Availability of Energy Subsidy Data: US Perspective

Joint UNEP and Statistics Sweden Expert Meeting on Energy Subsidies

International Environment House,Geneva, Switzerland

May 26, 2008Doug Koplow

Earth Track, Inc.

2067 Massachusetts Ave., 4th Floor

Cambridge, MA 02140

(617) 661-4700

Tracking Subsidies is an Old Problem

“We already know the kinds of plants which will be feasible, how they will operate, and we can estimate what their expenses will be. In five years – certainly within 10 – a number of them will be operating at about the same cost as those using coal. They will be privately financed, built without government subsidy.”

-General Electric Advertisement, 1954

Data Availability: Some Good News

• Over the past 20 years:– Much more raw information on government programs.

– That information is more easily attainable.

– Some agencies provide data in formats (worksheets, databases) that others can analyze.

– Statutory improvements, especially on the credit side.

• Wide variation in availability, quality by:– Type of program.

– Level of government.

– Politicization of issue.

Wide Variation in Data Availability, Quality Remains; Impedes Policy Analysis

• Historical studies of US federal subsidies to all forms of energy have demonstrated a very wide variance.– Causes: research scope, politics, definitions, valuation.– Estimates of US Subsidies to Fossil Fuels alone range from

$200 million to $1.7 trillion per year (Koplow/Dernbach, 2001).

• This range effectively renders data useless for policy decisions.– Understanding drivers of variance, make value decisions is

possible but time consuming.– Need to develop standardized data capture requirements,

associated analytic tools for valuation and integration.

Disparity in Estimates Persists Today in Both Magnitude and Distribution of Support

Comparing Earth Track (2006) and EIA (2007) Estimates

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US EIA

Totals: Earth Track - $74.3b, average; US EIA - $16.6b

Subsidy Form Plays Large Role in Estimate Variance

• Financial transfers (grants, R&D support)• Below-market provision of goods or services,

including risk-bearing, intermediation benefits– Loans, loan guarantees– Indemnification– Government-owned enterprises– Provision of market intelligence

• Tax breaks [special taxes] for particular activities• Purchasing preferences [bans]• No accrual for predictable long-term

consequences of production by current producers (facility closure, externalities)

• Granting [revocation] of property right(s)

High

Low

BudgetVisibility/Ease ofQuantification

Government Value Transfer: Direct Outlays Dominate Annual Activity

Cost to Government

% Share Value to

Recipients

(Bil. USD) (Bil. USD)

Direct outlays 6,733$ 82.8%Tax expenditures 840$ 10.3% 954$ New lending activity Direct loans 108$ 1.3% Higher Loan guarantees 455$ 5.6% HigherNew risks underwritten Formal insurance No centralized ests. Higher Implicit coverage No estimates at all. HigherTotal annual activity, available categories 8,136$

Source: Doug Koplow, Understanding the Current Mix of Energy Subsidies andOptions for Reform , prepared for the National Commission on Energy Policy, May 2004.Based on 2003 and 2004 data from US Office of Management and Budget and theUS General Accounting Office.

Government Value Transfer: Less Visible Subsidies Matter More Over Long-Term

Cost to Government

% Share Value to

Recipients (Bil. USD) (Bil. USD)

Federal debt 6,733$ 51.3%PV tax expenditures in current law Unknown HigherLending portfolio

Direct loans outstanding 249$ 1.9% Higher Loan guar. outstanding 1,184$ 9.0% HigherInsurance portfolio

Direct risks insured 4,967$ 37.8% Higher Implicit risks covered Unknown HigherTotal cumulative exposure, available categories 13,133$

Source and Notes: Doug Koplow, Understanding the Current Mix of Energy Subsidies andOptions for Reform , prepared for the National Commission on Energy Policy, May 2004.2003 data, except for cumulative direct risks insured value, which is from 1995. Thesevalues are not presented consistentlyor systematically in current budget documents. Underlying data from the US Office of Management and Budget and the US General Accounting Office.

Data Issues and Reforms:Direct Program Expenditures

Status• Growing amount of data, but not sortable by topic across bureaucratic

boundaries.• Prospective program cost evaluations (CBO) often highly aggregated

with little published detail on assumpions.• Ear marks remain common and difficult to track despite reform

attempts.

Potential Improvements• “Flickr” approach to budgets: each line item has tags; create ability to

sort and aggregate by selected tags.• Integrated picture of direct program expenditures and other types of

subsidy.• More visibility and line-item detail in CBO cost estimates.• Continued work to prevent by-pass of ear mark reporting.

Data Issues and Reforms: Tax Expenditures

Status• JCT and Treasury both estimate tax expenditures; can disagree by large margins. Estimates

provided on aggregated basis only.• Many states do no public tracking of tax expenditures at all.• No information on methods or retrospective audits made public.• No analysis on timelines to make estimates or evaluation of lower cost alternatives.

Potential Improvements• Prospective Evaluation

– Open cost estimation models and associated assumptions to public review, validation.– More rigorous review requirements as cost rises (parallel to regulatory side).– More resolution on estimates, at least at the industry level.– Integrate PV to reduce gaming of mandated 10 year scoring window.– Rules: no vote without scoring; minimum time to score rises with expected revenue loss.

• Tracking – Assign each special tax break a unique tax subsidy number, tracked in tax filings.

• Retrospective Evaluation– Ex post evaluation of subsidy usage and comparison to original estimates.– Formal report on variance versus estimate; and for variance between JCT and Treasury.

Data Issues and Reforms: Credit and Insurance Programs

Status• Some mandated reporting on credit at federal level; state level more

spotty. Don’t integrate admin costs or intermediation benefits.• Actuarially-sound estimates of insurance programs limited; no central list

of statutory liability caps, or implicit gov’t coverage.

Potential Reforms• Visible beneficiaries. Publish commitments and performance in a

disaggregated, standardized way.• Full costing. Integrate administrative costs in pricing of the credit or

insurance product; est. of subsidy.• Measure benefit to recipient. Prepare estimate of intermediation value

of commitments, using financial risk modeling.• Measure contingent liabilities. Mandate disclosure of implicit

insurance, liability caps, including expected value of exceeding them.

Structural Reforms

• Visibility of new subsidies– Legislative visibility: markups, improved rules for review

time, conference committees.– More transparency in CBO, JCT estimates.– More formal tracking of intermediation benefits,

indemnification issues.– Spending constraints.

• Allocation mechanism for all energy subsidies– Contestable subsidy markets, open to all substitutes.– Potential lessons from renewable portfolio standard bids.

• Tracking of existing subsidies– Industry-level detail.– Variance reporting.