Global Energy Subsidies Are Big—About US$5 Trillion Big

IMF Blog, May 18, 2015

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Global Energy Subsidies Are Big—About US$5 Trillion Big

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Bibliographic details

• Authors: Sanjeev Gupta, Michael Keen
• Published: May 18, 2015

Summary of the issue

• Global energy subsidies remain very substantial despite recent drops in international energy prices.
• The blog distinguishes between “pre-tax” subsidies (when people and businesses pay less than it costs to supply energy) and “post-tax” subsidies (which add environmental, health and other damage costs and the benefit from favorable VAT or sales tax treatment to pre-tax subsidies).
• The urgent need for energy price reform remains across both advanced and developing countries; low international oil prices provide an opportunity to move toward more efficient pricing.

Pre-tax vs. post-tax subsidies (conceptual framing)

• Pre-tax subsidies: reflect undercharging relative to supply costs.
• Post-tax subsidies: include pre-tax subsidies plus
  • environmental damage (global warming, local pollution, traffic congestion and accidents),
  • the benefit from favorable VAT or sales tax treatment,
  • and the broader need for revenue from energy products (energy should be subject to the standard rate of VAT or other general consumption tax).
• Energy price misalignment is treated as a form of subsidy given externalities and foregone revenue.

Old vs. new numerical estimates

• Earlier estimate for 2011:
  • Pre-tax subsidies: US$492 billion (0.7 percent of Global GDP).
  • Post-tax subsidies (2011): around US$2.0 trillion (2.9 percent of global GDP).
• Updated estimates (most recent data year 2013, with projection for 2015):
  • Pre-tax subsidies in 2013: US$541 billion (0.7 percent of global GDP).
  • Projected pre-tax subsidies in 2015: around US$333 billion (0.4 percent of global GDP).
  • Global post-tax energy subsidies in 2013: US$4.9 trillion (6.5 percent of global GDP).
  • Projected global post-tax energy subsidies in 2015: US$5.3 trillion (6.5 percent of global GDP).

Reasons for the increase in post-tax estimates (breakdown)

• About 40 percent comes from inflation, real income growth, and updating prices and consumption of energy products.
• About 30 percent is from estimating environmental damages using country-specific data on air pollution emission rates (for power plants and vehicles), the number of people exposed to air pollution, and traffic congestion and accidents.
• About 15 percent is from including damages for which estimates were not previously available (nitrogen oxides and direct fine particulate emissions from power plants).
• About 15 percent is from incorporating new evidence from the World Health Organization (WHO) on how pollution exposure increases risks of various diseases.

Fiscal gains from energy price reform (estimates and implications)

• Revenue gain from eliminating post-tax subsidies in 2013 (allowing for behavioral responses and technology adoption): US$3.0 trillion (4.0 percent of global GDP).
• Projected revenue gain in 2015: nearly US$2.9 trillion (3.6 percent of global GDP).
• These revenue gains would be substantially smaller than headline subsidy estimates because higher energy prices would induce reduced energy consumption and adoption of emissions control technologies.
• Potential uses of the fiscal dividend:
  • Growth-enhancing tax cuts on labor and capital.
  • Investments in basic education and health.
• Additional benefits:
  • Reduces the need to subsidize renewable energies.
  • Most effective policy for promoting mitigation of environmental impacts across the economy.

Estimation challenges and data improvements

• Estimating post-tax subsidies requires measuring and valuing environmental damages that are often uncertain and very country-specific, and placing monetary values on human life.
• The update incorporates:
  • More refined IMF estimates of environmental damages for fossil fuel products.
  • Updated price, consumption and income data.
  • Country-specific emission and exposure data and WHO evidence.

Source: Global Energy Subsidies Are Big—About US$5 Trillion Big, Sanjeev Gupta and Michael Keen, May 18, 2015.

Content in this bundle

• 全球能源补贴规模巨大——高达约5万亿美元; iMFdirect博客; 2015年5月18日
  • 全球能源补贴规模巨大——高达约5万亿美元; iMFdirect博客; 2015年5月18日 (Markdown version)
  • 全球能源补贴规模巨大——高达约5万亿美元; iMFdirect博客; 2015年5月18日 (PDF)
• 巨額な世界のエネルギー補助金－約5兆米ドルの規模; iMFdirect ブログ, サンジーブ・グプタ、 マイケル・キーン, 2015年5月18日掲載
  • 巨額な世界のエネルギー補助金－約5兆米ドルの規模; iMFdirect ブログ, サンジーブ・グプタ、 マイケル・キーン, 2015年5月18日掲載 (Markdown version)
  • 巨額な世界のエネルギー補助金－約5兆米ドルの規模; iMFdirect ブログ, サンジーブ・グプタ、 マイケル・キーン, 2015年5月18日掲載 (PDF)
• Глобальные энергетические субсидии составляют огромную величину — примерно 5 триллионов долларов США
  • Глобальные энергетические субсидии составляют огромную величину — примерно 5 триллионов долларов США (Markdown version)
  • Глобальные энергетические субсидии составляют огромную величину — примерно 5 триллионов долларов США (PDF)

References

• blog
• https://www.imf.org/wp-content/uploads/2015/05/slide12.jpg
• latest update of global energy subsidies
• Parry and others, 2014
• https://www.imf.org/wp-content/uploads/2015/05/slide22.jpg