oil and gas

Earth Track presentation on fossil fuel subsidy reform at a joint meeting hosted by the Global Subsidies Initiative of the IISD and the United Nations Environment Programme in Geneva in October 2010, titled Increasing the Momentum of Fossil-Fuel Subsidy Reform: Developments and Opportunities.  The presentation goes through lessons learned on subsidy transparency and challenges for reform based on case studies in China, Germany, Indonesia, and the United States.

By providing a longitudinal perspective on energy tax policy and expenditures, this report examines how current revenue losses resulting from energy tax provisions compare to historical losses and provides a foundation for understanding how current energy tax policy evolved.  Further, this report compares the relative value of tax incentives given to fossil fuels, renewables, and energy efficiency.

LAST time it met, in 2009, the G20 took a stand against a little discussed problem that unites environmentalists and economists: fossil-fuel subsidies. Over the course of the subsequent year, the nations contributed to a list of the “inefficient” subsidies they supported and the things they planned to do about it. So far, this list is unimpressive.

In its September 2009 Communiqué from Pittsburgh, the G20 nations (“Group of Twenty” nations that include the largest economies in the world) committed to “rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption.”

This joint report to the G20 Finance Ministers and Leaders was issued by the IEA, OPEC, OECD and World Bank in response to a request by G20 Leaders when they met in Pittsburgh in September 2009. At that time, leaders agreed to “rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption” and asked the study authors to jointly provide "an analysis of the scope of energy subsidies and suggestions for the implementation of this G20 country initiative”.

The ability to undertake any meaningful subsidy reforms, either nationally or multilaterally, is hampered by a basic lack of knowledge about the extent of support to the sector and where information on this support might be held. This multi-country research effort identifying and classifying different sources of data on fossil-fuel subsidies has begun to characterize the extent and nature of subsidy programs, identifying the analytical challenges that need to be overcome in order to de-subsidize.

The two largest offshore drilling companies in the world, Transocation and Noble Corporation, are in reality headquartered in the Houston area but moved their legal domiciles first to the Cayman Islands and then to Switzerland to avoid U.S. tax. Calculations shown below indicate that those maneuvers have reduced their tax bills by more than $2 billion.

Transocean owned and operated the floating, dynamically positioned rig that exploded on April 20, leading to a loss of 11 lives and spilling hundreds of thousands of gallons of crude oil into the Gulf of Mexico.

An accurate picture of the level and nature of subsidization is a necessary first step towards reform. Reliable  information facilitates an assessment of the subsidy's costs, distribution and impacts, and the development of effective strategies for reform. At the international level, it provides a foundation for dialogue on reform and for monitoring of progress towards de-subsidization.

Reforming subsidies to fossil fuels is a challenging prospect for many governments. To help policy-makers better appreciate the trade-offs between economic, environmental and social impacts, various organizations have analyzed fossil-fuel subsidies and their effects, often with the aid of complex economic models.

Consumer subsidies to oil consumption depress the visible price of fossil fuels to end users, and with it their incentive to substitute alternative fuels or conservation.  Understanding which countries mute price adjustments in oil products, and to what degree, is important in mapping out the options and trade-offs for reform.