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How Large Are Global Energy Subsidies?
Vitor Gaspar
Director, Fiscal Affairs Department
International Monetary Fund
The Brookings Institution
May 18, 2015
Background
The presentation draws from a new paper and two blogs
from the IMF:
• Provides a comprehensive, updated picture of energy
subsidies and the impacts of subsidy reform
• Focusing on the broader notion of post-tax energy subsidies,
instead of pre-tax subsidies
• The estimates of the environmental, revenue and welfare impacts
of eliminating energy subsidies are “partial equilibrium” in nature
• Points to the need to begin reform immediately while
adopting a gradual reform strategy
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Global energy subsidies are $5.3 trillion
Global energy subsidies
In US$ trillions
In percent of global GDP
US$ trillions (nominal)
$6
$5.3
$5
$4.6
8
$4.9
$5.2
6.3
6.5
6.7
6.5%
5.8
7
6
$4.2
5
$4
4
$3
3
$2
Percent of Global GDP
$7
2
$1
1
$0
0
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
Pre-tax consumer subsides arise when the price paid by consumers is below the cost of supplying energy. Post-tax consumer subsidies arise when the price
paid by consumers is below the supply cost of energy plus an appropriate “Pigouvian” (or “corrective”) tax reflecting the environmental damage associated with
energy consumption and an additional consumption tax that should be applied to all consumption goods for raising revenues.
Costs are far-reaching …..
• Exacerbate environmental damage
• Local pollution, traffic congestion and accidents, road
damage, and global warming
• Worsen inequality
• Most of the benefits are captured by rich households
• Better targeted policy instruments are often available or can
be quickly developed
• Retard economic growth
• Discourage energy investments and encourages energy
inefficiency
• Fiscally costly
• Which requires higher distortionary taxation and crowds out
high priority spending (education, health, infrastructure)
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…..mostly local …..
Components of global energy subsidies, 2015
Vehicle
externalities
12%
Foregone
revenue
6%
Local
pollution
52%
Global
warming
24%
Pre-tax
subsidies
6%
5
….. and from coal
Product composition of global energy subsidies, 2015
Petroleum
28%
Coal
59%
Natural gas
10%
Electricity
3%
6
Energy subsidies are pervasive
Geographic distribution of global energy subsidies, 2015
Russia $0.3
trillion
USA $0.7
trillion
EU $0.3
trillion
India $0.3
trillion
Japan $0.2
trillion
China $2.3
trillion
Energy subsidy reform can generate
substantial health benefits …..
Reduction of fossil-fuel emissions-related deaths, 2015
70
Global average: 57 percent
60
Percent reduction
50
40
30
20
10
0
Emerging
Europe
E.D. Asia
CIS
MENAP
S.S. Africa
Advanced
LAC
8
….. and carbon emission reductions …..
Reduction of fossil-fuel related CO2 emissions, 2015
40
35
Percent reduction
30
Global average: 24 percent
25
20
15
10
5
0
MENAP
E.D. Asia
LAC
CIS
S.S. Africa
Emerging
Europe
Advanced
9
….. as well as a significant fiscal dividend
9
Percent of GDP, 2013
Public health
spending
Fiscal gain
6
Corporate
income tax
revenue
3
0
Advanced
Emerging
Low-income and developing
10
Time is now: act local, solve global!
• Energy subsidy reform is urgently needed in many
countries for domestic reasons
• This will also contribute to carbon emission reductions
(in the run up to Paris 2015 UN Climate conference)
• Low international energy prices provide a window of
opportunity for reform
Reform process should start now
and it should be gradual
11
Thank you!
• The working paper “How Large Are Global Energy
Subsidies”
• The blog “Act Local, Solve Global: Energy Tax and
Subsidy Reform”
• The blog “Global Energy Subsidies Are Big—About
US$5 Trillion Big”
• All can be found at:
http://www.imf.org/external/np/fad/subsidies/
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Background slides
13
A number of countries have started to reform energy
taxation
Carbon taxes and emissions trading systems
Source: World Bank, 2014, State and Trends of Carbon Pricing 2014.
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Other references
•
Clements, B. J., D. Coady, S. Fabrizio, S. Gupta, T. Alleyne, C. A.
Sdralevich, 2013, Energy Subsidy Reform: Lessons and Implications.
Washington D.C.: International Monetary Fund.
•
Clements, B. J., D. Coady, S. Fabrizio, S. Gupta, B. Shang, 2014, “Energy
Subsidies: How Large Are They and How Can They Be Reformed”,
Economics of Energy & Environmental Policy 01/2014; 3(1).
•
Parry, I., D. Heine, E. Lis, and S. Li, 2014, Getting Energy Prices Right:
From Principle to Practice. Washington D.C.: International Monetary Fund.
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