Energy subsidies:Identifying gaps and constraints

by Ronald SteenblikDirector of Research

GSI’s Main Themes

• Develop and promote standardization of terms and methods

• Fill in data gaps and establish transparent monitoring systems

• Increase awareness, dialogue and action

Fill in data gapsand establish transparent

monitoring systems

Develop and promote

standardization of terms and methods

Develop model WTO subsidy notifications

Develop manual for subsidy estimation

Establish international subsidy standards

body

Web site - portal

Reports and commentary

Media relations

Increase awareness,

dialogue and action

Direct dialogue with decision makers

Work with developing-country experts to ensure feasibility

Paired studies between northern and southern researchers

Training and outreach

RESEARCH COMMUNICATIONS

Various projects on agriculture, energy, fisheries, and services:

● estimating total subsidies

● identifying top recipients

● proposing changes to rules and national policies

WO

RK

BY

OT

HE

RS

International subsidy change model

Academic studiescriticize policies

1st quick-and-dirtysubsidy estimates

Media runsheadlines

Vested interestsdefend policies

Public support forpolicies starts to waneMore academics

pay attention

Civil societypays attention

Bureaucracyfunds studies

Exportingcountries callfor IGO work

Media runsbackground

stories

IGO workeventually

funded

1st systematicsubsidy estimates

Politicians and interestsput their own

spin on results

Media runsheadlines

Major quantitativeanalyses undertaken

Proposalsfor multilateraldisciplines orother action

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The energy-subsidy problematique

Attention has been directed at subsidies to energy generally, and fossil fuels in particular, since the late 1980s, and interest in these subsidies has waxed and waned ever since.

With many governments now poised to devote even more resources to their energy sectors — both to reduce dependency on imported natural gas and oil, and to limit growth in carbon-dioxide (CO2) emissions — it would be helpful if they had a clear picture of how much and what kind of support is currently being provided to energy production and consumption.

However, unlike subsidies to agriculture, and now fisheries, there is no single on-going process or consistent database that can be enlisted to serve that process.

Type of subsidy OECD Countries Non-OECD Countries

Incidence $109/yr Incidence $109/yr

Producer subsidies

Market price support Uncommon: easy to estimate 10 Common: moderately difficult to estimate

50

Direct production subsidies (including tax incentives)

Common: moderate difficulty to estimate

20 Extent not known: moderate difficulty

40

Subsidies to energy- producing capital

Very common: complicated to estimate

40 Abundant: difficult to find data and complicated to estimate

30

Subsidies for inputs Common: mainly through government services

10 Probably very common, especially in the form of free

resources: variable difficulty to estimate

20

Government-supported R&D Very common: data readily available from the IEA

30 Common mainly in richer countries: moderately difficult

to obtain data

20

Consumer subsidies

Market transfers (e.g., regulated low prices)

Common mainly in respect of regulated lifeline rates: data

available but could be a big job

10 Common: good time series available for general price

policies

250

Subsidies to energy- consuming capital

Common (e.g., for automobiles and aircraft): difficult to obtain

data and estimate

40 Probably common: difficult to obtain data and estimate

30

Total 160 440

Summary of incidence of subsidies to fossil fuels (including fossil-fuel-based electricity) and difficulty of estimating their values

Gap analysisSubsidies

(reform) in general

Border protection in

generalAgriculture Energy Fisheries Services

International rediness for change

Readiness for unilateral change at

domestic levelPublic pressure

relative to vested interests

Quality of debate in public arena

Case well made in lay terms

Quality of debate among those

engaged

Analysis of effects of support

Organisation of data *

Availability of

raw data

Sector Initial quantitative work

International response

Monitoring and reporting

Agriculture OECD inventories, produced mid-1980s

GATT negotiations started in 1986, AoA agreed in 1994

Monitoring (OECD) and reporting (to WTO) continuing

Fisheries OECD inventories produced late-1990s

WTO negotiations started in 2002, agreement in 2008?

Monitoring (OECD) continuing; reporting to WTO in future?

Coal IEA inventories produced late-1980s

Australia-EU agreement; mainly national reforms

Monitoring by the IEA until 2002.

Consumer subsidies for energy

World Bank drew attention to large subsidies early 1990s

G-7 drew attention to the problem; World Bank and IMF increased pressure

Ad hoc updates by the World Bank (late 1990s) and IEA (1999 and 2006).

Links between data work, international action and monitoring

Subsidy tracking and measurement is neither systematic nor easy

• To date there has been no systematic or standardized evaluation of energy subsidies around the world.

• Main approaches used to date:– Program-specific accounts: details on individual programs; can

capture intermediation value. Data intensive; no insights into incidence.

– Price gap: useful for multi-country studies, though challenges with finding appropriate reference price. Approach misses any subsidy that leaks to producers, investors, labor without affecting energy prices.

• Wide dispersion of estimates; data on many types of subsidies (tax breaks, credit, idemnification, state-owned enterprises) sparse or lacking entirely.

Reporting options

• Beef up reporting under the UNFCC.

• Improve the WTO notifications on non-agricultural subsidies.

• Encourage more attention to energy subsidies in WTO Trade Policy Reviews.

• Encourage more attention to energy subsidies in IEA country reviews.

WTO leverage points• Demonstrate importance of energy policy in commodity

and transport service flows; and in destruction of other sources of natural capital in LDCs.

• Demonstrate linkage between energy policies and environmental profile of exported and deployed capital equipment.

• Show distortions caused by subsidies to biofuels and to tied aid related to energy projects.

• Highlight gaps in WTO notifications.• Help countries formulate questions in the Committee on

Subsidies and Countervailing Measures about other countries’ subsidies to energy.

• Support efforts to liberalize trade in renewable-energy products and associated technologies under DDA Paragraph 31(iii) negotiations on environmental goods.

Defensive arguments that can create barriers to reform

• “We need to maintain this industry for energy security.”

• “If we eliminate this subsidy, poor people will be hurt.”

• “This subsidy is justified because it is for clean(er) energy.”

Basic question: how to inspire popular support for reform?

Getting to the Bottom of the Well:Revealing the Scale

of Subsidies to Fossil Fuels

Overall ambition

• To establish a multinational, interdisciplinary research consortium to measure and analyze subsidies to fossil fuels in the main subsidizing countries.

• To communicate the results to both the academic community and policy makers, and to encourage reforms at the national and international levels.

The two phases

• Phase 1 to prepare groundwork for Phase 2, through studying feasibility of project, preparing a research proposal for soliciting funds.

• Phase 2 to undertake primary research on identifying subsidies to fossil fuels, modelling their impact, and recommending priorities for and approaches to their reform.

Initial focus: subsidies to fossil fuels

Possible future extension to other energy sources