OECD work on fossil fuel subsidies

Coverage

• Inventory fills a major gap in data on subsidies.

• Identifies and estimates more than 250 budgetary transfers and tax expenditures for fossil fuel production and use.

• 24 OECD countries: Australia, Belgium, Canada, Chile, France, Germany, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Spain, Sweden, Turkey, UK & US.

• 2 or 3 states, provinces or Länder covered for Australia, Canada, Germany, and the US.

• In future: regularly update and add further countries, sub-national entities, and other types of support mechanisms.

3

Statutory or Formal Incidence (to whom and what a transfer is first given)

Unit cost of consumption

Household or enterprise

income

Direct transfer of funds

Unit subsidyGovernment-

subsidized life-line electricity rate

Output bounty or deficiency

paymentOperating grant

Input-price subsidy

Capital grant linked to

acquisition of land or capital

Tax revenue foregone

VAT or excise-tax concession

on fuel

Tax deduction related to energy purchases that exceed given

share of income

Production tax credit

Reduced rate of income tax

Reduction in excise tax on

inputs

Investment tax credit; property tax reduction or

exemption

Other government revenue foregone

Under-pricing of access to a

natural resource

harvested by final consumer

Reduced resource rent

tax

Under-pricing of a good,

government service or

access to a natural

resource

Under-pricing of access to

government land; reduced royalty

payment

Transfer of risk to government

Price-triggered subsidy

Means-tested cold-weather grant

Government buffer stock

Third-party liability limit for

producers

Provision of security (eg

military protection for supply lines)

Credit guarantee linked

acquistition of land or capital

Induced transfers

Regulated price; cross

subsidy

Mandated life-line electricity rate

Import tariff or export subsidy

Monopoly concession

Export restriction

Wage control; credit control

(sector specific)1. Labour, land, capital, knowledge.

Tra

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r M

ech

an

ism

(h

ow

a t

ran

sfe

r is

cre

ate

d)

Costs of Production

Factors1

Direct consumption Output returns Enterprise income

Cost of intermediate

inputs

Matrix of fossil fuel support measures

Note: This graph is based on an arithmetic sum of the individual support measures identified for a sample of 21 OECD countries, i.e. the 24 OECD countries included in the inventory net of those countries for which estimates have not been collected yet (Chile, Iceland and Luxembourg). It reflects the value of tax relief measured under each jurisdiction’s benchmark tax treatment. The estimates do not take into account interactions that may occur if multiple measures were to be removed at the same time Data source: OECD (2011), Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels.

Overview of support by fuel

Notes: • This graph is based on an arithmetic sum of the individual support measures identified for a sample of 21 OECD countries, i.e. the 24 OECD countries included in the inventory net of those countries for which estimates have not been collected yet (Chile, Iceland and Luxembourg). It reflects the value of tax relief measured under each jurisdiction’s benchmark tax treatment. The estimates do not take into account interactions that may occur if multiple measures were to be removed at the same time

• PSE = Producer Support Estimate; CSE = Consumer Support Estimate; GSSE = General Services Support Estimate.

Data source: OECD (2011), Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels.

Overview of support by incidence

• Exercise in transparency no analysis as yet of the impacts of support measures or judgment on whether they are economically efficient or environmentally harmful.

• Benchmarks are critical, especially for establishing tax expenditures we used benchmarks of individual countries.

• Countries vary in terms of their transparency in reporting support.

• Cannot compare totals across countries in a meaningful way.

• Caution needed in interpreting & aggregating data.

Caveats

Emissions impacts of fossil fuel subsidy removal

% changes in GHG emissions with respect to BAU

“central policy” scenario: gradual phase-out to 2020 of fossil fuel consumer subsidies in 37 emerging and developing economies

•Regions in which the fossil fuel subsidies have been removed • (1) Middle East & Northern Africa • (2) Other Asian, African and Latin American Emerging economies •Sources : OECD ENV-Linkages Model - Based on IEA subsidy data for the year 2009

-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%M

EN

A *

(1

)

Ru

ssia

*

Me

xico

*

Ind

on

esi

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Oth

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cou

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ies

* (

2)

Ind

ia *

Sou

th A

fric

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Ch

ina

*

WO

RLD

All GHG CO2

Unilateral removal of energy subsidies bring GDP gains

Impacts on GDP in 2050 (% change from baseline)

• (1) Middle East & Northern Africa • (2) Other Asian, African and Latin American Emerging economies •Sources : OECD ENV-Linkages Model - Based IEA subsidies data for the year 2009

0%

1%

2%

3%

4%

5%

6%

Indonesia India Russia MENA (1) China Other countries

(2)

South Africa

Mexico

% d

evia

tio

n r

elati

ve t

o th

e b

asel

ine

9

Multilateral reforms: impacts on projected GDP growth

•Regions in which the fossil fuel subsidies have been removed • (1) Middle East & Northern Africa •(2) Other European Annex 1 countries : Turkey, Ukraine, Belarus, Croatia, … •(3) Other Asian, African and Latin American Emerging economies •Sources : OECD ENV-Linkages Model - Based IEA subsidies data for the year 2009

Real GDP in 2050 as % of 2010 levels, with and without reform of fossil fuel support

0%

100%

200%

300%

400%

500%

600%

700%

800%

900%

Ind

ia *

Oth

er

cou

ntr

ies

*

Ind

on

esi

a *

Ch

ina

*

MEN

A *

(1)

Re

st o

f A

nn

ex

I * (2

)

Sou

th

Afr

ica

*

Bra

zil

Me

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*

Ru

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*

Oce

ania

Can

ada

USA

EU27

&

EFT

A

Jap

an

& K

ore

a

Baseline

Multilateral Reform

Why make CO2 cheaper if you’re trying to make it scarcer?

10

Source: OECD and IEA analysis see website: www.oecd.org/iea-oecd-ffss

Oil-exporting countries

India China Russia Rest of the World

Non-EU Eastern European Countries

-2

-1

0

1

2

3

4

5

$ 44 billion,

2010, global renewable electricity subsidies

6% less emissions

globally from removal of fossil

fuel subsidies

USD $409 billion2010 , developing country

fossil fuel consumption subsidies

$45-75 billion

2010, in fossil fuel support

in OECD countries

Income gains from unilateral fossil fuel subsidy removal (% change in HH income vs BAU)

11

Thank you!

For further information:www.oecd.org/iea-oecd-ffsswww.oecd.org/g20/fossilfuelsubsidies

Or contact:

For OECD estimates about fossil-fuel support in OECD : Ronald.Steenblik@oecd.org or Jehan.Sauvage@oecd.org

For economic impact of reforming non-AI consumer subsidies : Jean.Chateau@oecd.org