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THE SCOPE
IN 2009PHASING O
An IEA, O
Prepared for the
1This Joint Report does not express the
construed as interpreting or modifying a
as expressing any legal opinions or havi
The World
F FOSSIL-FUEL SUBS
ND A ROADMAP FOT FOSSIL-FUEL SUBS
CD and World Bank Joint Report1
G-20 Summit, Seoul (Republic of Kor
11-12 November 2010
positions of the G20 Member Countries. Nothing in this Joi
ny legal obligations under the WTO Agreements, treaty, law
g probative legal value in any proceedings.
Bank
IDIES
RIDIES
a)
nt Report shall be
or other texts, or
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Page | 2
Table of Contents
Executive Summary ................
1.The scope of fossil-fuel subs
1.1 Introduction ..................
1.2 Measuring fossil-fuel s
1.3 Estimate of global foss
1.4 Implications of phasin
1.5 Recent action taken to
2.A roadmap for phasing out f
2.1. Analytical Framework .2.2 Lessons from recent ex
References ..............................
The World
.........................................................................
idies in 2009 ....................................................
.........................................................................
ubsidies ...........................................................
il fuel consumption subsidies ..........................
out fossil-fuel consumption subsidies...........
phase out subsidies ........................................
ossil fuel subsidies ..........................................
.........................................................................erience of energy subsidy reforms ................
.........................................................................
Bank
................... 3
................... 5
.................... 5
.................. 14
.................. 17
.................. 19
.................. 22
................. 27
.................. 27
.................. 37
................. 47
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Executive Summa
This report, prepared for the G-2
Economic Co-operation and Dev
fossil-fuel subsidies in 2009 and
The IEA estimates that direct
lowering end-user prices for foss
of mechanisms can be identified
fuel production or consumptio
resources under government co
via concessional loans or guarant
compared with direct consumer
Phasing-out fossil-fuel subsidie
security, reduce emissions of gr
highlighted by estimates from th
phased-out by 2020, it would
amounts to the current consum
oil demand, the savings amount
would also represent an integral
in carbon-dioxide emissions wou
Furthermore, OECD and IEA anal
economic gains as in many
unsupportable fiscal burden on
example, the IEA estimates thatlikely to reach almost $600 billi
countries emerge from the eco
inefficient fossil fuel subsidies,
poverty alleviation, health and e
Since the commitment taken at
outside the G-20 are moving ah
extent of the potential gains will
the reforms they are pursuing.
The World Banks contribution
removal, revisited through the p
some quick diagnostics of the ke
Who has been benefittinterms and for wasteful c
removing the subsidy o
Subsidy removal will, ho
used to satisfy basic ne
2
An OECD expert workshop on 18-
types of fossil-fuel subsidies.
The Wor
ry
0 by the International Energy Agency (IEA), the O
elopment (OECD) and the World Bank, estimate
rovides a roadmap for phasing-out fossil-fuel su
ubsidies that encourage wasteful consumption
il fuels amounted to $312 billion in 2009. In addi
, also in advanced economies, which effectively
n, such as tax expenditures, under-priced ac
ntrol (e.g. land) and the transfer of risks to gov
ees). These subsidies are more difficult to identif
subsidies.2
represents a triple-win solution. It would e
eenhouse gases and bring immediate economi
e IEA that indicate that if fossil-fuel subsidies w
cut expected growth in global energy deman
ption of Japan, Korea and New Zealand combin
to 4.7 mb/d, or around one-quarter of current
building block for tackling climate change as ex
ld be cut by 2 gigatonnes.
yses suggest that subsidy reform would bring ab
cases they are creating market distortions,
government budgets and are weakening trade
, in the absence of reform, spending on fossil-fn in 2015, or 0.6 percent of global gross domes
nomic crisis, the revenues that can be saved f
r redirected to more directly tackle pressing pri
ucation, will be important.
he Pittsburgh Summit in 2009, many countries b
ad with reforms. While this is a very encouragin
only be realised if more countries raise the level
provides a road map for implementing fossi
overty lens. Such a roadmap may help policy ma
problems and the required policy response:
g from an existing subsidy? If it is primarily the r
onsumption, as is often the case, then there is a
equity grounds as well as for improved econo
wever, have a negative impact on the poor, if t
ds, rather than to encourage wasteful consump
9 November 2010 will examine methods for estimati
ld Bank
Page | 3rganisation for
s the scope of
sides.
by artificially
ion, a number
support fossil-
ess to scarce
ernments (e.g.
and estimate
hance energy
gains. This is
re completely
by 5%. This
d. In terms of
US demand. It
pected growth
out immediate
imposing an
balances. For
el subsidies isic product. As
rom removing
orities such as
oth within and
g start, the full
of ambition in
l fuel subsidy
ers in deriving
ich in absolute
trong case for
mic efficiency.
e subsidy was
tion. Schemes
ng the different
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Page | 4
assisting households wi
home heating (such as t
countries) are described.
providing incentives for
Assuming that there isthose? The answer willIf it was to make the
support programs or (se
energy access available
connection costs) with f
After the implementatienvironmentally welfare
eventual adverse social i
Lessons drawn from recent exp
fuel subsidies that largely benefi
Well designed rural elecpoor
Better-targeted compenaimed at protecting the
Moves towards automafor fossil fuels.
The World
h only the portion of residential energy costs
e US LIHEAP, successfully replicated in some Eas
Alternative schemes supporting new gas conne
emand side management are discussed.
n impact on the poor, what are the options fo
epend in part on what the intended effect of thexisting use of energy more affordable, then
cond best) lifeline tariffs can be considered. If i
to new households, then switching the subsidy
ll payment of incremental consumption costs is r
on of subsidy phasing out, the report discus
enhancing ways to reallocate the savings to miti
pacts.
erience also suggest more effective alternative
higher income households, including the followi
trification subsidies to make energy services aff
sation packages for poorest households or br
ost vulnerable.
ic price adjustments mechanisms and fully libe
Bank
that goes for
tern European
tion as well as
r ameliorating
e subsidy was.income-based
t was to make
to access (e.g.
ecommended.
es socially or
ate and offset
to regressive
ng:
ordable to the
oader reforms
ralized system
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1.The scope of fo1.1 Introduction
1.1.1 Background to th
In September 2009, G-20 leader
summit in Pittsburgh, United St
over the medium term inefficie
This move was closely mirror
November 2009. These commi
subsidies distort markets, imped
deal with climate change.During the Pittsburgh Summit, t
subsidies and suggestions for th
was presented to the G-20 T
implementation strategies and ti
The IEA, OECD, and World Bank
the November 2010 G-20 sum
extends the analysis presente
quantitative findings to include d
fossil fuel subsidies. The report c
motivations for introduci the case for reforming e estimates of energy subs modelling-based analysi recent action taken to p a road map for phasing o lessons drawn from rece
1.1.2 Defining energy s
Finding a commonly agreed def
context and countries have deci
for the purpose of this report,
lowers the cost of energy prod
price paid by energy consumers.
reasons much narrower definitio
be quantified and for which data
The Wor
ssil-fuel subsidies in 2009
report
s took a key step towards reforming energy su
ates. Together, they committed to rationalize
t fossil fuel subsidies that encourage wasteful
d by Asia-Pacific Economic Cooperation (AP
tments were made in recognition that ineffici
e investment in clean energy sources and under
he G-20 also requested a Joint Report on the s
implementation of their phase-out initiative. T
ronto Summit in June 2010, during which c
metables were tabled.
were subsequently requested to prepare this se
it meeting to be held in Seoul, Republic of Ko
in Toronto in June 2010, in particular by
ata for the year 2009 and providing a road map f
overs:
ng energy subsidies;
ergy subsidies;
idies;
of the implications of phasing-out energy subsid
ase out subsidies;
ut subsidies, revisited through the poverty lens;
nt experience of subsidy reforms.
bsidies
inition of subsidies has proven a major challen
ed to adopt their own definition of energy subsi
an energy subsidy is defined as any governme
ction, raises the revenues of energy producers
Many energy subsidies are difficult to measure,
ns are often adopted that include only those sub
are readily available. The broad definition used i
ld Bank
Page | 5
sidies at their
nd phase out
consumption.
C) leaders in
ient fossil-fuel
ine efforts to
ope of energy
e Joint Report
ountry-specific
ond report for
rea. This work
updating the
or phasing out
ies;
nd
e in the G-20
ies. However,
nt action that
or lowers the
o for practical
sidies that can
n this report is
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Page | 6
designed to capture all of the
commonly exist.
Energy subsidies are frequently
producers or consumers, or wh
energy. Fossil-fuel consumption
have been phased out by mostmany emerging and developing
that seek to maintain or to e
subsidisation, particularly in adv
also been phased out, with th
policies and liberalisation of inte
encouraging excessive producti
resources and market distortio
fossil fuel subsidies that lead to
1.1.3 Mechanisms of go
Subsides can be further distin
administered; these include bu
(Table 1). They can be groupe
deployment of fledgling energy
end-use prices.
Subsidies to energy consumption
intended to regulate the cost
designed to provide consumers
Government interventions sup
direct subsidization of domestconsumption through direct bud
for the fuels or electricity thus
transfer is a fuel voucher, which
price. In advanced market econ
for low-income households, and
the cost of fuel purchases when
Similarly, a wide array of tax exp
of excise-tax concessions on fu
survey of practices in OECD co
terms. For example, OECD esti
year to the agricultural sector
fisheries sector.Finally, tax regi
encourage the provision by empl
of company-paid fuel for those v
Governments provide support
markets in such a way as to affe
assuming part of their risk, by se
and by undercharging for the u
one transfer mechanism is inv
The World
diverse and non-transparent types of energy
differentiated according to whether they conf
ether they support traditional fossil fuels or cl
subsidies lower prices to end-users. These typ
economies in the developed world, but are sticonomies. Production subsidies, by contrast, inv
pand domestic supply. They remain an impo
anced economies, though many subsidies in this
e shift towards more market-oriented econom
national trade. Both production and consumptio
on or consumption, can lead to an inefficien
s. Within this report a particular focus is give
asteful consumption.
vernment support to energy
guished according to the channels through w
dgetary payments, regulations, taxes and trad
d as either direct transfers, such as grants to
technologies, or indirect transfers, such as th
are provided through several common channels:
of energy to consumers, direct financial tran
with rebates on purchases of energy products
orting energy consumption often involve the
ic prices. However, many economies also sgetary transfers that do not alter the observabl
upported. In developing countries, a common
allows low-income recipients to purchase fuel a
mies, direct budgetary transfers include heating
subsidies to help particular sectors, such as ag
rices rise unexpectedly.
enditures often target consumers. These mostly
l designed to benefit particular users or areas.
ntries suggests that these could be quite imp
ates that fuel tax concessions are worth some
in OECD countries, and at least $1.4 billion p
es in a number of advanced market economie
oyers of company-owned or leased vehicles for e
ehicles.
o energy production in a variety of ways: by
t costs or prices, by transferring funds to recipie
lectively reducing the taxes they would otherwi
se of government-supplied goods or assets. Oft
olved. For example, a government may fund
Bank
subsidies that
r a benefit to
aner forms of
s of subsidies
ll prevalent inolve measures
rtant form of
category have
ic and energy
n subsidies, by
allocation of
to inefficient
hich they are
e instruments
expedite the
regulation of
: price controls
fers, schemes
and tax relief.
regulation or
pport energymarket price
orm of such a
t a discounted
-energy grants
iculture, meet
take the form
A preliminary
rtant in value
$8 billion per
r year to the
inadvertently
mployees, and
intervening in
nts directly, by
e have to pay,
en, more than
research at a
8/2/2019 Iea Oecd & World Bank - Fossil Fuel Subsidies
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national laboratory on how to c
guarantees to companies investi
production of such fuels, and ex
state-owned lands. The national
the fuel than it could have paid f
Table 1: Common types of energ
Direct budgetary transfers are
although the complexity of thebudget documents. In the case
have traditionally benefited the
Tax expenditures relating to th
stem from favourable tax treat
higher levels of production than
capital, special rules that allow
at which equipment becomes
subsidies. Immediate deduction
Description
Trade instruments
Quotas.
Technical r
Tariffs.
Regulations
Price contr
Demand gu
deploymen
Market-acc
Preferentia
Preferentia
Tax breaks
Rebates or
producer le
Tax credits
allowances.
Rebates, re
energy duti
energy in g
CreditLow-intere
loans to pr
Direct financial transfer Grants to p
Risk transfer Limitation
Energy-related services
provided by government
at less than full cost
Direct inves
infrastructu
Public rese
The Wor
nvert coal into a liquid transport fuel, provide g
g in synthetic fuels from coal, provide a tax cred
mpt such producers from paying royalties on c
government may, in turn, pay the producer a h
r an imported, petroleum-derived fuel.
y subsidies
the most straight-forward types of subsidie
task depends on how well they are reported iof European countries, the bulk of direct budg
oal industry.
production of energy in industrialised countri
ent for capital or intermediate inputs. These
would otherwise be demanded by the market.
usinesses to deduct depreciation faster than th
conomically obsolete can in some cases imply
(expensing) of exploration and development cost
Examples
strictions.
Tariffs on imports of crude
petroleum products, maki
fuel production more lucra
ls.
arantees and mandated
rates.
ess restrictions.
l planning consent.
l resource access.
Gasoline prices regulated a
international market levels
Regulations that prioritise
coal for power generation.
exemption on royalties,
vies and income taxes.
and accelerated depreciation
unds or exemptions on
es and CO2 taxes or for
neral consumption taxes.
Favourable tax deductions
investments in oil and gas
deposits.
Excise exemptions for fuel
international air, rail, or w
t or preferential rates on
ducers.
Loan guarantees to finance
infrastructure.
roducers or consumers.
Social payment programm
or earmarked for heat andconsumption.
f financial liability.Insurance or indemnificati
fossil fuel producers at bel
tment in energy
re.
rch and development.
Provision of seismic data f
exploration.
Government finance of act
environmental health and
mines.
ld Bank
Page | 7
rants and loan
it linked to the
al mined from
igher price for
to measure,
n governmenttary transfers
es most often
an encourage
In the case of
e actual speed
large indirect
s is also a case
oil and
g domestic fossil
tive.
t below
.
use of domestic
for depletion or
ields and coal
used in
ter transport.
energy
s conditioned on
electricity
n provided to
w-market levels.
r oil and gas
ivities relating to
safety in coal
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Page | 8
in point although the issue is
targeted at natural-resource re
there is no deduction for intere
(expensing) of investment outla
therefore not necessarily imply s
if all the existing expensing andtoo far. Meanwhile, other input
industries may be allowed to de
intermediate goods, such as raw
Governments also forego revenu
resources) under their control.
than otherwise. The most dire
provide access to domestic reso
exploits for their own use or for
a particular type of coal or a giv
provide access to intermediate
access to government land for, e
Transfers of risk to governments
the case of industrialised countr
loans but also security guarante
important are the transfers of e
which often result in governme
amounts disbursed by governme
with abandoned coal mines.
Another area of government in
development (R&D). In 2008, I
related to fossil fuels amountexpenditure is R&D related to
production; refining, transport a
coal and gas conversion.
1.1.4 Motivations for in
The rationale for the introducti
political, economic, social and
markets operate. In practice, ho
means of achieving their stated
energy subsidies include:
Alleviating energy povliving conditions of the
accessible (Box 1). For
biomass.
Boosting domestic eneindigenous fuel producti
The World
omplicated by the special nature of tax and r
nts. For cash-flow based natural resource tax
st expenditure, neutrality would require immed
ys. Provisions for expensing or accelerated dep
ubsidies, but for many countries it would be rele
ccelerated depreciation provisions are warrantes can also attract subsidies. For instance, worke
uct part of their wage from their personal inco
materials may be acquired free of excise duty by
e by offering the use of scarce resources (e.g. lan
his can reduce costs and thereby encourage m
ct cases relate to the conditions under which
rces of fossil fuels that a private company (or in
sale. This sometimes takes the form of a royalty
n project of oil and gas extraction. But many go
inputs, like water or electricity, at below mark
.g. the construction of roads or buildings.
are much less transparent and, as such, hard to
ies. They include measures related to capital lik
es as in the case of government-funded oil stoc
vironmental and health liabilities from producer
ts acting as insurers of last resort. An example
nts to compensate residents affected by subside
olvement in energy production is investment i
EA data suggest that total government expen
ed to almost $1.7 billion. Included under thinhanced oil and gas production; un-conventio
nd storage of oil and gas; oil, gas and coal comb
troducing energy subsidies
on of energy subsidies has often been to adv
nvironmental objectives, or to address proble
wever, they have rarely proven to be a success
goal. The most common justifications for the i
rty: Consumption subsidies have been used t
poor by making cleaner, more efficient, fuels
xample, liquefied petroleum gas (LPG) in place
gy supply: Production subsidies have been us
on in a bid to reduce import dependency. They
Bank
yalty regimes
system where
iate deduction
reciation does
vant to review
or if some gos in particular
e-tax base, or
refiners.
d or fossil-fuel
re production
governments
dividuals) then
exemption for
ernments also
et prices, and
gauge even in
e concessional
piling. Equally
s to the public
would be the
nce associated
research and
iture on R&D
s category ofal oil and gas
stion; and oil,
nce particular
s in the way
ful or efficient
ntroduction of
improve the
ffordable and
of traditional
ed to support
ave also been
8/2/2019 Iea Oecd & World Bank - Fossil Fuel Subsidies
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used at times to suppor
the overseas activities of
Supporting industrial dusers are a source of c
investment in energy-in
otherwise not be profita
or trade restrictions, ar
periods of economic do
Redistributing nationalconsumption subsidies t
sharing the value of ind
encourage economic div
of energy-intensive indu
Protecting the environhave introduced suppornuclear power and car
incentives to move clea
help to cost-effectively r
1.1.5 The case for refor
In recent years there has been i
subsidies as many were seen
resources and to be distorting
(Figure 1). Subsidies have been
price volatility by blurring mar
undermine the competitiveness
importing countries, subsidies o
for producers they quicken the
over the long term.
The Wor
a countrys foreign and strategic economic poli
national energy companies.
evelopment and employment: Energy subsidie
mpetitive advantage. They are sometimes used
tensive industries, such as aluminium smelting
ble. Further, production subsidies, usually in the
e often used to maintain regional employmen
nturn or transition.
resource wealth: In major energy-produci
at artificially lower energy prices are often seen
igenous natural resources. They are also used i
ersification and employment by improving the c
tries, such as petrochemicals and aluminium.
ent: Developed countries and several emergi
t programmes to aid the development of renebon capture and storage (CCS). In some cas
ner technologies quickly towards market comp
duce greenhouse-gas emissions and pollution.
ing energy subsidies
ncreasing momentum to phase out certain type
to be resulting in an economically inefficient
arkets, while often failing to meet their inten
hown to encourage wasteful consumption, exac
ket signals, incentivise fuel adulteration and s
of renewables and more efficient energy tec
ten impose a significant fiscal burden on state
epletion of resources and can thereby reduce e
ld Bank
Page | 9
ies by helping
s to industrial
to encourage
, which would
form of tariffs
, especially in
ing countries,
as a means of
in an effort to
mpetitiveness
ng economies
wable energy,s, transitional
titiveness can
s of fossil-fuel
allocation of
ded objectives
erbate energy-
muggling, and
hnologies. For
budgets, while
xport earnings
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Page | 10
Figure 1: Potential unintended e
Source: IEA World Energy Outlook 2
Among the key unintended eff
recent years are that they:
Create fiscal burden onunsupportable financial
sell it domestically at lorates, spending on oil a
levels well above those
seized the opportunity p
without having a major
consumers from the up
without provoking consu
Encourage wasteful cothereby leading to faste
rationalisation and effici
subsidies would provideproper price signals. For
may not have the choic
decide to build new, n
permanent feature of
encourage a motorist t
when her existing vehicl
Exacerbate energy prisubsidies exacerbate en
The World
fects of fossil-fuel subsidies
10 (forthcoming)
cts of subsidies that have proved to be driver
state budgets: In some cases, high energy prices
burdens on countries that import energy at w
wer, regulated prices. As a share of GDP at mand gas imports in many economies spiked in
seen during the first and second oil shocks. S
resented by the fall in prices after mid-2008 to re
impact on inflation (since the fall in world pri
ward pressure on prices resulting from subsidy
mer wrath.
nsumption: Subsidies can encourage wasteful
r depletion of finite energy resources, and can a
ency improvements in energy-intensive industri
consumers with an incentive to conserve energexample, a power company burning oil to pro
of switching to a less costly alternative overni
n-oil capacity if it expects higher input prices
he market. Similarly, a rise in the price of
alter her driving habits and/or buy a more fu
is traded or scrapped.
e-volatility: The price controls that give rise
ergy price-volatility on global markets by dam
Bank
s of reform in
have imposed
rld prices and
rket exchange008, reaching
ome countries
duce subsidies
ces cushioned
removal) and
consumption,
lso discourage
es. Eliminating
by improvinguce electricity
ght, but could
o persist as a
asoline might
el-efficient car
to fossil-fuel
ening normal
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demand responses to
surprised by the robust
crude-oil prices, during
artificially low energy pr
of 131 countries carried
2008 around two-thirdinternational prices for
cost of diesel (Coady e
prices from government
and stronger demand
government revenues fo
Distort markets: Subsidimarket distortions by
countries still retain sub
the subsidy is directed
workers who had lost thunlikely to alter dema
maintain production th
high-cost local coal prod
subsidies for oil and ga
certain areas. Removing
effect of making dome
would, therefore, tend t
and production would b
prices would rise or fall
curve. In practice, the e
energy prices and consengage in similar policie
other reasons that supp
fuel production subsidie
leads to greater imports
(Steenblik and Coroya
producers, they can crea
and discourage the upta
also free up budgetary r
Lastly, lower energy pric
Depending on the degr
producers could boost e
Adverse impact on theeffects. Subsidies that e
biomass to modern fu
pollution. Subsidies for l
unit production costs t
mitigation in the long
counterproductive in re
prices dampen incentiv
The Wor
hanges in international prices. Many market
ness of global oil demand, despite the dramat
he first half of 2008. This has now been attrib
ices in many countries, which blunted market si
out by the International Monetary Fund (IMF)
of countries failed to fully pass through theasoline and half failed to pass through the full i
al., 2010). Cutting subsidies, by shifting the b
budgets to individual consumers, would lead to
response to future changes in energy prices
r other urgent needs.
es for fossil-fuel production can hinder competit
propping up less efficient producers. For ex
idies for hard coal mining. In some cases, a signi
t covering the cost of closing down mines and
ir jobs as a result of earlier rationalisation of thed and supply patterns. However, in other c
t would otherwise be uneconomic, for exampl
cers to compete against imports. Similarly, coun
s production such as through reduced royaltie
production subsidies such as these would typi
tic production less competitive compared wit
lower indigenous production. The extent to wh
e shifted to other parts of the world, and the e
as a result, would depend on the shape of the
fect of one country no longer subsidising fossil
mption is likely to be small. However, when, world prices are likely to be higher than other
ort a close review of the efficiency and effectiv
s. For example, if the removal of coal subsidies i
of higher-quality coal, it would clearly benefit th
nakis, 1995). Furthermore, by propping up
te barriers to the introduction of cleaner technol
ke of more efficient production practices. Their
esources that could be better used elsewhere in
es can result in energy being substituted for labo
ee of inter-factor substitution, removing energ
ployment and investment.
nvironment: Energy subsidies can have varying
nable poor communities to switch from the tra
els can minimise deforestation and reduce
w-carbon technologies can help to accelerate le
o decline, and reducing the overall cost of c
erm. However, the vast majority of fossil-fue
ching local and global environmental goals. Sub
s for consumers to use energy more efficientl
ld Bank
Page | 11
analysts were
ic increases in
ted in part to
nals. A survey
found that in
sharp rise inncrease in the
urden of high
a much faster
and free up
ion and create
mple, several
ficant share of
compensating
industry, so isses, subsidies
e, by enabling
tries also offer
for leases in
cally have the
imports and
ich investment
tent to which
global supply
fuels on world
any countriesise. There are
ness of fossil-
n an economy
e environment
less efficient
gies and fuels
removal could
the economy.
ur and capital.
y subsidies to
environmental
ditional use of
household air
rning, causing
limate change
l subsides are
sidised energy
y, resulting in
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Page | 12
higher consumption an
Furthermore, fossil-fuel
of renewable energy a
attractive.
Encourage fuel adulterasubstitution of subsidisekerosene intended for h
as diesel fuel due to wid
is created to sell subsi
unsubsidised and, there
the world, particularly i
subsidising countries is
countries experience los
sales in the legitimate
adulterate fuels and to s
Disproportionally benefi
often intended to help
goes to those who co
vehicles, electrical appli
Indonesia, for example,
of energy subsidies, whil
benefits (IEA, 2008a).
Threaten investment ininvestment resources.
price controls, the effecompanies is to reduc
in, maintain and expa
electricity companies ar
certain cases, for free)
them financially weak, h
and in maintaining and
prevalent within the el
sectors.
Hasten the decline of exto phase out subsidies, ocost of the subsidies but
time, such subsidies m
revenue streams, with i
oil exporters, including
petroleum products, p
demand and undermin
particularly acute if refin
The World
d greenhouse-gas emissions than would oth
subsidies undermine the development and co
d other technologies that could become mor
ion: Energy subsidies can encourage fuel adulted fuels for more expensive fuels. In some countr
ousehold cooking and lighting is diverted for un
price differentials. Smuggling can also arise, sin
dised products in neighbouring countries wh
ore, higher. This has been an issue for years in
n Southeast Asia, Africa and the Middle East.
a substantial financial transfer to smugglers,
ses from uncollected taxes and excise duties, d
arket. Removing subsidies would eliminate ince
uggle them across borders.
it the middle class and the rich: Although energ
edistribute income to the poor, the greatest b
sume the most energy, i.e. who can afford
ances, etc. The Co-ordinating Ministry of Econ
reported that the top 40% of high-income famili
e the bottom 40% of low-income families reap o
energy infrastructure: Subsidies can have an adv
here fossil-fuel consumption is subsidised thro
t in the absence of offsetting compensatioenergy companies revenues. This limits their a
nd energy infrastructure. For example, man
obliged to provide electricity at heavily subsidis
o certain sections of the community. This has
arming their capacity to invest in building new g
extending the network. Although this problem
ctricity sector, it also exists in the oil, natural
ports: Several energy-rich exporting countries ha
r expressed interest in doing so, concerned not oalso the resulting low efficiency in domestic en
y even threaten to curtail the exports that e
plications for global energy security. A numbe
ngola, Iran, Kazakhstan and Nigeria, rely on imp
rtly because low regulated prices preserve
investment in adequate refining capacity. T
ers are not reimbursed by governments for their
Bank
erwise occur.
mercialisation
economically
ation, and theies, subsidised
uthorised use
e an incentive
re prices are
many parts of
The effect in
hile recipient
ue to reduced
ntives both to
subsidies are
nefit typically
o own motor
mic Affairs of
es absorb 70%
nly 15% of the
erse impact on
ugh consumer
payments tobility to invest
state-owned
ed rates (or, in
ade many of
nerating plant
is particularly
gas and coal
ve also moved
nly by the highergy use. Over
arn vital state
r of significant
orts of refined
rtificially high
is problem is
losses.
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The gains from phasing out fos
energy taxation reforms. Rising
fossil fuel production and in so
may warrant review to assess i
also found higher excise taxes o
difficulties controlling income trevenues that can help financin
fuel subsidies are phased out a
contribute to state building and
Box 1: Subsidies and energy pov
The IEAs World Energy Outlook
(over 20% of the global populati
the global population) rely on
subsidies are one means of a
affordable and accessible for the
and often ineffective means of d
but benefits are conditional up
disproportionately to middle and
Poor households may be unabl
have no physical access to the
network or a connection to a
particularly difficult to target, gi
market. In comparison, the dis
monitored and controlled. We e
and electricity in countries wicountries with electrification
represented just 15% of consu
most of these subsidies in any c
the total benefits from petroleu
(Coady, et al., 2010).
Nonetheless, the removal of e
implemented, since low-income
removal, as they spend a highe
subsidies can bring considerable
and more efficient fuels or enhsubsidies must be carefully desi
increase poverty. Providing finan
essential to smoothing the pat
energy-subsidy reform, the r
transparent. In undertaking maj
to which the economy and soc
phase-out of fossil-fuel subsidie
structural reforms are underw
The Wor
sil-fuel subsidies can be enhanced if combined
world market prices have greatly enhanced th
e cases, the royalty and tax regimes for natural
they are well balanced. Some middle-income
n energy consumption to be an attractive route
ax evasion. Wider reforms can therefore raisthe measures needed to ensure a social balan
nd, as emphasised by OECD work on Tax and
dministrative development.
erty
2010 highlights the alarming fact that today 1.4
n) lack access to electricity and 2.7 billion peopl
the traditional use of biomass for cooking. Al
lleviating energy poverty, by making energy
poor, studies have repeatedly shown them to b
oing so. The cost of these subsidies falls on the e
n the purchase of subsidised goods and thus t
higher-income groups.
to afford even subsidised energy or related se
(for example, rural communities lacking a p
n electricity grid). In general, subsidies for li
iven the ease with which such fuels can be sol
tribution of electricity and piped natural gas i
timate that subsidies in the residential sector to
h limited household access to modern enerates of under 90% or modern fuels acces
ption subsidies in 2009. There is considerable
se go to richer households. The IMF has estimat
m subsidies in 2009 accrued to the richest 40%
ven poorly targeted energy subsidies needs t
households are likely to be disproportionately af
r percentage of their household income on en
benefits to the poor when they encourage switc
ance access to electricity. Therefore, any movened so as not to restrict access to essential ene
cial support for economic restructuring or pover
h for fossil-fuel subsidy reform. In most succ
maining support has been well-targeted, t
r changes, assessments should be made regard
iety can absorb the impacts of the reform. Fur
s should be considered as a package, particul
ay or being contemplated. Pre-announcing a
ld Bank
Page | 13
with broader
e profits from
resource rents
ountries have
in a context of
considerablee when fossil-
Development,
billion people
(some 40% of
hough energy
services more
an inefficient
tire economy,
end to accrue
rvices, or may
blic transport
uid fuels are
on the black
is more easily
kerosene, LPG
y (defined asunder 75%)
evidence that
ed that 80% of
of households
o be carefully
ected by their
rgy. Similarly,
ing to cleaner
to phase-outrgy services or
y alleviation is
ssful cases of
mporary and
ing the extent
thermore, the
rly if broader
strategy and
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Page | 14
timeframe for phasing in subsid
reforms (UNEP, 2008).
1.2 Measuring fossiMeasuring both energy consum
the varying definitions of what
Although measuring consumptio
enough information is published
2009. Estimating subsidies to f
single country there are typic
producer support. Many subsidi
tax concessions. And the data ne
quality or not reported.3
Developing a comprehensive a
subsidies is hindered by data conational level, few countries hav
fuel industries, and even fewer
Data are often reported only a
given expenditure to the vario
complex when lacking sufficie
expenditures requires having a
raises numerous issues having t
countries.
Despite these challenges, num
governmental organizations hav
fuel production, resulting in a cl
2010). The OECD Secretariat is
estimates of support to fossil-fu
workshops on issues relating
support.4
Given the incomplete state of i
report only estimates of support
measurements are provided. W
they have a particularly importa
energy security and the environ
3 The Global Subsidies Initiative (GSI)
Development (IISD), has estimated that
per year (GSI, 2010).4 An Expert Workshop on Estimating Su
19 November 2010.
The World
reform can help households and businesses to
l-fuel subsidies
tion and production subsidies is a complex und
constitutes a subsidy and the availability of a
n subsidies requires an extensive array of energ
to enable a reasonable estimate, as is done in
ssil-fuel production is particularly challenging.
ally several different sources, recipients and
es are administered via indirect mechanisms, su
cessary to estimate producer support are in man
nd internationally comparable set of estimate
straints and methodological and conceptual issuproduced comprehensive estimates of support
have included support provided by sub-nation
broad, programmatic levels, requiring analyst
us fuels covered by the programmes. This ca
t details on subsidy recipients. Meanwhile, q
roper benchmark against which to assess them
o do with definitions and comparability of tax
rous government agencies, academic research
recently turned their attention to subsidies be
arer picture of their nature and scope (see, e.g.,
currently working with OECD Member countri
el production and consumption, and will be or
o the identification, estimation and reporting
nformation on other types of subsidies to fossi
to fossil-fuel consumption that are revealed thr
ile representing only a subset of total subsidies
nt impact on global energy trends affecting eco
ent.
, a Geneva-based program of the International Institut
worldwide fossil-fuel production subsidies may be of the or
pport to Fossil Fuels will be held at the OECDs Headquarte
Bank
djust to these
rtaking due to
dequate data.
y pricing data,
this report for
Even within a
categories of
ch as complex
cases of poor
s of producer
es. Even at thefor their fossil-
l jurisdictions.
to allocate a
n prove quite
uantifying tax
. This, in turn,
egimes across
ers, and non-
efitting fossil-
Koplow et al.,
es to compile
anizing expert
of fossil-fuel
il fuels, in this
ugh price-gap
to fossil fuels,
nomic growth,
for Sustainable
er of $100 billion
rs, in Paris, on 18-
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1.2.1 The price-gap app
This report provides estimates
This approach compares final c
full cost of supply or, where app
of transportation and distributiend-users and subsidies to fo
approach may be conceptually,
sectors and computing reference
The price-gap approach is the
subsidies.5
It is designed to capt
those that would prevail in a co
gap approach do not capture all
be understated as a basis for
trade. For example, the metho
under-collection of energy bills (
rife. Despite these limitations, th
and for undertaking comparativ
development (Koplow, 2009).
For countries that import a giv
approach are explicit. That is, th
of imported energy (purchased
contrast, for countries that expo
subsidy estimates are implicit
represent the opportunity cost o
could be recovered if consumers
consumption themselves and imrepresent a combination of oppo
1.2.2 Reference prices
For net importing countries, ref
price: the price of a product at
plus the cost of freight and in
distribution and marketing and
are not included in the referenc
pump price in a given country is
be no net subsidy if an excise d
exporting countries, reference
product at the nearest internat
freight and insurance back to th
marketing and any VAT.
For oil products, average distrib
in the United States. The assu
5 Kosmo (1987), Larsen and Shah (19
approach.
The Wor
roach
of energy-consumption subsidies using a price-
nsumer prices with reference prices, which corr
ropriate, the international market price, adjuste
n. The estimates cover subsidies to fossil fuelssil-fuel inputs to electric power generation.
compiling the necessary price data across diffe
prices are formidable tasks.
most commonly applied method for quantif
re the net effect of all subsidies that reduce fin
petitive market. However, estimates produced
types of intervention known to exist. They, the
ssessing the impact of subsidies on economic
does not take account of revenue losses in c
particularly for electricity) is prevalent, or where
e price-gap approach is a valuable tool for esti
e analysis of subsidy levels across countries to
en product, subsidy estimates derived through
ey represent net expenditures resulting from the
t world prices in hard currency), at lower, regul
rt a given product and therefore do not pay
and usually have no direct budgetary impact.
f pricing domestic energy below market levels, i.
paid world prices. For countries that produce a
port the remainder (such as Iran), the estimatesrtunity costs and direct government expenditure
rence prices have been calculated based on th
he nearest international hub, adjusted for quali
surance to the importing country, plus the c
ny value-added tax (VAT). Other taxes, includin
e price. Therefore, in the case of gasoline, even
set by the government below the reference pric
uty large enough to make up the difference is l
rices were based on the export parity price:
ional hub adjusted for quality differences, min
e exporting country, plus the cost of internal di
tion and marketing costs for all countries were
med costs for shipping refined products, by
92) and Coady et al., (2010) among others, for exampl
ld Bank
Page | 15
gap approach.
espond to the
d for the costs
consumed bySimple as the
rent fuels and
ing consumer
l prices below
sing the price-
efore, tend to
efficiency and
untries where
energy theft is
ating subsides
support policy
the price-gap
domestic sale
ated prices. In
orld prices
Rather, they
. the rent that
ortion of their
resented heres.
import parity
ty differences,
st of internal
excise duties,
if the pre-tax
e, there would
evied. For net
the price of a
us the cost of
stribution and
ased on costs
contrast, vary
, have used this
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Page | 16
according to the distance of the
costs as reported in industry
distribution costs have been est
been carried out using local pri
exchange rates.
Reference prices have been adjufuel. For example, for countries
import small volumes of higher
below observed import prices.
Unlike oil, gas and coal, electricit
reliable international benchmar
annual average-cost pricing for
from each generating option). I
for the cost of production, trans
for building new capacity, were i
fuels and annual average fuel ef$40/MWh was added to accou
residential uses, respectively. To
at the levelised cost of a combin
Some experts suggest that the a
particular, some are of the opini
should be based on their cost
applied within this analysis. The
their natural resources in a way
and that this approach more t
internally at a price below th
approach results in an economigrowth in the longer term.
Cross-subsidies between sectors
as to offset lower prices for othe
For example, in many countries
cost so as to finance lower price
situation can also be found in
able to negotiate special low ele
an average variance in prices, i
region that are often vitally im
markets. Similarly, it does not
purchases, such as the discount
fuel rebate schemes.
Box 2: Sample calculation esti
The first step is to calculate the
gasoline in 2009 and therefore
product at the border. Taking th
United States, the fob price i
The World
ountry from its nearest hub and have been take
data. For natural gas and coal, transportatio
imated based on available shipping data. All cal
ces and the results have been converted to dol
sted for quality differences, which affect the mahat rely heavily on relatively low-quality domesti
quality coal, such as India and China, reference
y is not extensively traded over national borders
price. Therefore, electricity reference prices
lectricity in each country (weighted according t
other words, electricity reference prices were
ission and distribution, but no other costs, such
ncluded. They were determined using reference
iciencies for power generation. An allowance ofnt for transmission and distribution costs for
avoid over-estimation, electricity reference price
d-cycle gas turbine (CCGT) plant.
ove method of determining reference prices ha
on that the reference price in countries that are
f production, rather than prices on internatio
basis for this view typically is that these coun
hat effectively promotes their general economic
an offsets the notional loss of value by sellin
international price. The counter-argument is
cally inefficient allocation of resources and red
, i.e. where some consumers are charged a price
r consumers, have not been taken into account i
commercial and industrial consumers often pay
s for the agriculture and residential sectors, whil
ther countries (for example, where aluminium
ctricity rates). Furthermore, as the price-gap me
t does not capture the variability in prices by
portant in giving new technologies entry poin
pick up direct subsidies to consumers that ar
d fuel coupons used by some developing countr
ating gasoline subsidies in Venezuela in 2009
appropriate reference price. Venezuela was a n
we start with the free-on-board (fob) price, or
average spot price of gasoline in 2009 at the n
calculated by subtracting the average cost
Bank
from average
and internal
culations have
lars at market
rket value of ac coal but also
prices are set
, so there is no
ere based on
output levels
set to account
as allowances
rices for fossil
$15/MWh andindustrial and
s were capped
limitations. In
net exporters
al markets as
ries are using
development,
the resource
that such an
ces economic
above cost so
n this analysis.
a price above
e the opposite
producers are
hod measures
ime-of-day or
s into energy
e tied to fuel
ies or heating-
et exporter of
the price of a
arest hub, the
f freight and
8/2/2019 Iea Oecd & World Bank - Fossil Fuel Subsidies
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insurance to transport gasoline
0.89 bolvares fuertes (VEF) ($0.
fob price is VEF 0.87 per litre. T
price consumers would see at th
any VAT. Assuming distribution
($0.08) per litre, the final refere
VAT is applied to gasoline sales i
As average end-use prices for g
price gap then amounts to VEF
gasoline, we take the price gap
litres), arriving at a gasoline subs
1.3 Estimate of gloThe value of fossil-fuel consumpfossil fuels) is estimated to amo
International Energy Agency an
IEAs finding is based on an ext
fuel consumption, as identified
economies were identified, esti
consumption. Remaining subsidi
energy consumption and prices
energy is identified as being s
However, production subsidies
implication, the figures for
contribution of OECD countries t
In absolute terms, the biggest
endowments. For a given fu
expenditures by pricing domesti
long as prices are set above th
highest of any economy), with m
highlighting that estimates for c
when viewed on a per-capita b
expressed as a proportion of t
economy. The $312 billion estim
and to fossil-fuel inputs to electr
the most heavily subsidised fu
respectively. Subsidies to electri
2009. At only $6 billion, coal sub
For the economies surveyed he
22%, meaning consumers paid r
was the most highly subsidised
natural gas are comparatively hi
markets, even as the global ma
were subsidised at an average ra
The Wor
etween Venezuela and the United States. Given
1) per litre and a shipping cost of VEF 0.02 ($0.0
complete the calculation of reference prices an
eir local pump, retail and distribution cost are a
and retail costs equal to those in the United St
ce price for gasoline in 2009 was VEF 1.04 ($0.4
Venezuela.
soline in 2009 were reported as VEF 0.06 ($0.03
0.98 per litre. To estimate the total value of
multiplied by total final consumption (estimated
idy of approximately VEF 15.6 billion ($7.3 billion)
al fossil fuel consumption subs
tion subsidies (including subsidies to electricity gunt to $312 billion in 2009. These estimates ar
do not represent the official positions of G-20
nsive survey to identify those economies that s
using the price-gap method outlined above. In
mated to represent over 95% of global subsid
sed consumption occurs in economies where r
are unavailable. The vast majority of the eco
old below a world reference price were outsi
are prevalent in both OECD and non-OECD
consumption subsidies may under-represent
o the total of production and consumption subsid
subsidies are in those economies with the la
el, net-exporting economies do not incur
energy products below their value in internatio
cost of production. Irans subsidies reached $
ost of this sum going to oil products and natural
rtain economies may appear high in dollar term
sis or as a percentage of GDP. Fossil-fuel subsi
e full cost of supply, vary considerably by fuel
ate comprises subsidies to fossil fuels used in fin
ic power generation. In 2009, oil products and n
ls, attracting subsidies totalling $126 billion a
city consumption were also significant, reachin
idies were comparatively small.
re, fossil fuels were subsidised at a weighted-a
ughly 78% of competitive market reference pric
uel, at an average rate of 51% in 2009. Subsidis
gh since many supplies are still priced within li
rket for liquefied natural gas continues to gro
te of 19%, electricity at 18% and coal at 7%.
ld Bank
Page | 17
a spot price of
) per litre, the
d arrive at the
ded as well as
ates, VEF 0.17
8) per litre. No
) per litre, the
he subsidy to
at 15.9 billion
.
idies
enerated frommade by the
countries. The
ubsidise fossil-
total, 37 such
ised fossil-fuel
liable data on
nomies where
de the OECD.
conomies. By
the relative
ies.
gest resource
hard-currency
al markets, as
66 billion (the
gas. It is worth
, but less high
disation rates,
as well as by
l consumption
tural gas were
d $85 billion,
$95 billion in
verage rate of
es. Natural gas
ation rates for
ited domestic
. Oil products
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Page | 18
The magnitude of energy subsi
domestic pricing policy, exchan
prices typically have by far the
fossil-fuel prices surged in inter
energy consumption subsidies
when the total was $343 billion.in the value of subsidies betwee
be attributed to deliberate inter
gap) in order to reduce the burd
Some economies manage pric
products. Although the intent
levels, rising international ene
consumers (an effect picked-up
the situation can lead to unexpe
that the subsidies arising from
shown that governments often
prices are increasing and not tprice falls. During the rapid run-u
automatic price adjustments in o
for being slow to adjust downwa
Figure 2: Economic value of fossi
Source: IEA World Energy Outlook 2
Note: Subsidy estimates are made
position of G20 countries.
0
50
100
150
200
250
300
2007
Billiondollars
The World
es fluctuates from year-to-year with changes i
ge rates and demand. Of these factors, move
greatest impact on variations in subsidy levels.
ational markets during the first half of the yea
as estimated at $558 billion, a dramatic increa
Declining world prices were the main reason for2008 and 2009. However, some of the observe
entions to raise consumer prices (thereby, shrin
n on government finances.
volatility by regulating domestic prices for
ay not be to hold average prices over a period
rgy prices can inadvertently lead to marke
by the price-gap approach). Conversely, when w
cted revenues. For example, the fall in oil prices
exicos fuel-excise mechanism all but vanished.
find it hard to increase domestic prices whe
immediately pass through the full extent of ap in world oil prices in early 2008, many econom
rder to shield consumers, but they subsequently
rd after prices fell sharply later in the year.
l-fuel consumption subsidies by type
10 (forthcoming).
by the International Energy Agency and do not repre
2008 2009
Bank
world prices,
ents in world
In 2008, when
r, the value of
se from 2007,
he sharp dropdrop can also
king the price-
ertain energy
below market
transfers to
rld prices fall,
in 2009 meant
xperience has
international
y subsequenties abandoned
faced criticism
sent the official
Coal
Oil
Gas
Electricity
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1.4 Implications ofsubsidies
1.4.1 Method and assuThis section quantifies the ener
consumption subsidies and the
baseline case in which subsidy ra
in 2007-2009. Because subsidies
reasonable basis for estimatin
magnitude of subsidies may ris
premise that subsidies to consu
to higher levels of consumptio
reference, prices are calculated
To illustrate the magnitude of thgradual phase-out of all subsidi
2020.6 A growing number of
implemented, would eliminate o
important to emphasise that so
need to be a central consideratio
Box 3: The IEA energy-subsidy o
As highlighted by the G-20, incre
an essential step in building mo
to data on fossil-fuel subsidiesencourage informed debate o
allocation of resources or whe
alternative means. Transparenc
and provide a useful baseline f
(Hale, 2008; Laan, 2010).
As a contribution to the proces
establishing an online database
breakdowns by economy, by fue
systematic analysis of energy su
Energy Outlook series since 19
progress being made by econom
database on an independent bas
basis of the IEAs own survey
economies concerned.
www.worldenergyoutlook.org/s
extensive survey of end-use pric6
Although the analysis assumes t
between 2011 to 2020, the commit
medium term inefficient fossil fuel s
The Wor
phasing out fossil-fuel con
ptionsgy savings that would result from the phase-ou
implications for CO2 emissions. The compari
tes from 2010 remain unchanged relative to thei
tend to fluctuate as a result of market volatility,
g the impact of the subsidy phase-out, eve
or fall sharply in a given year. The analysis is
ers lower the end-user prices of energy product
n than would occur in their absence. The un
sing the price-gap analysis described above.
e gains possible by eliminating subsidies, the anales to fossil-fuel consumption, globally, over th
economies have already announced plans
r reduce their subsidies well before 2020 (see Se
cial and equity impacts resulting from energy su
n in the design of any phase-out programme (se
line database
asing the availability and transparency of energy
mentum for global fossil-fuel subsidy reform. I
ill raise awareness about their magnitude andwhether the subsidy represents an econom
her it would be possible to achieve the same
of subsidy data can also encourage consisten
om which progress to phase out subsides can
of increasing transparency of energy-subsidy d
o allow public access to data on fossil-fuel subsi
l and by year. This new database represents an e
bsidies that the IEA has been undertaking thro
99. It will be updated annually as a means o
ies to phase-out fossil fuel subsidies. The IEA is c
is, not at the request of the G20. It has been cons
and the energy-subsidy data has not been
The database will be av
bsidy.asp. The database has been constructe
data. A key source of data was the IEAs quarte
he complete phase out of consumption subsidies i
ment among G-20 countries is to "rationalize and ph
ubsidies."
ld Bank
Page | 19
umption
t of fossil-fuel
son is with a
r average level
this provides a
n though the
based on the
and thus lead
subsidised, or
ysis assumes aperiod 2011-
that, if fully
ction 1.5). It is
bsidy removal
Section 2.2).
subsidy data is
proved access
incidence andically efficient
objectives by
t presentation
be monitored
ata, the IEA is
dies, including
tension of the
gh the World
f tracking the
nstructing the
tructed on the
greed by the
ilable at
following an
ly publication,
all economies
se out over the
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Page | 20
Energy Prices and Taxes. Other sources include official statistics, international and national
energy companies, consulting firms and investment banks research reports. The IEAs network
of energy and country experts and their local energy contacts have also contributed
substantially to the identification and verification of end-user prices. Additional data were
extracted from databases, reports and personal communications with various organisations,
including the Asian Development Bank, IMF, Latin American Energy Organization and theEuropean Bank for Reconstruction and Development.
1.4.2 Energy demand
Compared with a baseline case in which subsidy rates remain unchanged, the complete phase-
out of consumption-related fossil-fuel subsidies between 2011 and 2020 would cut global
primary energy demand by 5%, or 738 Mtoe, by 2020 (Figure 3).7 This reduction is equivalent to
the current energy consumption of Japan, Korea, and New Zealand combined. Furthermore,
reductions in energy demand (relative to the baseline) would continue to be realised after 2020
as consumers continue to change their behaviour over time.Where consumption is subsidised, eliminating energy subsidies would reduce dependence on
imports and lead to an immediate improvement in the fiscal position of many governments.
Moreover, exposing consumers to market-driven price signals would strengthen and accelerate
the demand response, which in turn would contribute to reducing volatility in global markets.
The phase-out of energy subsidies would have several other positive effects on long-term
energy security by encouraging diversification of the energy mix and slowing down the
depletion of finite fossil-fuel resources.
Figure 3: Impact of fossil-fuel consumption subsidy phase-out on global primary energy demand
Source: IEA World Energy Outlook 2010 (forthcoming)
7Although the analysis assumes the complete phase out of consumption subsidies in all economies
between 2011 to 2020, the commitment among G-20 countries is to "rationalize and phase out over the
medium term inefficient fossil fuel subsidies."
8 000
10 000
12 000
14 000
16 000
1990 1995 2000 2005 2010 2015 2020
Mtoe No subsidy
removal
Subsidy removal2011-2020
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1.4.3 CO2 emissions
The phase-out of fossil-fuel cons
related CO2 emissions by 5.8%
remain unchanged (Figure 4). T
equivalent to the current combItaly. Reduced demand growth f
matter and other air pollutants.
Our analysis illustrates the impo
fuel subsidies in addressing cli
commitments under the Copenh
chance of limiting the global te
gases in the atmosphere is limit
(ppm CO2-eq). Based on IEA esti
45% of the additional yearly i
required to meet the 2C goal.
phase-out programme would be
removal, such as creating a co
policy objectives, including the r
Figure 4: Impact of fossil-fuel
emissions
Source: IEA World Energy Outlook 2
Box 4:Subsidies for low-carbon
Policy support for low-carbon e
drivers underpin this trend: firs
and, second, a desire to divers
especially in 2005-2008). Job
especially as a contribution to re
0
5
10
15
20
25
30
35
40
1990 2005
Gt
The Wor
umption subsidies over 2011-2020 would reduce
y 2020 compared with a baseline case in whic
his amounts to savings of 2 gigatonnes (Gt) of
ined emissions of Germany, France, the Unitedor fossil fuels would also lead to lower emission
rtance of the G-20 commitment to phase out in
ate change and the role it could play in imp
agen Accord. According to climate experts there i
perature increase to 2C if the concentration
d to around 450 parts per million of carbon-diox
mates, fossil-fuel consumption subsidies in 200
vestment in low-carbon technologies and en
However, a portion of the funds liberated thr
need to be directed towards the costs involve
prehensive social welfare net, in order to ens
duction of energy poverty, are also achieved.
onsumption subsidy phase-out on global ener
10 (forthcoming)
energy sources
nergy has increased considerably over the pas
, the effort to constrain growth in greenhouse
ify the supply mix (prompted particularly by
creation has been another factor in govern
ducing unemployment following the economic cri
2008 2015 2020
No sub
Subsid2011-2
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Page | 21
global energy-
subsidy rates
CO2 by 2020,
Kingdom andof particulate
efficient fossil-
lementing the
s a reasonable
of greenhouse
ide equivalent
amounted to
rgy efficiency
ugh a subsidy
d with subsidy
ure that other
y-related CO2
decade. Two
-gas emissions
igh oil prices,
ent support,
sis.
sidy removal
y removal020
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Page | 22
In the context of this growing policy support, some forms of low-carbon generation have grown
significantly during the last decade. Renewables-based electricity output increased by nearly a
third from 2000 to 2008; wind power expanded seven-fold and photovoltaic generation grew
16-fold during the same period. At the same time, global consumption of biofuels quadrupled.
Along with this growth in deployment, renewable technologies have experienced a fall in costs.
Cost reductions are essential to large scale development of renewable energy. Most renewable
energy technologies are capital-intensive, requiring significant upfront investments, and most
cannot currently compete on price with conventional sources.
Government support for emerging low-carbon technologies can lead to design improvements
and the widespread deployment that is necessary to make them cost-competitive. The scope for
further cost reductions for these emerging technologies is generally greater than for the more
mature fossil fuel technologies. By contrast, fossil fuel prices are expected to increase in the
future. Subsidies for low-carbon energy can take the form of consumption or production
subsidies. A wide variety of mechanisms can be used to deliver the support, including portfolio
standards, green certificates, feed-in-tariffs, premiums, and production, consumption andinvestment tax incentives.
The IEA estimates that worldwide government support to renewable electricity and biofuels
amounted to $57 billion in 2009 up from $44 billion in 2008 and $41 billion in 2007. These
estimates do not include subsidies for renewable heat technologies or other emerging low-
carbon energy technologies such as CCS.
While subsidies for renewable energy can yield benefits, they can also be ineffective or
inefficient if not well-designed. Good policy design for renewable energy subsidies involves
paying close attention to non-market barriers, ensuring that support is predictable and
transparent in order to attract investors, reflecting improvements in technology over time by
reducing subsidies in line with declining costs, matching support to the needs of individual
technologies at differing stages of development, and considering the wider effects of new
technologies on the energy system as a whole (IEA 2008b).
In addition to providing support as defined above, governments are engaged in the substantial
continuing effort in research and development (R&D) to bring down the costs of renewable
energy technologies and improve their performance. Some renewable technologies are mature
or almost mature and do not require significant additional R&D, while others depend on further
supportive R&D policy measures for their widespread diffusion. Total spending on R&D for
renewable electricity technologies and biofuels reached $5.6 billion in 2009, with 45% of this
amount provided by governments.See Annex 4 for more discussion on mechanisms to support low-carbon energy technologies.
1.5 Recent action taken and plans to phase out subsidiesFollowing the commitment made by the G-20 countries to rationalize and phase out over the
medium term inefficient fossil fuel subsidies that encourage wasteful consumption, each G-20
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member has submitted impleme
In addition to the implementat
Pittsburgh agreement many eco
implemented or proposed refor
that would prevail in an undi
producers (Table 2).These efforts contributed to a s
consumption subsidies in 2009
also had a more noticeable imp
the moves have varied from eco
lasting reform will take hold, in
overcome.
In October, 2010, Angola mad
subsidies as part of its plans to a
countrys oil sector. The first c
diesel prices by 38%. Angola isproduct demand, but is seeking
self sufficient in refined products
In Canada, the oil and gas se
provisions. Changes at the fede
these preferences. In the 2003 f
tax changes to be phased in o
resource allowance with a dedu
measures were intended to im
remission order which had allo
respect of the Syncrude oil san
budget, Canada announced thatphased out over the 2011-2015
minerals. Draft regulations to im
In less than a generation, Chi
become the worlds fastest-gro
global energy markets. China ha
closer to global market levels an
have contributed to the significa
for crude oil produced in China a
grades of oil sold in internatio
generally match the internation
coal and began to introduce a
are now largely set by direct neg
natural gas market, prices remai
May 2010, the government ann
following an increase in gas tran
more efficiently, and should
domestic exploration and produ
8 Details of these subsidy re
/Annexes_of_Report_to_Leaders_G20_I
The Wor
ntation strategies and timetables to implement t
ion strategies planned by G-20 members in re
nomies both within and outside the G-20 have i
s to bring their domestic energy prices into line
torted market or to rationalise support given
all but meaningful reduction in the IEA estima
relative to 2008. Preliminary data also suggest
ct on estimated subsidy levels in 2010. The key
omy to economy, as have expectations over the
view of the political and social barriers that fi
the first of a series of planned cuts to gasol
ttract foreign investment into the downstream s
ts led to immediate increases in gasoline pric
currently dependent on imports for around 70o build new refining capacity to enable the coun
.
ctor has traditionally benefited from certain
ral level, however, have moved toward the grad
ederal budget, the government introduced a nu
er a five-year period, including the replaceme
tion for actual provincial royalties and mining ta
prove the neutrality of the resource tax syst
ed deduction of both royalties and the resourc
ds project expired at the end of 2003. In th
the accelerated depreciation allowance for oil speriod, although it still exists for mines extractin
lement the phase-out were released on May 3,
a, which was a largely self-sufficient energy
wing energy consumer (and importer) and a
s made significant progress in bringing domesti
d is continuing to push ahead with new reforms
nt reduction in energy intensity experienced sin
re already determined on the basis of the price f
nal markets. Prices for many refined oil prod
al levels. In 2007, China lifted its remaining pri
arket-based pricing system. Coal prices for po
otiations between coal producers and power co
n relatively low compared to those on internatio
unced a 25% increase in onshore natural gas be
mission fees. The increase should induce consu
ccelerate investment by Chinas national oil
ction and development of LNG and long-distan
forms are available at http://www.g20.org/Docu
nefficient_Fossil_Fuel_Subsidies.pdf
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Page | 23
is phase-out.8
sponse to the
n recent years
with the levels
to fossil-fuel
es for energy-
hat they have
drivers behind
likelihood that
st need to be
ine and diesel
egment of the
s by 50% and
of its refinedtry to become
avourable tax
ual removal of
ber of income
nt of the 25%
es paid. These
m. A special
e allowance in
2007 federal
ands would beg conventional
010.
onsumer, has
ajor player in
energy prices
. These efforts
e 1980. Prices
or comparable
ucts also now
e controls for
er generation
panies. In the
al markets. In
chmark prices
ers to use gas
companies in
e pipeline gas
ents2010/expert-
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Page | 24
import projects. After launching a programme to eliminate the preferential tariff arrangements
for certain energy-intensive industries and increase the electricity prices for non-residential
users in 2009, the government has recently released a proposal to introduce a tiered electricity
pricing mechanism for residents (under which prices would increase with consumption).
Earnings from energy taxes in India, which go predominantly to the state governments, far
outweigh the cost of subsidies, which is borne by the central government. Nonetheless, thecountry is in the process of energy price and tax reform (Government of India, 2010). In June
2010, the federal government announced that gasoline prices would henceforth be market-
driven and the intention to later apply market-driven pricing for diesel. It also announced
immediate price increases for diesel, LPG and kerosene. Natural gas pricing reform was also
implemented in mid-2010, allowing state-run Oil & Natural Gas Corp. (ONGC) and Oil India Ltd.
(OIL) to sell gas from new fields at market rates instead of regulated prices. Furthermore, the
price of natural gas more than doubled under the regulated price regime in 2010. Reforms in
Indias steam coal industry are expected to slowly bring domestic coal prices in line with import
parity levels, with due allowance for quality differences. In June 2010, state-owned Coal India
Ltd, which is responsible for almost 90% of the countrys coal production, announced that it
would move to price its premium grades on an import parity basis. As more than 80% of Indiaselectricity is generated from coal, the implementation of the coal pricing reforms can be
expected to impact power prices.
Indonesia has a long history of directly subsidising energy as a means of supporting the incomes
of poor households. The size of energy subsidies has fluctuated widely over the past decade,
following movements in international prices and the exchange rate and adjustments to the
subsidy schemes. Previously, subsidies were available for industry and all segments of the
population, but coverage has become increasingly targeted and the number of subsidised fuels
has declined. In 2010, Indonesia announced plans to eliminate energy subsidies by 2014. The
gap between international and domestic prices is to be progressively reduced, in an effort to
minimise the impact on the poor. According to Indonesias 2011 state budget, 11% of
government expenditure in 2011 will be devoted to energy-consumption subsidies, compared
with 13% in 2010 and 19% in 2008. Indonesia has an ongoing programme to phase out the use
of kerosene in favour of LPG. The energy ministry is considering a new plan to restrict the use of
subsidised fuel to motorcycle, public transportation vehicles and cars purchased before 2005. In
June 2010, the Indonesian government raised power tariffs by an average of 10%. This will
reduce the overall burden of electricity subsidies on the state budget and boost revenues for
Indonesias state power company.
With vast reserves, Iran is one of the worlds largest oil and natural gas producers. Oil and gas
activities play a central role in supporting Irans economy, generating about 80% of its export
revenues in 2008. Heavily-subsidised energy consumption has left a legacy of inefficient energy
use, environmental degradation, inadequate investment and fuel import dependence. In early2010, a law outlining far-reaching subsidy reform was enacted in Iran. The subsidy reform law
calls for gradual implementation (over 2010-2015) of market-based energy pricing and the
replacement of subsidies by targeted assistance to lower income groups. Among the key
objectives of the law are to increase the prices of oil derivatives to 90% of the Persian Gulf
export price, the price of household gas tariffs to 75% of the Persian Gulf export price, and the
price of electricity to a level that reflects the full cost of production. To compensate for higher
prices and the impact on low-income groups, 50% of the fiscal benefit resulting from increased
prices would be redistributed to low-income consumers via direct cash and non-cash payments.
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Despite Mexico being the world
have represented a serious ec
increasing reliance on refined
liquefied petroleum gas were eq
period 2005 to 2009 (Nationa
arrangements for refined prodestimated that gasoline and dies
by late 2012. As part of the pr
government have been increa
poor customers with better targ
cash transfer connected to Opor
cover their energy needs. This is
and avoids creating incentives fo
Substantial progress has been
electricity pricing, especially in t
terms) have been increased con
2007, the government adoptedand export markets by 2011.
following the surge in oil prices d
market restructuring began in 2
scheduled for 2011. A process o
sector is due to commence in 20
In South Africa, subsidised elect
inability of utilities to enforce pr
electricity capacity. Rolling blac
and plans to further raise tariff
South Africa (NERSA) granted E
approximately 25% per year ov
Basic Electricity programme, whi
amount of free electricity for ess
The United Arab Emirates com
2010 which are aimed at bringin
the losses state-run fuel retailers
by 26%. There have been report
neighbouring Oman (where pric
cross the border specifically to p
in the United Arab Emirates
international market levels.
The Wor
s seventh-largest crude-oil producer, subsidised
nomic strain on the government budget and
roduct imports. Subsidies for electricity, gasoli
uivalent to more than one and a half per cent o
l Energy Strategy). Mexico is currently refor
cts and, contingent on international market cel subsidies could be eliminated by late 2010 and
ocess, retail prices for gasoline, diesel and LP
ing on a monthly basis since December 2009 w
ted subsidies. Starting in 2008 the government i
tunidades that is intended to help very low-inco
preferable to price subsidies, as it is better targe
r environmentally harmful increases in energy co
made in Russia to introduce more market-b
he industrial sector. Gas tariffs for Russian indu
istently since 2000, by approximately 15% to 25
he goal of achieving equal profitability from salhe target date for full parity was extended
uring 2008 and the subsequent economic downt
06, and full liberalisation of the wholesale mar
scaling back retail electricity price subsidies for
1.
ricity pricing, coupled with non-payment by cus
operty rights, has led to a lack of investment an
outs have provided strong impetus for recent
s in coming years. In 2010, the National Energ
skom, the state utility, permission to raise av
r 2010-2013. Through cross-subsidies, it will m
ch provides targeted subsidies to the poor throu
ential services.
enced a series of planned increases to gasoline
g prices in line with international market levels
had been incurring on gasoline sales. To date, pr
s, however, that the moves have pushed up sale
s are now much lower) by United Arab Emirates
urchase fuel. Unlike gasoline, prices for most of
have already been deregulated and fluctuate
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Page | 25
energy prices
ontributed to
ne, diesel and
GDP over the
ing its excise
nditions, it isthose for LPG
set by the
hile protecting
mplemented a
e households
ed at the poor
nsum