In the OECD Environmental Outlook we have assumed that all the countries covered by the IEA database will remove their subsidies gradually until 2020. For some regions, GHG emissions would be reduced by over 20%, in 2050: Russia or in Middle East and North African countries. At the global level, CO2 emissions would be reduced by 7%, relative to the baseline. Extra Insight (if you’ve time to mention it) Notice that the reduction of non-CO2 gases is an additional environmental benefit from subsidy reform since these gases are not directly linked to fossil fuel combustion as CO2 is. This illustrates the complementarities across gases.
Let’s assume, for a moment, that each developing country removes its fossil-fuel subsidies unilaterally. The figure shows that each country would generally record real GDP gains. This in line with what is suggested by the theory: these gains arise from a more efficient domestic allocation of resources across sectors.
Now, let’s go back to the case where countries remove, all together, their fossil-fuel subsidies. The economic impacts are different because the global subsidy reform imply an important decrease in the world energy demand. This decrease in demand could imply a decrease in fossil-fuel exports that could offset the benefit of the reform for some some exporting countries could report GDP losses (MENA).In any case the losses are very small compared to the projected growth over the 40 next years.
OECD work on fossil fuel subsidies - Simon Upton
OECD work on fossilfuel 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.
Matrix of fossil fuel support measures Statutory or Formal Incidence (to whom and what a transfer is first given) Direct consumption Output returns Enterprise Cost of Costs of Unit cost of Household or income intermediate Production consumption enterprise inputs Factors1 income Capital grant Direct Government- Output bounty Input-price linked to transfer of Unit subsidy subsidized life-line or deficiency Operating grant subsidy acquisition of funds electricity rate payment land or capital Transfer Mechanism (how a transfer is created) Tax deduction Investment tax VAT or excise- related to energy Reduction in Tax revenue Production tax Reduced rate credit; property tax concession purchases that excise tax on foregone credit of income tax tax reduction or on fuel exceed given inputs exemption share of income Under-pricing of Under-pricing of a good, Under-pricing of Other access to a Reduced government access to government natural resource rent service or government land; revenue resource tax access to a reduced royalty foregone harvested by natural payment final consumer resource Provision of Credit guarantee Transfer of Third-party security (eg Price-triggered Means-tested cold- Government linked risk to liability limit for military subsidy weather grant buffer stock acquistition of government producers protection for land or capital supply lines) Regulated Wage control; Induced Mandated life-line Import tariff or Monopoly Export price; cross transfers electricity rate export subsidy 3 concession restriction credit control subsidy (sector specific)1. Labour, land, capital, knowledge.
Overview of support by fuelNote: 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, Icelandand Luxembourg). It reflects the value of tax relief measured under each jurisdiction’s benchmark tax treatment. The estimates do nottake into account interactions that may occur if multiple measures were to be removed at the same timeData source: OECD (2011), Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels.
Overview of support by incidenceNotes:• 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.
Caveats• 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.
Emissions impacts of fossil fuel subsidy removal“central policy” scenario: gradual phase-out to 2020 of fossil fuel consumer subsidies in 37 emerging and developing economies % changes in GHG emissions with respect to BAU All GHG CO2 5% 0% -5% -10% -15% -20% -25% -30% -35% -40% -45% China * WORLD Russia * Mexico * Indonesia * South Africa * India * Other countries * (2) MENA * (1) •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
Unilateral removal of energy subsidies bring GDP gains Impacts on GDP in 2050 (% change from baseline) 6% % deviation relative to the baseline 5% 4% 3% 2% 1% 0% Indonesia India Russia MENA (1) China Other South Mexico countries Africa (2) • (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
Multilateral reforms: impacts on projected GDP growth Real GDP in 2050 as % of 2010 levels, with and without reform of fossil fuel support 900% 800% 700% Baseline 600% 500% Multilateral Reform 400% 300% 200% 100% 0% Oceania Canada Mexico * USA & Korea Brazil countries * Annex I * (2) Indonesia * Africa * India * MENA * (1) & EFTA China * Russia * EU27 South Japan Other Rest of •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, … 9 •(3) Other Asian, African and Latin American Emerging economies •Sources : OECD ENV-Linkages Model - Based IEA subsidies data for the year 2009
Why make CO2 cheaper if you’re trying to make it scarcer?Income gains from unilateral fossil fuel subsidy removal (% change in HH income vs BAU) $45-75 6% less emissions USD $409 billion billion globally from 2010 , developing country 2010, in fossil removal of fossil 5 fossil fuel consumption fuel support fuel subsidies subsidies in OECD countries 4 $ 44 3 billion, 201 0, global 2 renewable electricity 1 subsidies 0-1-2 Oil-exporting India China Russia Rest of the Non-EU Eastern countries World EuropeanSource: OECD and IEA analysis see website: www.oecd.org/iea-oecd-ffss Countries 10
Thank you!For further information:www.oecd.org/iea-oecd-ffsswww.oecd.org/g20/fossilfuelsubsidiesOr contact:For OECD estimates about fossil-fuel support in OECD :Ronald.Steenblik@oecd.org or Jehan.Sauvage@oecd.orgFor economic impact of reforming non-AI consumer subsidies :Jean.Chateau@oecd.org 11