E S b id R fEnergy Subsidy Reform

DEFINITION AND MEASUREMENT OF SUBSIDIES

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I. Definition

Types

Di t Direct Spending

Subsidies

Tax Price Tax Subsidies

Price Control

Types

Natural Natural Resource

Access

Cross-b id

Quasi-Fiscal i

Other types

SubsidyInterventions

types

LendingPurchase Requirements

Types

Subsidies

Consumers Pr < Supply cost

Producers Pr > Supply cost

Consumer Subsidies

Consumer subsidies include two components:

• A pre-tax subsidy

•A post-tax subsidy

Consumer Subsidies

Pw : international price/cost-recovery price

Pr : actual retail price paid by consumersr

t : tax subsidy

MEASUREMENT: PRICE-GAP APPROACH

II. Measurement

• It is difficult to measure/assess the cost of subsidies

Lack of information on price setting mechanism Data issues Lack of budget transparency Lack of budget transparency

• Approaches:

Price-gap approachPrice gap approachPass-through indicator

1. Price-Gap Approach

Price-Gap Approach Example:

Magnitude

International Prices of Oil, Coal, and Natural Gas600

500

300

400

200

100

0

2006

2007

2008

2009

2010

2011

2012

2013

Magnitude: Pre-Tax Subsidies

• Significant

• Their evolution mimics that of international energy prices

• Have escalated since 2009

• In 2011 global subsidies reached $492 billion, or 0 7% GDP0.7% GDPPetroleum: 45% of total El t i it % f t t l Electricity: 30 % of total

Magnitude: Pre-Tax Subsidies

Pre-tax Energy Subsidies, 2007–2011

2.5500Total s bsidies

2.0400

Total subsidies (percent of revenues; RHS)

Natural gas

Coal

1.5300Electricity

T t l

1.0200Petroleumproducts

Total subsidies (percent of GDP;

RHS)

0.5100

)

0.002007 2008 2009 2010 2011

Magnitude: Pre-Tax Subsidies

Pre-tax Petroleum Subsidies Among Petroleum Pre tax Petroleum Subsidies Among Petroleum Importing and Exporting Countries, 2011

(13)(20)4 5

5.0

(7)

(20)

3.5

4.0

4.5

2.5

3.0

( )(7) (9)1.5

2.0

(30) (20)(18)

(25) (35)(4) (4)

(3)

(34) (27)(27) (32) (44)

0.5

1.0

( )0.0

Advanced CEE-CIS E.D. Asia LAC MENA Sub-Saharan Africa

Magnitude:Post-Tax Subsidies

Pre- and Post-tax Petroleum Subsidies, 20110 500 1000 1500 2000 2500

Sub-Saharan …World

Totalsubsidy,

e a d ost ta et o eu Subs d es, 0

AdvancedCEE-CIS

E.D. AsiaLAC

MENAy,

billions U.S.

dollars

LACMENA

Sub-Saharan …World

Advanced

Percent of

GDP

WorldAdvanced

CEE-CISE.D. Asia

GDP

P

CEE CISE.D. Asia

LACMENA

Sub-Saharan … Percent of

Gov.revenue

s

0 5 10 15 20 25 30 35 40

AdvancedCEE-CIS

Limitations

• Main challenges:

Data availability (e.g., transportation and distribution margins)

Results are sensitive to the methodology used to quantify energy consumption externalities

The estimates of corrective taxes

MEASUREMENT: PASS-THROUGH APPROACH

2. Pass-Through Indicator

Pw : international price/cost-recovery price (supply cost)

Pr : actual retail price paid by consumers (including tax)

Interpretation

Comparison: MCD Countries

Diesel pass-through to domestic price

2.0

Diesel pass through to domestic priceMar 2009 - Dec 2011

1.5

0.5

1.0

0.0

-0.5

Syria

Mor

occo

men

ista

nEg

ypt

Alge

riaBa

hrai

nIra

qO

man

i Ara

bia

Kuw

ait

Liby

aer

baija

nQ

atar

Tuni

sia

UAE

beki

stan

urita

nia

akhs

tan

Suda

ngy

z Rep

.D

jibou

tiJo

rdan Ira

nPa

kist

anYe

men

Arm

enia

eban

onha

nist

anG

eorg

iaaj

ikis

tan

MTu

rkm

B

Saud

i

Aze

Uzb

Mau

Kaza

Kyrg D P A L

Afgh

GTa

Detection: Change in Policy

Pass-through of gasoline prices since June 2009

1 4

1.6

1.8

1 4

1.6

1.8

1.0

1.2

1.4

0 8

1.0

1.2

1.4

0 4

0.6

0.8

0.4

0.6

0.8

0.0

0.2

0.4

-0.2

0.0

0.2

Jun

10

Sep

10

Dec

10

Mar

11

Jun

11

11-S

ep

11-D

ec

Jun

10

Sep

10

Dec

10

Mar

11

Jun

11

11-S

ep

11-D

ec

Detection: Change in Policy

Gasoline pass through in 2010 and 2011 Gasoline pass-through in 2010 and 2011 relative to Mar 2009

GEO

IRNEU

1.6

2.0

ec20

11

ARM JOR

SDNTJKUS

1.2

ar20

09

-De

AFG

EGY

KAZ

KGZ

LBNMRT

PAKTJK

0.8Ma

AZE

DJI

EGY

KWT

MAR

QAT

SYR

TUN

UAE

UZB

YEM0.0

0.4

(0 4) - 0 4 0 8 1 2 1 6 2 0 MARTUN

-0.4

(0.4) - 0.4 0.8 1.2 1.6 2.0

Mar2009-Dec2010

Limitations:Volatility

Month-to-month pass-through of

5

Month to month pass through of diesel prices in US

4

3

1

2

0

1

-1

Limitations

• The pass-through can be negative around an The pass through can be negative around an inversion of the trend in international prices

• It is sensitive to the choice of start and end dates

• It does not account for initial price levelsdoes o accou o a p ce e e s