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Energy Subsidies - perspectives and reform prospects

Joint UNEP and UNECE Expert Meeting on Energy Subsidies

15-16 November 2007International Environment House I

Châtelaine-Geneva, Switzerland

Jyoti Prasad Painuly

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Developing country- IndiaPrime Minister concerned at rising fuel subsidy8 Nov 2007

• Oil, food and fertilizer subsidy more than US$ 25 billion in 2007

Question from PM to the Planning Commission;

• "reflect what these mean for our development options and what development options these subsidies are shutting out".

•“Does it mean fewer schools, fewer hospitals, fewer scholarships, lower public investment in agriculture and poor infrastructure?"

• “it is important to restructure subsidies so that only the needy and the poor benefit from them and all leakages are stopped.”

Energy Subsidies – Eliminate (can/ should it be?) or reform?

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Subsidies; Eliminate or reform?

Where we are; a snapshot Recently in focus: Energy, transport, fisheries and agriculture Primarily due to Global Environmental Concerns and Trade related

issues Studies on Environmentally Harmful Subsidies, Perverse Subsidies

etc. Economic efficiency argument

Eliminate all for optimization of resource usage + internalize external costs (eg. in fossil fuels)

Environmental efficiency argument Internalize env. costs Level playing field for renewable; subsidize renewable, if external costs

are not internalized + subsidize renewable to address market barriers Sustainable Development argument

Integrated assessment; Economic, Environmental and Social

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Work on “what needs to be done” Quantification of subsidies; available in ICs (mainly on-budget)

and some DCs Quantification of impacts of subsidies- qualitative and partial

analyses Recommendations

Quality information and transparency Fiscal (taxes, EU tax harmonization, polluter pays principles) Legal measures Commitment from politicians!! . .

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Issues Energy subsidy v/s other subsidies

Eg. Transport subsidy and agricultural subsidy has implications for energy use

What to eliminate and what to reform? Eliminate “bad” subsidies? Bad economically, environmentally or socially? Can be politically good Reform “good subsidies”? For clean energy, energy efficiency, for energy access to poor

(targetted), and even for cleaner “fossil fuel” technologies Who will be the change agents and what they need?

Targetted energy users and tax payers (who foot the bill), decision makers

Awareness and information- quantum of subsidy, where it goes, economic and environmental impacts. Its relationship to its objectives, development and welfare needs to be quantified.

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Who are decision-makers and what they need? Politicians and bureaucrats All that “change-agents" need and; Support from them (change agents + users) Addressing their “real concerns”

Energy security Competitiveness (including industry relocation) Employment- Job losses Regional development Social issues- access to energy, and affordability

(Treatment of these issues is inadequate and unconvincing in the current literature, and may not be able to address the concerns; Eg. support to poor households)

A lack of viable alternatives to address social issues- leads to a much broader issue- governance

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Can one cap fit the all?

Dimension/ Issue ICs DCs LDCs Remarks

EconomicCompetitiveness and trade

√√√√

√√

√-

Environmental-local Environmental-Global

√√√√

√√√

√√-

Local ext. costsGlobal costs

Social- energy access - Affordability

--

√√√√

√√√√√√

LDC- Else shift to polluting fuels

Energy security √ √√√ √√ Increasing en. con. in DCs

AwarenessExpertize

√√√√

-√

--

Political √√ √√√ √√√ Most important

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Energy subsidy and global environmental pollution Global environmental problem seen as a major issue in energy

subsidy (and hence focus on fossil fuel subsidies) The solution is other way round

GHG Emissions reductions required to stabilize CO2 concentration (60%?)

Cap on GHG emissions ET and CDM will internalize and reflect (global) external costs Renewables and EE will get subsidized (so called “good subsidy”)

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My personal take Boils down to need for

Lifestyle changes in the North(In 1998, gasoline cheaper than bottled water in the US)

Governance in the South

So long that does not work- efforts to reduce subsidies (a stop-gap arrangement)(Even a real break-through in energy technology can address only energy use issues- not broader resource usage issue (SD))

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Thank You.