211/SOM3/DIA/3 Session 2 IEA Analysis of Fossil-Fuel Subsidies for APEC Submitted by: IEA Policy Dialogue on Fossil Fuel Subsidy Reform San Francisco, United States 23 September 211
IEA analysis of fossil fuel fuel subsidies for APEC Amos Bromhead Office of the Chief Economist International Energy Agency San Francisco, 23 September 211 Primary energy demand in APEC economies in the Current Policies Scenario Mtoe 11 1 9 8 7 6 5 4 3 2 1 199 2 21 22 23 235 Other renewables Hydro Nuclear Gas Oil Coal APEC energy demand expands by 44% between now and 235 an average rate of increase of 1.4% per year with fossil fuels remaining dominant in the energy mix
Spending on oil & gas imports as a share of GDP in APEC economies in the Current Policies Scenario 7% 6% 5% 4% 3% 2% 1% Indonesia China Japan Mexico United States ASEAN* Australia/ New Zealand % 199 2 21 22 23 235 The combination of higher prices and expanded imports translates to a growing import bill for the region, which can be a heavy burden on economic growth Energy related related CO 2 emissions in APEC economies in the Current Policies Scenario Gt 45 4 35 3 25 2 15 1 5 199 2 21 22 23 235 Gas Oil Coal World APEC s share of global CO 2 emissions increases slightly to 59% in 235, highlighting that the region will have to play a key part if climate objectives are to be met
Fossil fuel subsidies can have unintended effects Fossil fuel subsidies result in an economically inefficient allocation of resources and market distortions, while often failing to meet their intended objectives Quantifying fossil fuel consumption subsidies using the price gap approach A price gap is the amount that an end use price is below the full cost of supply or reference price It is applicable where end use prices are regulated and fall short of international market levels Does not capture: production subsidies, rebates to consumers, the effect of cross subsidies, cost of investing in new capacity (electricity) What costs are represented by estimates from the price gap approach? > For net exporters, these are essentially opportunity costs > For net importers, these are estimates of direct, budgetary transfers Relevant calculations > Subsidy = (reference price end use price) * consumption > Reference price (fuels) = int l price (quality adj) +/ freight & insurance + local distribution + VAT > Reference price for electricity is based on annual average cost pricing: calculated from a weighted average of the cost of electricity production (according to specific power mix), plus transmission and distribution
Quantifying fossil fuel consumption subsidies using the price gap approach LPG Diesel International price Freight and insurance Internal distribution Value-added tax End-use price Price gap (subsidy) Gasoline.2.4.6.8 1. Dollars per litre The price gap method compares end use prices paid by consumers with reference prices that correspond to the full cost of supply a subsidy is present If the end use price falls short of the reference price Fossil fuel consumption subsidies remain big Billion dollars 6 5 4 3 2 World subsidies to fossil fuel consumption using the price gap approach 15 125 1 75 5 Dollars per barrel Rest of world APEC economies IEA average crude oil import price (right axis) 1 27 28 29 21 25 Worldwide, fossil fuel consumption subsidies totaled $49 billion in 21 about $1 billion higher than in 29; among APEC economies, we estimate they reached $15 billion
Fossil fuel consumption subsidies per capita and as a percentage of total GDP Economies with higher rates Economies with lower rates Subsidies per capita (dollars per capita) 3 Qatar 2 5 2 1 5 1 Brunei Libya Ecuador 5 Pakistan See below Kuwait UAE Saudi Arabia Venezuela Algeria Egypt Scale (billion $) 4 1 Turkmenistan Iran Iraq % 5% 1% 15% 2% 25% Subsidies as a share of GDP (MER) Subsidies per capita (dollars per capita) 3 Russia Kazakhstan 25 Malaysia 2 Argentina 15 Thailand 1 Mexico Azerbaijan APEC Indonesia Chinese Taipei South Africa 5 Philippines Other China Nigeria India Vietnam % 1% 2% 3% 4% Subsidies as a share of GDP (MER) The economic cost of subsidies can be more completely understood when viewed as a percentage of GDP or on a per capita basis Major energy producers are among the biggest subsidisers Fossil fuel consumption subsidies by net importer and net exporter of oil and natural gas in APEC economies Billion dollars 12 1 8 6 Exporter Importer 4 2 27 28 29 21 For net exporters of oil and gas in APEC economies, subsidies to those fuels totalled $74 billion in 21, compared with $31 billion in net importing economies
Fossil energy subsidies go mostly to the rich Share of fossil fuel subsidies received by the lowest income quintile by fuel in surveyed economies*, 21 Only 8% of the amount spent on fossil fuel consumption subsidies in 21, reached the poorest 2% of the population Getting rid of fossil energy subsidies would save energy & cut emissions Without further reform, spending on subsidies in APEC economies is set to reach $15 billion in 22 Subsidy reform would have energy security, environmental & economic benefits Phasing out subsidies in APEC economies by 22 would: reduce energy demand by 2.3% reduce oil demand by.5 mb/d cut CO 2 emissions by.6 Gt Savings would be considerably higher in the economies that have subsidies
Recent pricing reforms in selected economies Economy Description of actions or announced plans Angola India Indonesia Iran Jordan Raised gasoline & diesel prices by 5% and 38% in Sept 21. Plans to reduce fuel subsidies by 2% per year until eliminated. Scrapped regulation of gasoline prices in June 21, with plans to do the same for diesel; Plans to eliminate cooking gas and kerosene subsidies in a phased manner starting April 212, replacing with direct cash support to the poor. Postponed a restriction of subsidised fuel for private cars in February 211, which could push state subsidies higher than the budgeted amount. Previous plans Significantly cut energy subsidies in Dec 21 as start of a 5 year program to bring the prices of oil products, natural gas and electricity in line with international market levels. Cash payments are being made to ease the impact of higher fuel prices. Announced an expansion of their subsidy programme in January 211 by further reducing kerosene prices and gasoline prices. Malaysia Cut subsidies for gasoline, diesel and LPG in July 21 as part of a gradual reform programme.. Mexico Steadily increased gasoline, diesel, and LPG prices in 211, with the goal of eliminating subsidies. Pakistan Raised gasoline, diesel and electricity prices in 211, but prices increases have not kept pace with international prices. Plans are to reduce the power subsidy by 23% this year and gradually phase out. Qatar Increased petrol, diesel and kerosene prices by 25% in January 211. Russia Plans to raise natural gas prices to international levels for industrial users through 214. South Africa Plans to raise electricity prices by 2% per year through 215 according to the Integrated Resource Plan, approved in March 211. UAE Increased gasoline prices in April and July of 21 to the highest level in the GCC Ukraine Raised gas price for households and electricity generation plants by 5% in August 21 and announced plans to raise them by 3% in 211. Consultation on pricing data The IEA welcomes consultation with individual APEC economies about pricing data IEA contacts on fossil fuel subsidies: Fatih Birol, fatih.birol@iea.org Amos Bromhead, amos.bromhead@iea.org Matthew Frank, matthew.frank@iea.org Jung Lee, jung.lee@iea.org