Fossil-fuel Subsidies Research Articles

Fossil Fuels - At What Cost? Government Support for Upstream Oil Activities in Three Canadian Provinces: Alberta, Saskatchewan and Newfoundland & Labrador

The study finds that Canadian federal and provincial governments provided $2.84 billion to support oil production in 2008. The comprehensive report uses an internationally agreed definition of subsidy adopted by the World Trade Organization to determine the value of oil production subsidies in Alberta, Saskatchewan and Newfoundland & Labrador. This detailed analysis is the first of its kind in Canada and allows appropriate comparisons of subsidies with other countries. The report estimates the impact of existing subsidies over the next 10 years. The study forecasts the cost of subsidies to governments would double by 2020. The report estimates a 2 per cent rise in Canada’s greenhouse gas emissions by 2020 and a projected rate of growth for the oil production industry. As a member of the G20, Canada has recognized that efforts to deal with climate change, wasteful energy consumption, market distortions and barriers to clean energy investment are undermined by inefficient fossil-fuel subsidies and has pledged to phase out its inefficient fossil-fuel subsidies over the medium term. The federal and provincial governments have already made progress in reducing the level of subsidies and incentives to the oil production industry, though a number of significant subsidies remain and new ones have emerged. According to the study, the federal government’s share of subsidies in 2008 was $1.38 billion. Within the provincial governments, Alberta was estimated at $1.05 billion, Saskatchewan at $327 million and Newfoundland & Labrador at $83 million. A total of 63 subsidy programs were identified. In most cases, the subsidies were intended to increase exploration and development through a mix of tax breaks and royalty reductions.

Mapping the Characteristics of Producer Subsidies: A Review of Pilot Country Studies

This paper is published as part of the series Untold Billions: Fossil-fuel subsidies, their impacts and the path to reform. Prepared by the Global Subsidies Initiative (GSI) in conjunction with Earth Track, this study helps increase the body of knowledge about the data sources that hold information on subsidies to fossil-fuel producers, by reviewing available data in a series of countries, diverse in terms of their level of data transparency, governance systems, energy markets and stages of economic development. Using a detailed matrix setting out the main subsidy policies, the type of fuel, and their main data sources, pilot studies have been completed for China, Germany, Indonesia and the United States. The project team for each country evaluated commonly referenced data sources, such as databases collected by international bodies, and summarized how each source gathers information, including an assessment of their strengths and limitations. The study found that fossil-fuel producers are supported by a multitude of policies, ranging from direct payments to preferential access to government-owned lands. While direct payments were relatively easy to identify in government budget reporting, data was not always provided at a sufficient level of disaggregation to allow proper attribution to beneficiaries. Pilot studies also found that information on these support measures was held by a variety of government ministries and non-governmental organizations. The pilot studies provide a road map and starting point for more in-depth country case studies needed to fully quantify the extent of fossil-fuel subsidies in each country, as in some areas, the financial value of producer subsidy programs can only be estimated more precisely by developing more investigative methods and conducting country-specific studies. The GSI has commissioned two such studies into producer subsidies in Indonesia and Canada, which will become available during the second half of 2010.

Lessons Learned from Brazil's Experience with Fossil-Fuel Subsidies

The Global Subsidies Initiative (GSI) has commissioned case studies of fossil-fuel subsidy reform in Brazil, France, Ghana, India, Indonesia, Poland and Senegal. The report, prepared by Tara Laan and Adilson de Oliveira, examines the rationale used by Brazilian governments to justify consumer fossil fuel subsidies and the interest groups which benefitted from them. Government policy during the 1980s, prior to the eventual liberalization of energy markets during the 1990s, involved complex cross subsidization between energy sectors. The Brazilian experience is useful for understanding the rationale for subsidies in countries with large regional and social disparities. Changes in subsidy policy often produced an uneven economic and social impact on different regions of Brazil and Brazilian society, depending on wealth and access to alternative energy sources. The main lessons learned from liberalizing Brazil’s energy market focuses on government attempts to address the rationale used by interest groups to continue the use of existing fossil fuel subsidies.

Increasing the Momentum of Fossil-Fuel Subsidy Reform: A Roadmap for International Cooperation

As fossil-fuel subsidy reform moves higher up countries’ energy and climate change agendas – the G-20 and APEC have recently taken commitments to phase out fossil-fuel subsidies, countries such as Indonesia, India and Iran are attempting to reduce their subsidy burden, and organizations like the OECD, IEA, World Bank and IMF are refocusing on the topic – there remains the question: what role can international fora such as the WTO, UNFCCC, and international collaboration more generally, play? International collaboration and agreement can provide essential support to national efforts to reform fossil-fuel subsidies. In addition to supplying political legitimacy and peer pressure, it can also offer research and technical assistance, sharing of information and best practice, establishment of rules, financial support and promoting increased accountability. The WTO (World Trade Organisation), with its Agreement on Subsidies and Countervailing Measures, would seem to be the obvious first choice. However much work needs to be done prior to introducing new negotiations to the WTO – gathering information, building consensus, and in the case of energy subsidies, obtaining a mandate to negotiate disciplines that reach beyond the trade impacts. Immediate action could see improvements to WTO members’ reporting on subsidies, however with the Doha Round seemingly at a stand-still, the outlook for negotiations on fossil-fuel subsidy disciplines can only viably be a longer-term goal. The good news is there are other opportunities that can and should be taken advantage of in the meantime. Fossil-fuel subsidy reform is one national action that could have significant and multi-faceted impacts for addressing global climate change – driving down emissions and opening investment pathways for renewable energies. The UNFCCC may be struggling to define its post-Kyoto architecture but there is nothing stopping it from recommending specific non-binding measures that developed countries should take, with clear attractions compared to making a whole new agreement. Discussions around developing countries all suggest that their commitments are likely to based around their policies. Whether these are defined as nationally appropriate mitigation actions (NAMAs) or otherwise, subsidy reform seems a perfect fit and could be supported technically or financially by the developed world. The UNFCCC might be moving slowly towards a full agreement but we could envisage quick progress on more specific, voluntary actions, potentially even in the build-up to Cancun this December. The G-20 and APEC are already leading the way, having taken commitments to phase out and rationalize inefficient fossil-fuel subsidies that encourage wasteful consumption. The G-20 lacks a secretariat for supporting ongoing research and technical assistance, or monitoring progress on the phase out of members’ subsidies, however APEC may be able to fill some of these functions for its members. Country champions are picking up the torch with a newly-formed Friends of Fossil-Fuel Subsidy Reform group, led by New Zealand which includes Denmark, Norway, Sweden and Switzerland, with membership from developing countries still to be confirmed. As momentum for national fossil-fuel subsidy reform picks up, countries will look increasingly to the international community for support. This paper takes a detailed look at the opportunities, strengths and weaknesses of progressing fossil-fuel subsidy reform within the WTO, UNFCCC and under the G-20’s political leadership, and concludes that a collaborative approach between a range of organisations is needed, with country champions driving the process. The paper outlines a roadmap over the next 12 months, 1-3 years and the longer term for increasing international cooperation, and preparing the path to a multilateral agreement on fossil-fuel subsidy reform.

Measuring Energy Subsidies Using the Price-Gap Approach: What Does it Leave Out?

In Price Subsidies Using the Price-Gap Approach: What Does it Leave Out? prepared under the International Institute for Sustainable Development’s (IISD) Bali to Copenhagen project, Doug Koplow looks at the most commonly employed methodology for estimating fossil-fuel subsidies, the ‘price-gap’ method. The report explains how the price-gap method works, reviews its benefits and limitations, and explores potential systematic bias in estimates, drawing conclusions and implications for their interpretation. Among its key findings are: Price-gap data are basic information needed to estimate support to producers and consumers, and should be collected annually for all major fossil-fuel energy producing and consuming nations. Measuring the price-gap does not capture everything. Reliance on only price-gap data will dramatically understate the magnitude of fossil-fuel subsidies globally, as it fails to capture subsidy flows that do not change fuel prices. The ‘transfer method’, which quantifies all subsidy flows conferred by a country’s fossil fuel policy interventions, is more difficult to complete but can help ‘fill in’ some of these gaps. Transfer studies should be conducted every five years in the top ten fossil-energy producing and consuming nations, as well as countries who derive large portions of their GDP from extractive industries.

Subsidies for fossil fuels and climate change: a comparative perspective

This paper argues that the most obvious measure to combat greenhouse gas emissions is to remove the vast subsidies that promote higher energy consumption in more than half of the countries in the world, and that this measure should take precedence over many others. The article discusses also why removing energy subsidies is so difficult, and which type of state may succeed. This question is examined with reference to China, India and Russia, all major contributors to global warming. Non‐democratic governments and energy importers might be expected to be more likely to halt subsidies. In fact, energy trade imbalances do not seem to significantly affect the capacity to reduce subsidies. The risk of social unrest is a political restraint in all three countries. Perhaps surprisingly, democratic states may be better positioned to remove subsidies than non‐democratic ones.

Strategies for Reforming Fossil-Fuel Subsidies: Practical Lessons from Ghana, France and Senegal

To a large extent, subsidies to fossil fuels amount to a waste of precious government resources. In the case of consumer subsidies provided mostly in developing countries, these subsidies are often intended as measures to alleviate poverty. In practice, however, they frequently miss that objective, with benefits largely reaped by higher income groups who can afford motor vehicles and electrical goods. Better-designed and targeted policies can achieve poverty reduction far more cost-effectively.Moreover, reducing the burden of subsidies from the public purse would help relieve fiscal debt during a time of economic recession; free up government resources for other priorities such as education and healthcare; and contribute towards addressing climate change by reducing greenhouse gas emissions and reducing investment barriers for clean and renewable energy technologies and resources.This report looks at three cases where governments - Ghana, France and Senegal - have undertaken fossil-fuel subsidy reform with varying degrees of success. While the specific circumstances of each country is unique, there appear to be elements of successful reform strategies that are consistent across different types of subsidies, fuels and countries. Drawing from these three case studies, this report describes how effective strategies are based on:• a deep understanding of the subsidy, its original objectives, the rationale for reform and the likely impacts;• establishing clear objectives and parameters for reform;• building support by communicating the benefits of reform and consulting stakeholders;• policy measures to reduce negative impacts on affected groups; • ongoing monitoring, and evaluation of reform and the flexibility to adjust policies in changing circumstances; and,• independent pricing mechanisms to prevent the government being drawn back in to subsidization.This paper is published as part of the series Untold Billions: Fossil-fuel subsidies, their impacts and the path to reform.

Gaining Traction: The Importance of Transparency in Accelerating the Reform of Fossil-Fuel Subsidies

Transparency is the cornerstone of holding governments accountable for the ways in which they spend public money. As governments increasingly recognize that subsidizing fossil fuels undermines climate change, energy security and sustainable development objectives, good data and analysis will be vital for prioritising reform efforts and monitoring their effectiveness. This paper addresses the role that increased transparency could play in fossil-fuel subsidy reform and specifically asks what information and mechanisms are needed to support the G-20 and APEC calls for reform? As part of her analysis, Tara Laan considers the role of many of the inter-governmental and non-governmental organizations that currently contribute to the field and discusses options for developing a collaborative and comprehensive international system for evaluating and reporting fossil-fuel subsidies. The paper concludes that two track approach is necessary: domestic action to improve accounting and reporting, and international action to develop a new data gathering and management regime.

Lessons Learned from Attempts to Reform India’s Kerosene Subsidy

The Global Subsidies Initiative (GSI) has commissioned case studies of fossil-fuel subsidy reform in Brazil, France, Ghana, India, Indonesia, Poland and Senegal. In Lessons Learned from Attempts to Reform India's Kerosene Subsidy Dr. Bhamy V. Shenoy examines India's attempts to reform its long-standing subsidy on residential kerosene. The report explains the roots of India’s fossil-fuel subsidies, reviews the rationale for their reform and analyses why India’s previous attempts at reform have not worked. It draws lessons from this experience for the future. Among its key findings are: 1) Kerosene subsidies are ineffective at helping the poor: at most, two thirds of India’s subsidized kerosene goes to low-income households, the rest diverted onto black markets. 2) Once introduced, subsidies become a ‘sacred cow’. Politicians continue to support them in the name of helping the poor, but the real reason is to collect the huge rents that are created by diverting kerosene for adulteration. The black market profits help elect corrupt leaders, affecting governance as well as energy security. 3) India has tried and failed to reform its subsidies, because its solutions haven’t targeted the real problem – a lot of money can be made from reduced price kerosene. The Indian public needs to become aware how much of their money is being wasted. Only then will there be enough support for subsidy reform. The GSI is now one year into a three-year program of work on fossil-fuel subsidies. The first set of outputs are soon to be collected in one volume under the title, Untold Billions: Fossil-fuel subsidies, their impacts and the path to reform. Support for one of the papers, Gaining traction: the importance of transparency in accelerating the reform of fossil-fuel subsidies, was generously provided by the United Nations Environment Program (UNEP).

The Effects of Fossil-Fuel Subsidy Reform: A Review of Modelling and Empirical Studies

Understanding the complex trade-offs between the economic, environmental and social impacts of subsidy reform is a challenge for any government considering phasing out fossil-fuel subsidies. Jennifer Ellis provides a detailed literature review, focusing on the six modeling studies in the last 20 years that have attempted to analyze global impacts for all fuels. The studies mostly considered effects on greenhouse gas emissions and gross domestic product, but very little of the work has considered other environmental impacts or social impacts. The paper highlights a number of areas where further research should be undertaken but concludes that there is already enough evidence to demonstrate the significant environmental and economic benefits of phasing out fossil-fuel subsidies, and recommends that policy-makers do not delay in beginning the reform process.

The Politics of Fossil-Fuel Subsidies

Summary: governments spend staggering sums of money subsidizing fossil fuels, with many harmful consequences for public budgets, energy markets, and pollution. While there is widespread agreement among analysts that most of these subsidies serve no legitimate purpose, cutting subsidies has proved extremely difficult. This paper explores the politics of subsidy creation and reform and suggests some strategies for improving the odds that reformers will be politically successful. Subsidies exist often because they are the only reliable mechanism available to governments that are under pressure to provide benefits to politically well-organized groups. Not understanding the political economy of subsidy policies can prevent successful reform, and the report argues that successful subsidy reforms often require broader reforms and improvement in public administration to create mechanisms that can compensate political losers. It is available at: http://www.globalsubsidies.org/en/research/political-economy

Fuel and Food Price Subsidies - Issues and Reform Options

Government price subsidies are pervasive in developed, emerging, and low-income countries. A subsidy is a form of government intervention resulting in a deviation of an actual price facing consumers and producers from a specified benchmark price. Subsidies affect consumption and production patterns as well as the distribution of resources, with important implications for the budget, expenditure composition, and long-term growth. They can and often do involve fiscal costs, but not all affect government fiscal accounts in the same way. Price subsidies have spillover effects onto prices and quantities in domestic, regional, or global markets. This paper discusses the key issues and policy options in the reform of subsidies for fossil fuels and selected food commodities, and their implications for the work of the Fund.

Powering up efficiency

Powering up efficiency

Energy Analysis of Oklahoma Rangelands and Improved Pastures

The energy costs of beef production were examined for native rangelands an improved pastures grazing systems in the State of Oklahoma. Energy analysis models were constructed to examine the necessary energy inputs and outputs of the grazing systems. Energy requirements to maintain improved pasture systems ranged from 10 to 100 times that to maintain native rangeland. Comparing only fossil-fuel expenditures showed that rangelands are two to three times more efficient producers of beef than the improved pastures, although their beef production is considerably lower per hectare. Regression analysis indicated that the maximum possible efficiency of beef production from fossil-fuel subsidies in Oklahoma is approximately 14.8%. 49 references, 5 figures, 7 tables.