Abstract
Energy subsidies stimulate excessive energy consumption, accelerate the depletion of natural resources, and reduce incentives for investment in green energy and renewable energy sources. In response to these factors, in 2009, the G-20 countries agreed to phase out fossil fuel subsidies. Subsidizing fossil fuels has significant economic consequences, such as creating artificial incentives for the development of traditional energy sectors, leading to unequal distribution of benefits from the development of natural resources among the population, as well as further burdening the state budget. In this research, the DEA method (Data Envelopment Analysis) is applied for a comparative cross-country analysis of the efficiency of government support for natural gas production in seven countries – the leading producers in the world – for the period 2013–2018; this comprised of four OECD countries with developed economies (USA, Canada, Norway, and Australia) and three BRICS countries with developing economies and emerging markets (China, Brazil, and Russia). An extended version of the DEA method allowed us to evaluate not only the technical efficiency but also the price efficiency of budget support for natural gas production in the considered countries. The data for the empirical model characterizing the extent of financial support extended to natural gas producers through budgetary transfers and tax expenditures were retrieved from the the OECD statistics database. The obtained results indicate the low efficiency of state support for natural gas production in Russia. The Russian government’s policy is not directly aimed at an extensive development of the oil and gas sectors. Furthermore, urgent measures should be adopted to end inefficient energy subsidies that stimulate wasteful consumption of non-renewable raw materials and fossil fuels—an obligation for all G20 members. The economic and financial implications of ending fossil fuel subsidies should be comprehensively explored. In this regard, DEA models for evaluating the relative efficiency of state support for energy subsidies can be used as a powerful tool for solving a complex and crucial task of reforming the country’s energy policy in line with global climate goals.
Highlights
The most common argument in favor of energy subsidies revolves around the possibility of developing the industry and agriculture, creating jobs, providing access to energy services, and reducing poverty (IEA, 2015).expected preferences carry significant state expenditures
Energy subsidies reduce the potential of national economies to grow, and contribute to the inefficient use of raw materials and energy resources
The process of converting resources into results is not considered within the DEA method, i.e. the system is represented as a “black box”, efficiency is determined as a ratio of costs and results, but is not based on the internal characteristics of Decision-Making Units (DMUs)
Summary
The most common argument in favor of energy subsidies revolves around the possibility of developing the industry and agriculture, creating jobs, providing access to energy services, and reducing poverty (IEA, 2015). Government subsidies for fossil fuels are still significant; for instance, in 2015 their total amount was USD 4.7 trillion, or 6.3% of the world GDP. We performed a cross-country analysis of the comparative efficiency of energy subsidies, in particular, government support for natural gas production in the OECD countries with developed economies (the USA, Canada, Norway, and Australia) and some developing BRICS countries (China, Brazil, and Russia) for the period from 2013 to 2018. The Inventory includes 44 countries: 36 OECD countries and 8 partner countries (Argentina, Brazil, China, Colombia, India, Indonesia, Russia, and South Africa), and it reports about nearly 1,200 individual fossil fuel support measures in these states (OECD, 2019). Countries and individual partner countries decreased by 9% between 2016 and 2017, which is smaller than a decrease of 12% that took place between 2015 and 2016, and a 19% decrease between 2014 and 2015
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