1
2
3
4
5
6
7
8
2011 2012 2013 2014 2015
Pe
rce
nt
of
Glo
bal
GD
P
In percent of global GDP
$0
$1
$2
$3
$4
$5
$6
$7
2011 2012 2013 2014 2015
US$
tri
llio
ns
(no
min
al)
In US$ trillions
Global energy subsidies are $5.3 trillion
$4.2
$4.6 $4.9
$5.2 $5.3
5.8
6.3 6.5 6.7 6.5%
Pre-tax consumer subsides arise when the price paid by consumers is below the cost of supplying energy. Post-tax consumer subsidies arise when the price
paid by consumers is below the supply cost of energy plus an appropriate “Pigouvian” (or “corrective”) tax reflecting the environmental damage associated with
energy consumption and an additional consumption tax that should be applied to all consumption goods for raising revenues.
Global energy subsidies
Costs are far-reaching …..
• Exacerbate environmental damage
• Local pollution, traffic congestion and accidents, road
damage, and global warming
• Worsen inequality
• Most of the benefits are captured by rich households
• Better targeted policy instruments are often available or can
be quickly developed
• Retard economic growth
• Discourage energy investments and encourages energy
inefficiency
• Fiscally costly
• Which requires higher distortionary taxation and crowds out
high priority spending (education, health, infrastructure) 4
…..mostly local …..
5
Global
warming
24%
Pre-tax
subsidies
6% Local
pollution
52%
Vehicle
externalities
12%
Foregone
revenue
6%
Components of global energy subsidies, 2015
….. and from coal
6
Petroleum
28%
Natural gas
10%
Electricity
3%
Coal
59%
Product composition of global energy subsidies, 2015
Energy subsidies are pervasive
Japan $0.2
trillion
India $0.3
trillion
China $2.3
trillion
Russia $0.3
trillion
USA $0.7
trillion
EU $0.3
trillion
Geographic distribution of global energy subsidies, 2015
Energy subsidy reform can generate substantial health benefits …..
8
Reduction of fossil-fuel emissions-related deaths, 2015
0
10
20
30
40
50
60
70
Emerging Europe
E.D. Asia CIS MENAP S.S. Africa Advanced LAC
Pe
rce
nt
red
uct
ion
Global average: 57 percent
0
5
10
15
20
25
30
35
40
MENAP E.D. Asia LAC CIS S.S. Africa Emerging Europe
Advanced
Pe
rce
nt
red
uct
ion
Global average: 24 percent
….. and carbon emission reductions …..
9
Reduction of fossil-fuel related CO2 emissions, 2015
0
3
6
9
Advanced Emerging Low-income and developing
Pe
rce
nt
of
GD
P, 2
01
3
….. as well as a significant fiscal dividend
10
Corporate
income tax
revenue
Public health
spending Fiscal gain
Time is now: act local, solve global!
• Energy subsidy reform is urgently needed in many
countries for domestic reasons
• This will also contribute to carbon emission reductions
(in the run up to Paris 2015 UN Climate conference)
• Low international energy prices provide a window of
opportunity for reform
Reform process should start now
and it should be gradual
11
Thank you!
• The working paper “How Large Are Global Energy
Subsidies”
• The blog “Act Local, Solve Global: Energy Tax and
Subsidy Reform”
• The blog “Global Energy Subsidies Are Big—About
US$5 Trillion Big”
• All can be found at:
http://www.imf.org/external/np/fad/subsidies/
12
13
Background slides
A number of countries have started to reform energy taxation
Carbon taxes and emissions trading systems
14 Source: World Bank, 2014, State and Trends of Carbon Pricing 2014.
Other references
• Clements, B. J., D. Coady, S. Fabrizio, S. Gupta, T. Alleyne, C. A.
Sdralevich, 2013, Energy Subsidy Reform: Lessons and Implications.
Washington D.C.: International Monetary Fund.
• Clements, B. J., D. Coady, S. Fabrizio, S. Gupta, B. Shang, 2014, “Energy
Subsidies: How Large Are They and How Can They Be Reformed”,
Economics of Energy & Environmental Policy 01/2014; 3(1).
• Parry, I., D. Heine, E. Lis, and S. Li, 2014, Getting Energy Prices Right:
From Principle to Practice. Washington D.C.: International Monetary Fund.
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