Energy Subsidies: Lessons Learned in Assessing their Impact - UNEP

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Energy Subsidies: Lessons Learned in Assessing their Impact and Designing Policy Reforms 12.5 Social Effects 144 12.6 Policy Implications 145 References 146 13. Designing and Implementing Energy Subsidy Reforms 147 13.1 Principles of Subsidy Reform 147 13.1.1 Targeting 148 13.1.2 Efficiency 149 13.1.3 Rationale 150 13.1.4 Practicality 150 13.1.5 Transparency 151 13.1.6 Duration 151 13.2 Implementing Energy Subsidy Reforms 151 13.2.1 Barriers to Reform 151 13.2.2 Overcoming Resistance 152 13.3 Conclusions 153 References 154 Annex: Methodological Approaches to Analysing Energy Subsidy Reform 155 A1 Assessing Economic Effects 155 A1.1 Partial Equilibrium Analysis 155 A1.2 General Equilibrium Analysis 159 A1.3 Extended Partial Equilibrium Analysis 161 A1.4 Input-Output Modelling 162 A1.5 Indicators of Economic Effects 162 A2 Assessing Environmental Effects 162 A2.1 Local Air-Pollution Modelling 163 A2.2 Global Climate Change Modelling 167 A2.3 Natural Resource Depletion 168 A3 Assessing Social Effects 168 A3.1 Measuring Income Distribution Effects 168 A3.2 Assessing the Wider Social Impacts of Changes in Useand Access to Different Fuels 170 A3.3 Potential Social Advantages of Subsidy Removal 171 A3.3 Integrated Assessment 172 A4 Conclusions 172 References 173 10
Executive Summary Executive Summary In principle, any measure that keeps prices for energy consumers below market levels or for energy producers above market levels or that reduces costs for consumers or producers may be considered a subsidy. An energy subsidy can take several different forms. Some subsidies can have a direct impact on price. These include grants, tax reductions and exemptions or price controls. Others affect prices or costs indirectly, such as regulations that skew the market in favour of a particular fuel, government-sponsored technology, or research and development (R&D). Energy subsidies are widespread, but they vary greatly in importance and type according to the fuel and country. In the OECD, most energy subsidies are still concentrated on the production of fossil fuels and nuclear power, although the amount of these subsidies appears to have declined in recent years. In many European countries, subsidies to oil are often offset by special taxes and levies intended mainly to raise money for the national treasury. Remaining subsidies are aimed at protecting local industries from competition from imports for reasons of regional employment or energy-supply security, or both. The coal industry still benefits from large subsidies in a small number of countries, notably Germany, although these subsidies are being reduced gradually in most cases. Subsidies in support of transport projects that facilitate road, rail and water transit can also be substantial with direct benefit to the oil industry as they drive up the demand for oil products. They are not, however, considered in this report. At the same time, subsidies to renewables and energy-efficient end-use technologies are growing in response to environmental concerns, particularly climate change and local pollution. In some cases, governments subsidise these technologies to enhance access to electricity in remote areas, to diversify the fuel mix or to promote decentralised generation. Certain countries are also seeking to obtain an early lead in the international market for such technologies. The most common forms of this type of subsidy are favourable tax treatment, grants and soft loans, regulations that favour a particular technology and R&D funding. Energy subsidies in developing countries and countries with economies in transition considered in this report are generally much larger net of taxes than in OECD countries, and take markedly different forms. The majority of them are aimed at consumers. Government price controls, which hold prices below the full economic cost of supply, remain the most widespread means of providing subsidies. They are most common for electricity, but are still important in some countries for oil products, coal and gas. The extent of under-pricing is generally bigger in countries where the energy sector is state-owned. State companies are usually treated as public service entities and are not required to maximise profits. Energy subsidies are especially pervasive in energy-producing countries such as Iran and Indonesia, where the prices of almost every form of commercial energy are well below competitive market levels. India has taken important steps to raise oil and coal prices to economic levels in recent years, but massive electricity subsidies remain. Economic theory says that social welfare is maximised when the price of each good and service is freely determined by the interaction of buyers and sellers in open, competitive markets. In practice, however, free markets in energy services left to their own devices do not 11
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Energy Subsidies in the Czech and S
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Energy Subsidies in the Czech and S
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Energy Subsidies in Russia: The Cas
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Electricity Subsidies in India 6. E
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Electricity Subsidies in India (SEB
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Energy Subsidies: Lessons Learned i
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Electricity Subsidies in India Usin
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Oil Subsidies in Indonesia 7. Oil S
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Oil Subsidies in Indonesia Table 7.
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Oil Subsidies in Indonesia 7.4 Econ
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Energy Subsidies in Korea 8. Energy
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Energy Subsidy Reform in Iran 9. En
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LPG Subsidies in Senegal Effective
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LPG Subsidies in Senegal References
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Analysis of Findings of Country Cas
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Designing and Implementing Energy S
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Energy Subsidies: Lessons Learned in Assessing their Impact - UNEP

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