Fossil-fuel Subsidies Research Articles

Revisiting the Regulatory Framework: A Necessary Action to Promote the Deployment of Renewable Energy Sources for Electricity in Jordan

Jordan has been suffering from dependence on imported energy for decades and the recent geopolitical situations in its neighbouring countries have affected its energy security, allowing only an intermittent supply of imported fuels to Jordan.Moreover, the consequent volatility of fuel prices resulted in immense debt for the National Electricity Company in 2013. To manage these crises, the Jordanian government aims to diversify Jordan's energy sources and to promote local energy production. It has begun a gradual reduction in subsidies for fossil fuels and it has prepared legal and financial forecasts based on the strong potentials of solar and wind power. Despite its adoption of economic instruments, such as net metering and auction provisions, the government did not achieve its targeted 7% of energy from renewable sources by 2015. To ensure the achievement of the target of 10% by 2020 and the effective implementation of the plan for green growth, Jordan's energy laws and policies need to be revised continuously.

Impact of energy technology patents in China: Evidence from a panel cointegration and error correction model

Enhancing energy technology innovation performance, which is widely measured by energy technology patents through energy technology research and development (R&D) activities, is a fundamental way to implement energy conservation and emission abatement. This study analyzes the effects of R&D investment activities, economic growth, and energy price on energy technology patents in 30 provinces of China over the period 1999–2013. Several unit root tests indicate that all the above variables are generated by panel unit root processes, and a panel cointegration model is confirmed among the variables. In order to ensure the consistency of the estimators, the Fully-Modified OLS (FMOLS) method is adopted, and the results indicate that R&D investment activities and economic growth have positive effects on energy technology patents while energy price has a negative effect. However, the panel error correction models indicate that the cointegration relationship helps to promote economic growth, but it reduces R&D investment and energy price in the short term. Therefore, market-oriented measures including financial support and technical transformation policies for the development of low-carbon energy technologies, an effective energy price mechanism, especially the targeted fossil-fuel subsidies and their die away mode are vital in promoting China's energy technology innovation.

Energy policy: Push renewables to spur carbon pricing.

Putting a price on carbon dioxide and other greenhouse gases to curb emissions must be the centrepiece of any comprehensive climate-change policy. We know it works: pricing carbon creates broad incentives to cut emissions. Yet the current price of carbon remains much too low relative to the hidden environmental, health and societal costs of burning a tonne of coal or a barrel of oil1. The global average price is below zero, once half a trillion dollars of fossil-fuel subsidies are factored in.

Fossil Fuel Subsidies and Sustainable Energy for All: The Governance Reform Debate

This article contributes to an improved understanding of the thematic areas of fossil fuel subsidies and universal energy access and outlines steps toward increasing the adoption of sustainable energy solutions in developing countries. Keeping in mind contradictions, it highlights the contemporary debate about the elimination of fossil fuel subsidies and the United Nations' Sustainable Energy for All initiative. It outlines policy options for improving governance frameworks at the multilateral and national levels, focusing on subsidy reform, financing mechanisms, information dissemination, timescales and related political costs, cost competitiveness, and the roles of international organizations.

The Role of Information in Perception of Fossil-Fuel Subsidy Reform: Evidence from Indonesia

This paper analyzes household perceptions and the role of information in the fossil-fuel subsidy reforms (FFSR) in Indonesia. The data used in this study were collected by Lembaga Survei Indonesia (LSI), based on an August 2014 survey that involved 2,899 respondents in 34 Indonesian provinces. Survey logistic and multinomial logistic regressions approaches were used in this study. The results show that: (1) those who live outside Java tend to be more receptive to the idea of FFSR (2) The tendency of respondents to oppose the reform is attributable to ownership of motorcycles and cars (3) Providing information about the state budget and the personal impact of the subsidy could change a respondent’s opinion from opposition to support of the reform. These results indicated public resistance to a subsidy removal policy was not permanent. Those who own cars and/or motorcycles tend to be more resistant to FFSR than those who do not possess one.

Heterogeneity in rebound effects: Estimated results and impact of China’s fossil-fuel subsidies

Improving energy efficiency through technological advancement has become a primary measure to achieve energy conservation targets in China. However, the existence of energy rebound effects may completely or partially offset energy savings associated with technological advancement. From sectors perspective, technological advancement is not a necessary condition for energy conservation for a given sector because of varied rates of technological advancement and dependence among sectors. Adopting the input–output model, this article presents a detailed analysis of energy rebound effects in China’s economy at the aggregate and sectoral level over 2006–2010. The results show that the aggregate sectors’ rebound effect is about 11.31%, which is larger than without considering the interaction among sectors (11.25%); and strongly suggests that technological advancement has varied impacts on energy conservation and rebound effects. Thus various strategies of technological advancement and incorporated mitigation measures are necessary for energy conservation across sectors. Furthermore, the current study confirms that China’s total value of fossil-fuel subsidies reached 160.23 billion US$ (constant 2005 price) in 2006–2010; and after removal of subsidies, the energy use is expected to save 411.35 million toe and the rebound effects for aggregate sectors become 10.64%. Finally, some relevant policy issues are discussed in depth.

Mind the Gap; A Review on Fossil-Fuel Subsidy Reform and Social Welfare in Indonesia

Fossil-fuel subsidies have been a major burden on the Indonesian economy for the last 10 years and any attempt to reform the subsidy has been opposed by members of the public. This study reviews the literature on the nature of fossil-fuel subsidies and their impact on the Indonesian economy. It aims to identify the various strategies that have been developed to reform the subsidy and to identify research gaps that may be filled by future studies. The proponents of fuel subsidies argue that subsidies will support economic growth, poverty reduction and promote energy security, however, evidence from various studies, which have been conducted in Indonesia, suggest otherwise. Studies in the down stream oil sub-sector have been conducted quite extensively, however, substantial research gap was found for upstream and middle stream oil sub-sectors.

Indonesia’s Gasoline Subsidy Cut, Road Availability and Their Impact on Micro and Small Industry Productivity

Gasoline subsidy is part of the energy subsidies program that has contributed a significant fiscal burden on the government of Indonesia. A radical gasoline subsidy reform was initially announced on 31 December 2014 and implemented as of January 2015. The reform was designed to restrict fossil-fuel subsidies becoming a liability in future budgets by entirely removing the subsidy on Premium (RON 88) gasoline. Although energy subsidy is perceived as a form of social assistance, many of Indonesia’s energy subsidies are found benefiting higher income groups excessively, because of a lack of distribution strategy. Up to now, no detailed studies had yet been published about the impact of the June 2013 price reforms for gasoline on micro-small industries. Therefore the likely impact of January 2015 entire subsidy removal on Premium gasoline and followed by infrastructure development remains unknown. In this study, panel data observation was conducted to study combinations of time-series data (2010-2013) and cross-sectional data (23 subsectors industry). Therefore, the research outcomes are expected to give more informative data, more variability, less collinearity among variables, more degrees of freedom and more efficiency. According to observation, 17 out of 23 micro-small industry’s subsectors would still positively grow their production indices during reduction gasoline subsidy and less rapid new road development. There are three recommendations that would like to be proposed to the government based on the outcome of the observation. First, the Indonesian government should reallocate a proportion of the gasoline subsidy funds for the development of infrastructure such as roads especially in rural areas where the majority of micro-small industries are located and marketing their products. Second, the government has to provide technical as well as financial assistance for improving energy efficiency and modernizing production systems. Third, the government must support feasible micro-small industries by increasing accessibility to bank financing. Two recommendations are suggested to micro-small industries players. Firstly, immediate action to minimize impact subsidy removal. Secondly, observe a long term anticipation of higher energy prices by actively consulting to the government related organizations, universities, larger enterprises, and non-governmental organizations. As final points, recommendations to society are buying micro-small industries’ products or services, transferring knowledge of technologies to micro-small industries and conducting researches related to micro-small sectors.

Status Seeking through Social Creativity Has Its Limits

The paper uses social identity theory to assess South Korea’s lack of membership in the Friends of Fossil Fuel Subsidy Reform, a group of small states advocating for the global elimination of fossil-fuel subsidies. This paper asks whether South Korea would be a complement to the Friends group and whether joining the group would boost Korea’s international profile and middle power status. It subsequently tries to explain why Korea has yet to join the group. After a short introduction, the paper provides a general explanation of the need for fossil fuel subsidy reform. Section three introduces the concept of social creativity and argues that South Korea is embracing status-seeking behavior. Section four presents the Friends group and assesses South Korea as a complement to that group. Section five looks at the international prospects of subsidy reform from an institutional perspective and asks whether the Friends group or South Korea can potentially influence movement in subsidy reform. Section six argues that although South Korea seems an ideal fit to join the Friends group, South Korea has not joined for a number of reasons, including domestic economic constraints, considerations in bilateral relations and Korean preferences for certain institutional structures. Lastly, the paper concludes that status-seeking behavior has its limits, and although the Friends group would add little benefit to South Korea’s international profile, South Korea’s lack of membership in the group is a missed opportunity to further subsidy reform.

Addressing the trade-climate change-energy nexus: China's explorations in a global governance landscape

We have arrived at a critical juncture when it comes to understanding the numerous ways in which trade interacts with climate change and energy (trade-climate-energy nexus). Trade remains crucial for the sustainable development of the world's greatest trading nation: China. After clarifying the linkages within the trade, climate change and energy nexus, this article delves into China's specific needs and interests related to trade, climate change and energy. Then it explores the ways in which trade can contribute to China's needs, to sustainable energy development and to the goals of the global climate agreement that is under negotiation.One main findings are China is a key participant in negotiations on trade liberalization of environmental technologies and services. These negotiations are in China's interests in terms of innovative industries, technological upgrading, employment and public health. China could stand up for the interests of other emerging and developing countries and serve as an example in terms of transitioning to a low-carbon economy. Beyond trade barriers issues of domestic (energy) regulation such as fossil-fuel subsidies as well as investment, competition-policy, trade-facilitation and transit issues related to clean energy need to be addressed.Building trust between relevant actors across sectors and national borders will be of the essence in order to foster long-term cooperation on technological innovation.As a way forward, different approaches towards the governance of trade and climate change will be highlighted. Besides discussing the specific aspects of Chinese participation in global trade and climate change governance, this paper aims at offering broader insights into the nexus between trade, energy and climate governance in China.

Data on Fiscal Systems of Countries Represented in the ICES Model, with Focus on Fossil Fuel Subsidies and First Test Run

This study details the first experiment conducted to couple the information relative to fossil fuel subsidies with the database and structure of the ICES CGE model developed at the CMCC, and to test the general performance of the model simulating their potential removal. Data for multi country and multi-fuel analysis derive from a “reconstruction process” based upon the price gap method, created by the IEA. The policy exercise consists in an instantaneous phasing out of existing subsidies in 2050. Removals are implemented imposing an ad valorem tax exactly equal to subsidies estimated by IEA (2009). We also compare our results with Burniaux and Chateau (2011) which conducted a similar analysis with the OECD ENV-Linkages model. Both models predict the expected decrease in CO2 emissions which is more pronounced in countries where the subsidy size is larger (Russian Federation, Former Soviet Union Countries and Oil exporting Countries). On the contrary the EU, where subsidies are small, increases its emissions due to a leakage effect. In the next phase of the research fossil fuel subsidies will be introduced explicitly in the price structure of ICES model.

Fossil Fuel Subsidy Reform, Rent Management and Political Fragmentation in Developing Countries

Over the last decade, pressure to reduce subsidies for energy (especially fossil fuels) in developing countries has mounted, but reform is politically controversial. The debate on reform is dominated by a liberal narrative that employs an understanding of energy subsidies as political rent, based on public choice theory. Here, it is argued that this approach takes too static and limited a view of rent, and that engagement with theories of the state in the development process suggests a more dynamic view. The degree of centralisation of political power is also argued to be a key factor in the use and reform of subsidy. This application of the framework is then illustrated in the case of Indonesia. Finally, implications for reform strategies are drawn out.

Impacts of increasing renewable energy subsidies and phasing out fossil fuel subsidies in China

Abstract Subsidies to fossil-fuel consumption have made China׳s energy system fragile and unsustainable. It is necessary for China to reform fossil-fuel subsidies and reflect the resource cost and environmental cost in energy prices. Considering the life-cycle external costs, this paper estimates the scale of fossil-fuel subsidy and the true cost of renewable energy in 2010 and evaluates impacts of increasing renewable energy subsidies and phasing out fossil fuel subsidies on macro-economy and energy system in China based on scenario analysis. Simulation results show that the negative impacts on economic growth can be reduced from 4.460% to 0.432%, if only 10% of fossil fuel subsidies were removed. Increasing subsidies for renewable energy has positive impacts on macroeconomic variables. Although the economic benefits per unit of subsidies for renewable energy are lower than those for fossil fuels by 0.06–0.19 CNY, the revenue gap can be narrowed by shifting more subsidies from fossil fuels to renewables. Increasing subsidies for renewable energy helps optimize China׳s energy system in three ways: the first is making energy consumption structure cleaner; the second is improving energy efficiency; and the third is addressing the problem of imbalanced distribution and consumption of energy.

A revisit of fossil-fuel subsidies in China: Challenges and opportunities for energy price reform

Fossil-fuel subsidies contribute to the extensive growth of energy demand and the related carbon dioxide emissions in China. However, the process of energy price reform is slow, even though China faces increasing problems of energy scarcity and environmental deterioration. This paper focuses on analyzing fossil fuel subsidies in China by estimating subsidies scale and the implications for future reform. We begin by measuring fossil-fuel subsidies and the effects of subsidy removal in a systematic fashion during 2006–2010 using a price-gap approach. Results indicate that the oil price reform in 2009 significantly reduced China’s fossil-fuel subsidies and modified the subsidy structure. Fossil-fuel subsidies scale in China was 881.94 billion CNY in 2010, which was lower than the amount in 2006, equivalent to 2.59% of the GDP. The macro-economic impacts of removing fossil-fuel subsidies are then evaluated by the computable general equilibrium (CGE) model. Results demonstrate that the economic growth and employment will be negatively affected as well as energy demand, carbon dioxide and sulfur dioxide emissions. Finally, policy implications are suggested: first, risks of government pricing of energy are far from negligible; second, an acceptable macroeconomic impact is a criterion for energy price reform in China; third, the future energy policy should focus on designing transparent, targeted and efficient energy subsidies.

Shining a Light on Fossil Fuel Subsidies at the WTO: How NGOs Can Contribute to WTO Notification and Surveillance

Fossil fuel subsidies undermine efforts to mitigate climate change, and they damage the trading system. Multilateral discussion is hampered by inconsistent definitions and incomplete data, which could increase the risks of WTO disputes. Members do not notify such subsidies as much as they should under the Agreement on Subsidies and Countervailing Measures (ASCM), which limits the usefulness of the SCM Committee. The reports of the Trade Policy Review Mechanism on individual countries and on the trading system draw on a wider range of sources, creating an opportunity for non-governmental organizations (NGOs) to provide the missing data from publicly available sources. We suggest a new template that could be used for such third-party notifications. The objective is to shine a light on all fossil fuel subsidies that cause market distortions, especially trade distortions. The result should be better, more comparable data for the Secretariat, governments, and researchers, providing the basis for better-informed discussion of the incidence of fossil fuel subsidies and rationale for their use.

The Energy Sector in Mediterranean and MENA Countries

This paper describes the energy sector in the Mediterranean and MENA (Middle East and North Africa) countries. It first analyses the production of energy by fossil and renewable sources and discusses the increasing demand in the area and its consequences. It describes the policy frameworks to promote renewable energy as well as fossil-fuel subsidies, which are still abundant in the MENA area. It presents some avenues for integration across the Mediterranean and finally it discusses the implications of the Arab spring on energy production in the next future.

Can the Energy and Enterprise Initiative Improve Public Health?

A former Republican congressman from South Carolina has started an institution to promote conservative approaches to mitigating climate change and achieving energy security for the United States. According to Bob Inglis, whose Energy and Enterprise Initiative is housed within George Mason University, market distortions lead Americans to use far more fossil fuels than they would if they paid the full cost of that fuel. If fuel producers are held fully accountable for the health, productivity, and environmental costs of their products, he says, free enterprise will naturally give rise to the cleanest, most sustainable fuels. A committee of the National Research Council recently estimated that burning fossil fuels for electricity, heat, and vehicle operation cost the United States more than $120 billion in 2005. These estimates were based on damages to human health, grain crop and timber yields, building materials, and recreation by criteria air pollutants including particulate matter, sulfur dioxide, and nitrogen oxides.1 The majority of this cost was attributed to premature deaths resulting from exposure to these pollutants. The estimates omitted a number of factors that could further increase costs, including damages to ecosystem services, environmental damages from coal mining, and military costs of protecting fuel imports.1 Alexander Bozmoski, director of strategy and operations for the Energy and Enterprise Initiative, says society bears those costs not through payments at the gasoline pump or on their power bill, but instead through greater health insurance premiums, lost income, and increased taxes for defense spending. In 2009 the United States provided $5.3 billion in subsidies for fossil fuel producers and $4.9 billion in subsidies for fossil fuel consumers. Of the total $10.2 billion in producer and consumer subsidies, more than half went toward natural gas, one-third went toward petroleum, and about one-tenth went toward coal. These figures do not include costs for fossil energy research and development or for maintenance of the Strategic Petroleum Reserve or the Northeast Home Heating Oil Reserve, which were established as buffers against major supply disruptions.2 Hidden Costs of Fossil Fuels According to the National Research Council report Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use,1 criteria air pollutants emitted by power plants and motor vehicles caused more than $120 billion in estimated external costs in 2005: $62 billion in damage was attributed to 406 coal-fired electric power plants. Damages averaged $156 million per plant and 3.2¢ per kilowatt-hour of electricity produced. $740 million in damage was attributed to 498 natural gas electric power plants. Damages averaged $1.49 million per plant and 0.16¢ per kilowatt-hour of electricity produced. $1.4 billion in damage was attributed to burning natural gas for heating (residential, commercial, and industrial). Median estimated damages were about 11¢ per thousand cubic feet of heated space. $56 billion in damage was attributed to motor vehicles. Damages averaged 1.2–1.7¢ per mile traveled depending on vehicle technology and fuel type. Fossil fuel subsidies come in a variety of forms. Some of the largest subsidies on the production side include write-offs for properties used to process qualified petroleum fuels and costs associated with exploration and development for oil and gas wells. Consumer subsidies include the Low-Income Energy Assistance Program to help needy residents pay their energy bills, fuel tax exemptions for farmers (one of the biggest single subsidies at nearly $1 billion in 2009), and a tax credit for investing in power generation projects that use “clean coal” technologies.2 The United States is not alone in subsidizing these fuels; worldwide, fossil fuel subsidies amounted to $409 billion in 2010.3 In a 2012 interview with the U.K. Guardian, Fatih Birol, the chief economist at the International Energy Agency, was quoted as saying, “Energy is significantly underpriced in many parts of the world, leading to wasteful consumption, price volatility, and fuel smuggling. It’s also undermining the competitiveness of renewables.” 4 According to Birol, phasing out subsidies could, in the course of discouraging waste and encouraging development of clean fuels, reduce emissions by about half the amount necessary to prevent warming beyond 2°C over preindustrial levels.4 That is the goal many governments worldwide have adopted to avoid what are projected to be the most serious effects of climate change.5 Inglis says the initiative’s primary modus operandi will be educational: to provide information to conservatives, particularly young conservatives, by speaking at colleges and universities, convening forums, and sponsoring policy papers. The initiative website is clear that its founders “don’t subscribe to apocalyptic visions of climate change.” They do believe, however, that “the best science available indicates that America faces substantial risks in a changing climate [and] that conservative energy policy should mitigate those risks.”6

Fossil Fuels - At What Cost? Government Support for Upstream Oil and Gas Activities in Russia

The report represents the first inventory of subsidies to upstream oil and gas activities in Russia according to an international methodology developed by the Global Subsidies Initiative of the International Institute for Sustainable Development. At the federal level, the paper identifies 30 such subsidy schemes in 2009 and 2010; and quantifies the value of 17 of these, amounting in 2009 to US$ 8.1 billion and in 2010 to US$ 14.4 billion. The report also considers possible future trends in oil and gas subsidies in Russia. The report concludes with a discussion of economic and environmental outcomes of the existing subsidies against their policy objectives. The study aims to increase transparency of government subsidies to fossil fuels in Russia and provide a basis for an informed debate about opportunities to “rationalize and phase out over the medium term inefficient fossil-fuel subsidies that encourage wasteful consumption” in accordance with the commitments Russia has undertaken as a member of G-20 and the Asia-Pacific Economic Cooperation and in view of the country’s accession to the Organisation for Economic Co-operation and Development. The report is addressed to responsible agencies in the Russian government, academia, business and civil society organizations, and international stakeholders.

We Ask Your Government! How Much its Fossil-Fuel Subsidies Cost

In 2010, the International Budget Partnership (IBP) began a project to find out how well governments respond to legitimate requests from civil society for information on specific areas of public expenditure. The Ask Your Government! (AYG) How Much it is Spending on Development Commitments initiative posed six budget-related questions to 80 governments. The Global Subsidies Initiative (GSI) of the International Institute for Sustainable Development (IISD) developed one of those questions: “What was the total amount actually incurred during the past three fiscal years on subsidies for oil, gas and coal production and consumption?”The results illustrate the opacity of fossil-fuel subsidy policies and the lack of information about how governments are spending public money. This brief analyses the findings of the survey and provides insightful anecdotes from the surveyors that demonstrate the challenges of accessing information on subsidy expenditure – some researchers received angry phone calls from Ministers’ offices demanding why they wanted the information, others were told that the information is ‘private’ or ‘politically sensitive’ and officials did not want to ‘expose themselves’, and some researchers were given the run-around between ministries, one submitted up to 15 requests before giving up. The brief concludes with recommendations for how policy-makers can improve the availability and quality of information about subsidies.

The First Year of the G-20 Commitment on Fossil-Fuel Subsidies: A Commentary on Lessons Learned and the Path Forward

In September 2009, the G-20 announced a medium-term commitment to phase out fossil-fuel subsidies that encourage wasteful consumption, distort markets, impede investments in clean energy sources and undermine efforts to address climate change. Since that announcement, there has been a flurry of activity leading to a growing international movement to remove harmful fossil-fuel subsidies. But the task of phasing out these subsidies is challenging and takes time. Much remains to be done by the G-20 to fulfil their medium-term commitment, including monitoring the phase-out of subsidies identified for reform. The GSI offers a commentary on the first year of the G-20’s commitment and the actions of other governments and organizations that have contributed to the reform movement, including the Asia Pacific Economic Cooperation (APEC) forum and the Friends of Fossil-Fuel Subsidy Reform group of countries. It identifies lessons that can be learned and looks ahead at what further progress the G-20 and international community can make to enhance global and national efforts to reduce fossil-fuel subsidies.