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Should energy be subsidized? Case Study

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  • 1. Should Energy be subsidized? Presented By: Singhzee’s Economics Group Renewable Non- Renewable
  • 2. Objectives  To learn about subsidy and its various forms  To evaluate whether energy should be subsidized or not  To assess the pros and cons of shifting energy subsidies from non- renewable sources (NRES) to renewable(RES)
  • 3. What is Subsidy?  Government financial assistance  In the form of Grants Tax breaks Exemptions Price Controls
  • 4. Subsidy: the Whys?  Lowering Price and Cost  Ensuring Power Supply=Demand  Providing Access to the Poor  Preserving Domestic Competitiveness  Maintaining Employment
  • 5. Types of Subsidies Government Intervention Example Direct Financial Transfer Grant to Producer/Grant to Consumer Low Interest or Preferential Loans to Producer Preferential tax treatment Rebates, exemptions, duties, levies, tariffs, etc Tax Credit Accelerated Depreciation Trade Restrictions Quotas, technical restrictions Direct Government Energy related services Direct investment in energy infrastructure Public R&D Regulation of the energy sector Price Control Market Research Restriction
  • 6. Case Overview  January 2007, Subsidy Transfer Proposal  US$ 14 billion  June 2007, still languishing in senate  Subsidy came into focus  Increase in energy prices of 06/07  Arguments for and against subsidy
  • 7. Should Energy be Subsidized? Class POLL 64% 24% 12%
  • 8. Subsidy Statistics Economic Zone US$ OECD 10 billion 20 of the largest nations outside OECD 48 billion Annual Fossil-fuel Consumption Subsidies US$ 230 billion(1992) Regional Studies (1997)
  • 9. Subsidy Statistics Year US$ 2009 110 billion 2010 412 billion 2011 523 billion International Energy Agency(IEA) Source :IEA(www.worldenergyoutlook.org)
  • 10. Energy Subsidies: PROS  Energy Access to the Poor  Improvement of Living Standard  Control on Inflation  Reduction of Air Pollution and Deforestation (E.g. Senegal)
  • 11. Energy Subsidies: PROS Cross-Subsidies Example: KEPCO Customer Type Payment (%) of the Total Cost Commercial Customers 134% Industrial Sector 96% Agricultural Sector 48%
  • 12. Increased Consumption of Energy Irresponsible Use of Energy(Esp. Developed countries) Energy Subsidies: CONS
  • 13. Energy Subsidies: CONS  Faster Depletion of Fossil Fuels  Increased GHG Emissions
  • 14. Energy Subsidies: CONS  Distortion of Costs and Prices(Non- Renewable Sources)  Substantial Environmental Damage(Electricity Generation)  Heavy Burden of Government Finances  Increased Trade Deficit
  • 15. Unbalanced benefits to HI and LI groups
  • 16. Transfer of Subsidies: PROS  Renewable Sources: More Competitive
  • 17. Transfer of Subsidies: PROS  Solution to GHG Emissions  Help Save Environment
  • 18. Transfer of Subsidies: PROS  Initiatives taken by Some countries Nation Period Subsidies subject to reduction Amount of Reduction( US$) EFFECT China 1990- 1997 Annual Fossil Fuels Subsidies 24.5b to 10b •Coal Consumption ↓ by 14%(1996-2000) •CO2 Emissions ↓ by 17%(1997- 2000) 1993- 1995 Coal Subsidies 750m to 240m Tax on high-sulfur coals Chile 1995 •CO Emissions ↓ by 8%(1996)
  • 19. Transfer of Subsidies: PROS  Energy Security  Employment  Foreign Exchange(E.g. Denmark, Australia, Japan)  Saving of billions of dollars(through redirection of subsidies budget)
  • 20. Transfer of Subsidies: CONS Shift of Subsidies from NRES TO RES High Energy Prices Inflation Burden on the Poor Low Energy production Environm ental Hazards
  • 21. Future Outlook
  • 22. THANK YOU !!!

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