IEA analysis of fossil-fuel subsidies for APEC

MtoePolicies could dramatically alterthe long-term energy outlookWorld primary energy demand by scenario20 00018 00016 00014 000Current Policies ScenarioNew Policies Scenario450 Scenario12 00010 0008 0006 0001980 1990 2000 2010 2020 2030 2035Compared with the New Policies Scenario, energy demand in 2035 is8% higher in the Current Policies Scenario and 11% lower in the 450 Scenario© OECD/IEA 2011

MtoePrimary energy demand in APEC economiesin the Current Policies Scenario12 00010 0008 0006 0004 000Other renewablesHydroNuclearGasOilCoal2 00001990 2000 2010 2020 2030 2035APEC energy demand expands by 44% between now and 2035 – an average rate ofincrease of 1.4% per year – with fossil fuels remaining dominant in the energy mix© OECD/IEA 2011

160 L.R. Skelly et al. / Schizophrenia Research 98 (2008) 157–162through the posterior limb of the internal capsule (PLIC)and into the corona radiata of the cerebral hemispheres,bilaterally but stronger on the left. Lower FA was seen inassociation fibers in the cingulum (bilaterally in themedial temporal area and in right frontal portions), intemporal portions of the left inferior longitudinal fasciculus,and in the left anterior thalamic radiation. Commissuralfibers were significantly different in the forcepsminor of the frontal lobe. There was also a large, highlysignificant difference between groups in the right inferiorfronto-occipito fasciculus.3.2. Correlation/regression analysisIn the correlation/regression analysis, negative correlationsof FAvalues with PANSS positive symptom scoreswere seen in the left uncinate fasciculus, right sagittalstratum, and the left superior longitudinal fasciculus (seeFig. 2). Positive correlations with PANSS negativesymptom scores were found in one small area near theright insula, but in a different fiber tract than that reportedby Shin et al. (2006). There were no significant results inthe positive correlation with positive scores, the negativecorrelation with negative scores, nor was there significantcorrelation with PANSS general scores in either direction.4. DiscussionWe report diffuse differences in white matterintegrity between schizophrenia patients and matchedhealthy controls. Using robust normalization methodsand carefully matching results to specific white mattertracts, our findings both support disconnection hypothesis-basedexpectations in association and callosal fibersand detect unanticipated deficits in projection fibers.Projection fibers are not typically the target of whitematter studies of schizophrenia, but in their review ofwhite matter lesion-induced deficits, Aralasmak et al.(2006) report that PLIC lesions have been variouslyassociated with apathy, impaired consciousness andverbal memory loss. We attempted to properly attributeobserved differences to the white matter tracts in whichthey were found and not to adjacent gray matterstructures or areas, which in certain cases (especiallyin the region of the basal ganglia/internal capsule) canbe potentially misleading. In the area of inferior fronto-Fig. 2. Negative correlation between PANSS p-score and FA values for 23 schizophrenia patients, masked at FA cutoff 0.18, pb0.01. Tracts whichreached a significant negative correlation are labeled by letter: A. uncinate fasciculus; B. sagittal stratum; C. superior longitudinal fasciculus.

Billion dollarsIranSaudi ArabiaRussiaIndiaChinaEgyptVenezuelaUAEIndonesiaUzbekistanIraqAlgeriaMexicoThailandUkraineKuwaitPakistanArgentinaMalaysiaBangladeshTurkmenistanKazakhstanLibyaQatarEcuadorFossil-fuel consumption subsidiesfor top twenty-five countries, 20109080706050403020100ElectricityCoalNatural gasOilOil products had the largest subsidies at $193 billion, followed by natural gas at $91 billion,while fossil-fuel subsidies resulting from the under-pricing of electricity reached $122 billion© OECD/IEA 2011

Fossil-fuel subsidies can haveunintended effectsFossil-fuel subsidies result in an economically inefficient allocation of resources and marketdistortions, while often failing to meet their intended objectives© OECD/IEA 2011

Quantifying fossil-fuel consumptionsubsidies using the price-gap approach• A price-gap is the amount that an end-use price is below the full cost ofsupply or reference price• It is applicable where end-use prices are regulated and fall short ofinternational market levels© OECD/IEA 2011‣ Does not capture: production subsidies, rebates to consumers, the effect ofcross-subsidies, cost of investing in new capacity (electricity)• What costs are represented by estimates from the price-gap approach?‣ For net exporters, these are essentially opportunity costs‣ For net importers, these are estimates of direct, budgetary transfers• Relevant calculations‣ Subsidy = (reference price – end-use price) * consumption‣ Reference price (fuels) = int’l price (quality adj) +/- freight & insurance + localdistribution + VAT‣ Reference price for electricity is based on annual average-cost pricing: calculatedfrom a weighted average of the cost of electricity production (according to specificpower mix), plus transmission and distribution

Quantifying fossil-fuel consumptionsubsidies using the price-gap approachLPGDieselInternational priceFreight and insuranceInternal distributionValue-added taxEnd-use pricePrice gap(subsidy)Gasoline0 0.2 0.4 0.6 0.8 1.0Dollars per litreThe price-gap method compares end-use prices paid by consumers with reference prices thatcorrespond to the full cost of supply – a subsidy is present if the end-use price falls short ofthe reference price© OECD/IEA 2011

Calculating electricity reference pricesInputReference PriceAnnual Avg.Fuel EfficiencyMix of PowerGenerationAvg. Cost of Generation is capped byLevelized Cost of a new CCGTOil$/unit38%26%New CCGTGasCoal$/unit$/unit45%36%43%10%Avg. Cost ofGenerationReferencePriceNuclear/Renewables21%T&D andother costsThe electricity reference price takes into account the cost of generation from fossil fuels,capped at the cost of a new gas CCGT plant© OECD/IEA 2011

What data is needed for countries tomake their own measurement?• End-use prices• To calculate reference prices:‣ International market (spot) prices‣ Shipping freight and insurance costs‣ Cost of local distribution‣ Rate of value-added tax• Total final energy consumption• Country imports and exports• Data should be collected and applied at the same level of detail‣ Consider sector/use, fuel grade, time period and region© OECD/IEA 2011

Methodology for modelingfossil-fuel and CO 2 savings• Calculate initial subsidisation rate (by fuel/use)• Choose time period over which to model subsidy phase-out• Decrease the subsidisation rate over the chosen period, raisingend-use prices• Fuel savings are linked to pace of change in end-use prices andthe elasticity of demand• CO 2 savings are calculated by applying emissions factors to fuelsavings© OECD/IEA 2011

Billion dollarsDollars per barrelFossil-fuel consumption subsidies remain bigWorld subsidies to fossil-fuel consumption using the price-gap approach600150Rest of world500400300200100125100755025APECeconomiesIEA averagecrude oilimport price(right axis)02007 2008 2009 20100Worldwide, fossil-fuel consumption subsidies totaled $409 billion in 2010 – about $100 billionhigher than in 2009; among APEC economies, we estimate they reached $105 billion© OECD/IEA 2011

Subsidies per capita (dollars per capita)Subsidies per capita (dollars per capita)Fossil-fuel consumption subsidies percapita and as a percentage of total GDPCountries with higher ratesCountries with lower rates3 0003002 500QatarKuwaitUAEScale (billion $)40250RussiaKazakhstanMalaysia2 000Saudi Arabia102001 500150ArgentinaThailand1 0005000BruneiLibyaEcuadorPakistanSee belowVenezuelaTurkmenistanAlgeriaIranIraqEgypt0% 5% 10% 15% 20% 25%Subsidies as a share of GDP (MER)100500ChinaMexicoChineseTaipeiSouth AfricaPhilippinesNigeriaAzerbaijanIndiaIndonesiaVietnamAPECOther0% 1% 2% 3% 4%Subsidies as a share of GDP (MER)© OECD/IEA 2011The economic cost of subsidies can be more completely understood when viewed as apercentage of GDP or on a per-capita basis

Billion dollarsMajor energy producers are amongthe biggest subsidisersFossil-fuel consumption subsidies by net importer and net exporter of oil and natural gasin APEC economies120Exporter100Importer8060402002007 2008 2009 2010© OECD/IEA 2011For net exporters of oil and gas in APEC economies, subsidies to those fuels totalled $74billion in 2010, compared with $31 billion in net-importing countries

Fossil-energy subsidies go mostly to the richShare of fossil-fuel subsidies received by the lowest income quintile by fuel in surveyedcountries*, 2010© OECD/IEA 2011Only 8% of the amount spent on fossil-fuel consumption subsidies in 2010, reached thepoorest 20% of the population

Recent pricing reforms in selected countriesCountryAngolaIndiaIndonesiaIranJordanMalaysiaDescription of actions or announced plansRaised gasoline & diesel prices by 50% and 38% in Sept 2010. Plans to reduce fuel subsidies by 20% per year until eliminated.Scrapped regulation of gasoline prices in June 2010, with plans to do the same for diesel; Plans to eliminate cooking gas andkerosene subsidies in a phased manner starting April 2012, replacing with direct cash support to the poor.Postponed a restriction of subsidised fuel for private cars in February 2011, which could push state subsidies higher than thebudgeted amount. Previous plansSignificantly cut energy subsidies in Dec 2010 as start of a 5-year program to bring the prices of oil products, natural gas andelectricity in line with international market- levels. Cash payments are being made to ease the impact of higher fuel prices.Announced an expansion of their subsidy programme in January 2011 by further reducing kerosene prices and gasoline prices.Cut subsidies for gasoline, diesel and LPG in July 2010 as part of a gradual reform programme..MexicoPakistanSteadily increased gasoline, diesel, and LPG prices in 2011, with the goal of eliminating subsidies.Raised gasoline, diesel and electricity prices in 2011, but prices increases have not kept pace with international prices. Plans areto reduce the power subsidy by 23% this year and gradually phase out.Qatar Increased petrol, diesel and kerosene prices by 25% in January 2011.Russia Plans to raise natural gas prices to international levels for industrial users through 2014.South Africa Plans to raise electricity prices by 20% per year through 2015 according to the Integrated Resource Plan, approved in March 2011.UAEUkraineIncreased gasoline prices in April and July of 2010 to the highest level in the GCCRaised gas price for households and electricity generation plants by 50% in August 2010 and announced plans to raise them by30% in 2011.© OECD/IEA 2011

MtoeGtPhasing-out fossil-fuel subsidies canreduce demand and CO 2 emissionsFossil fuel and CO 2 emissions savings from subsidy phase out versus no phase out02012 2015 2020 20350.0GasCoal- 100- 200-0.3-0.6OilCO 2 emissions(right axis)- 300-0.9- 400-1.2Subsidy phase-out in APEC countries by 2020 would curb fossil fuel demand by 2.7% bythen and by 3.6% in 2035 compared with a baseline in which subsidies remain as they are© OECD/IEA 2011

Concluding remarks• Getting the prices right, by phasing-out fossil-fuel subsidies,is an important step towards improving energy security, whilebrining environmental & economic benefits• Without further reform, spending on subsidies in APECeconomies is set to reach $150 billion in 2020• Subsidy phase out can have significant impact on the poor andpolicies must be carefully designed not to restrict access toessential energy services• Since the APEC commitment was taken, many countries havestarted taking measures to reduce or eliminate subsidies© OECD/IEA 2011