How Large Are Global Energy Subsidies? Vitor Gaspar Director, - - PowerPoint PPT Presentation

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How Large Are Global Energy Subsidies? Vitor Gaspar Director, - - PowerPoint PPT Presentation

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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:

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How Large Are Global Energy Subsidies?

Vitor Gaspar

Director, Fiscal Affairs Department International Monetary Fund The Brookings Institution May 18, 2015

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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
  • f eliminating energy subsidies are “partial equilibrium” in nature
  • Points to the need to begin reform immediately while

adopting a gradual reform strategy

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1 2 3 4 5 6 7 8 2011 2012 2013 2014 2015 Percent of Global GDP

In percent of global GDP

$0 $1 $2 $3 $4 $5 $6 $7 2011 2012 2013 2014 2015 US$ trillions (nominal)

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

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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)

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…..mostly local …..

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Global warming 24% Pre-tax subsidies 6% Local pollution 52% Vehicle externalities 12% Foregone revenue 6%

Components of global energy subsidies, 2015

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….. and from coal

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Petroleum 28%

Natural gas 10% Electricity 3% Coal 59% Product composition of global energy subsidies, 2015

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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

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Energy subsidy reform can generate substantial health benefits …..

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Reduction of fossil-fuel emissions-related deaths, 2015

10 20 30 40 50 60 70 Emerging Europe E.D. Asia CIS MENAP S.S. Africa Advanced LAC Percent reduction

Global average: 57 percent

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5 10 15 20 25 30 35 40 MENAP E.D. Asia LAC CIS S.S. Africa Emerging Europe Advanced Percent reduction

Global average: 24 percent

….. and carbon emission reductions …..

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Reduction of fossil-fuel related CO2 emissions, 2015

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3 6 9 Advanced Emerging Low-income and developing Percent of GDP, 2013

….. as well as a significant fiscal dividend

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Corporate income tax revenue Public health spending Fiscal gain

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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
  • pportunity for reform

Reform process should start now

and it should be gradual

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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/

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Background slides

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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.

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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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