World Energy Outlook 2006

OECD, but remain large in some non-OECD countries, both in gross terms
and net of any taxes. Electricity and household heating and cooking fuels are
usually most heavily subsidised, though several countries still subsidise roadtransport
fuels. Remaining energy subsidies in OECD countries are mainly
directed to production and do not necessarily reduce end-user prices below
market levels. 3
Analysis carried out for this Outlook confirms the prevalence of consumption
subsidies in non-OECD countries. Total subsidies (net of taxes on each fuel) in
the 20 countries assessed, which collectively make up 81% of total non-OECD
primary energy use, amount to around $220 billion per year, according to
2005 data. On the assumption that subsidies per unit of energy consumed are
of the same magnitude in other non-OECD countries, world subsidies might
amount to well over $250 billion per year. That is equal to all the investment
needed in the power sector every year on average in non-OECD countries in
the Reference Scenario. Total subsidies to oil products amount to over
$90 billion. Box 11.2 describes the methodology used to quantify subsidies.
Box 11.2: Quantifying Global Energy Subsidies
Energy subsidies were calculated using a price-gap approach, which
compares final consumer prices with reference prices that correspond to
the full cost of supply or, where available, the international market price,
adjusted for the costs of transportation and distribution. 4 This approach
captures all subsidies that reduce final prices below those that would
prevail in a competitive market. Such subsidies can take the form of direct
financial interventions by government, such as grants, tax rebates or
deductions and soft loans, and indirect interventions, such as price
ceilings and free provision of energy infrastructure and services.
Simple as the approach may be conceptually, calculating the size of
subsidies in practice requires a considerable effort in compiling price data
for different fuels and consumer categories and computing reference
prices. For traded forms of energy such as oil products, the reference price
corresponds to the export or import border price (depending on whether
3. IEA analysis, the results of which were reported in Von Moltke et al. (2003), puts total OECD
energy production subsidies at $20-30 billion per year.
4. See IEA (1999) for a detailed discussion of the price-gap approach and practical issues relating to
its use in calculating subsidies and their effects.
278 World Energy Outlook 2006 - FOCUS ON KEY TOPICS
© OECD/IEA, 2007