what, why? Baoping Shang, Economist, Fiscal Affairs Department, IMF - - PowerPoint PPT Presentation

www.e15initiative.org

12 June 2016 | Geneva, Switzerland

Session I: Understanding fossil fuel subsidies - where, what, why?

BAOPING SHANG

Baoping Shang, Economist, Fiscal Affairs Department, IMF

• 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.

Two notions of energy subsidies

Global energy subsidies are large…

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

… reflect mostly local factors…

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

Components of global energy subsidies, 2015

… and are from coal

Petroleum 28%

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

Global energy subsidies, by region and component

1,000 2,000 3,000 4,000 5,000 6,000 5 10 15 20 MENAP Sub-Saharan Africa

• Com. Of Ind. States

E.D. Asia Emerging Europe Advanced LAC World MENAP Sub-Saharan Africa

• Com. Of Ind. States

E.D. Asia Emerging Europe Advanced LAC World US$ billions (nominal) Percent GDP

Pre-tax Global warming Local air pollution Vehicle externalities Foregone revenue

Global energy subsidies, by region and product

1,000 2,000 3,000 4,000 5,000 6,000 5 10 15 20 MENAP Sub-Saharan Africa

• Com. Of Ind. States

E.D. Asia Emerging Europe Advanced LAC World MENAP Sub-Saharan Africa

• Com. Of Ind. States

E.D. Asia Emerging Europe Advanced LAC World US$ billions (nominal) Percent GDP Coal Petroluem Natural gas Electricity

• 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

Consequences of energy subsidies go well beyond fiscal costs

Distributional impact

3 6 10 19 61

Gasoline

19 20 21 20 21

Kerosene

4 8 13 21 54

LPG

7 12 16 23 42

Diesel

Bottom quintile Top quintile 4th quintile 2nd quintile 3rd quintile

Energy price reform can generate substantial health benefits…

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

…and carbon emission reductions…

Reduction of fossil-fuel related CO2 emissions, 2015

…as well as a significant fiscal dividend

• 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

Time is now: act local, solve global!

Some references

1. Reforming energy subsidies

• 2. Apply appropriate

corrective taxes

• 3. Global magnitude and

reform benefits

See http://www.imf.org/external/np/fad/subsidies/ http://www.imf.org/external/np/fad/environ/

www.e15initiative.org

12 June 2017 | Geneva, Switzerland

Session I: Understanding fossil fuel subsidies - where, what, why?

PETER WOODERS

Peter Wooders, Group Director, Energy, IISD & Programme Leader, Global Subsidies Initiative

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

Consumer subsidies ($320 billion in 2015, IEA data) by energy type

Categories of consumers: private sector, public sector, households

Sources: IEA (2017)

• 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

Consumer subsidies (at their highest in 2013, IEA data) by country

Sources: IEA (2014), p. 323

• Countries with highest

subsidies = Oil & Gas Producers

• Some (strongly made)

argumentation that benchmark should be production cost, not global market price

Producer subsidies ($70 billion on annual average in G20 countries) by energy type

Sources: GSI & ODI (2017) based on OECD (n.d.)

• 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)

Environmental impact: all fossil fuel subsidies act as a negative carbon tax

$100 billion $320 billion $5.3 trillion IMF 2015 global estimate, consumer subsidies incl.externalities + some producer subsidies Producer subsidies (GSI global estimate, per year) Consumer subsidies (IEA 2015 estimate, only emerging & developing countries) ~6-8% emissions reduction by 2050 ~2% emissions reduction by 2050

Sources: GSI (n.d.), GSI & ODI (2017), IEA (2017), IMF (2015), NCM (2017)

• IMF figure includes some

external costs, notably ~$35/tCO2

• Producer subsidy figure

uncertain – conservative?

• GHG emission

reductions approx. 10%

• Higher GHG emissions

reductions if savings invested into clean energy (eg GSI-IF model)

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

Countries’ own figures: G20 and APEC Peer Reviews

G20 peer reviews:

• US & China (completed in 2016)
• Germany & Mexico (in progress)
• Indonesia & Italy (pending)

Both APEC and G20 leaders committed in 2009 to phase

• ut “inefficient fossil fuel subsidies that encourage

wasteful consumption”

APEC peer reviews:

• Peru, New Zealand, the

Philippines (completed)

• Chinese Taipei, Vietnam (in

progress)

• Brunei (pending)

Sources: GSI (2016)

• Economies have put

forward 3-9 policies for review

• “Inefficient” and

“wasteful consumption” remain open, undefined

• Strong voluntary nature

– whether and how to review

• Others have conducted

Self reviews

• Useful first step

Underway: Methodology Development (and Data Collection) SDG Indicator 12.c.1

• Target 12.c specifically refers to FFSR:
• Rationalize inefficient fossil-fuel subsidies that

encourage wasteful consumption by removing market distortions, in accordance with national circumstances…

• https://sustainabledevelopment.un.org/sdg12
• Associated indicator 12.c.1
• Amount of fossil-fuel subsidies per unit of GDP

(production and consumption) and as a proportion of total national expenditure on fossil fuels

• UN Environment is

Indicator custodian

• Responsible to lead

Methodology development, compile & report data

• For approval by UN MSs
• Core partner group

established

• Meth. by March 2018
• Data reported by MS

2020-2030

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

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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

• und

THOMA MAS S COTTI TTIER ER

Thomas Cottier, WTI

(IEA 2015)

The magnitude of fossil fuel subsidies

(IMF 2015) $ 14.5bn/day $ 600m/hour $ 10m/minute

$ 168,000/second

June 12, 2017 29

Fossil fuel subsidies in numbers Fossil fuel subsidies in numbers

The impacts of fossil fuel subsidies on CO2 emissions

June 12, 2017 30

Overview of energy subsidies

June 12, 2017 31

Production and consumption subsidies

Production – Specific subsidies

• Government assistance to

exploration, extraction, shipping and marketing

• ASCM disciplines respond to

this type of subsidies

• Problem to identify trade

distorting effects inducing countervailing duties

• What data available?

Consumption – non specific subsidies

• Many developing countries
• perate non specific fuel

subsidies, instead of targeted social policies in support of consumers

• Shows political complexity of

fossil fuel subsidy reductions

• What data available?

WTO disputes on energy subsidies

June 12, 2017 33

• WTO ASCM disputes on energy subsidies have only targeted RE

support programs!

• Canada - Renewables Energy (DS412, 2010)
• China - Measures concerning Wind Power Equipment (DS419, 2010)
• EU and certain Members States - Certain Measures Affecting the Renewable Energy Generation Sector

(DS452, 2012)

• India – Solar Cells (DS456, 2013)
• Part of a broader range of WTO disputes on clean energy, including

trade defense cases and biofuels disputes

Biofuels

GATT, TBT, TRIMS, ASCM DS443 — Certain Measures Concerning the Importation of Biodiesels Consultations requested: 17 August 2012 Current status: In consultations DS459 European Union (formerly EC) — Certain Measures on the Importation and Marketing of Biodiesel and Measures Supporting the Biodiesel Industry Consultations requested: 15 May 2013 Current status: In consultations ADA

DS473 European Union (formerly EC) — Anti-Dumping Measures on Biodiesel from Argentina Consultations requested: 19 December 2013 Current status: Report(s) adopted, with recommendation to bring measure(s) into conformity DS480 European Union (formerly EC) — Anti-Dumping Measures on Biodiesel from Indonesia Consultations requested: 10 June 2014 Current status: Panel composed

June 12, 2017 35

June 12, 2017 36

June 12, 2017 37

US - Countervailing Duties on Measures on Certain Products from China 437ABR

June 12, 2017 38

June 12, 2017 39

• ASCM and WTO law partly able to cope with specific fossil fuel production

subsidies to the extent they have a distorting effects, but not in targeting CO2 emission reduction, except for per se prohibited subsidies

• What can we learn from negotiations on fisheries subsidies?
• To what extent do we need to include consumption subsidies? How to link

this with flanking policies on social welfare and support?

• What can we learn from the Agreement on Agriculture?
• Tariffication
• Reduction schedules and negotiations
• Green and amber boxes
• Prohibition of export subsidies (2020)

Conclusions and Questions