Fossil Fuel Subsidies: Approaches and Valuation

Numbers ranging from half a trillion to two trillion dollars have been cited in recent years for global subsidies for fossil fuels. How are these figures calculated and why are they so different? The most commonly used methods for measuring subsidies are the price-gap approach-quantifying the gap between free-market reference prices and the prices charged to consumers-and the inventory approach, which constructs an inventory of government actions benefiting production and consumption of fossil fuels.

I'm happy to announce the release of Fossil Fuel Subsidies:  Approaches and Valuation, a paper I wrote with Masami Kojima at the Bank.  Masami has written about fossil fuels for many years, often focusing on the functioning of the price mechanism in oil markets.

The working paper takes a deep dive into the main subsidy measurement approaches used to estimate global subsidies to fossil fuels -- including estimates produced by the IEA, IMF, OECD, and the World Bank.  We look at the many challenges regarding data acquisition and valuation, how these challenges are likely to affect reported estimates, and important factors that contribute to large differences between global estimates. 

Recognizing that available budgets to track and value fossil fuel subsidies are always limited, we also identify some promising options for increased institutional cooperation going forward.  These initiatives would broaden the informational base on fossil fuel subsidies overall, and help to standardize subsidy measurement and key data inputs.

Cross-institutional collaboration is already growing, and key staff from all of the institutions we looked at graciously provided their time to review drafts of our paper and to contribute their ideas for future improvements.  It is my hope that this trend that will continue to accelerate in the years ahead.

Subsidies to Energy: A Review of Current Estimates and Estimation Challenges

Presentation at a meeting sponsored by the Energy Research Institute of China's National Development and Reform Commission and the World Bank in Beijing, China.  The presentation reviews existing estimates of global subsidies to energy, including their magnitude, differences in estimation methods and assumptions, reporting trends, and emerging issues. 

We are grateful to the World Bank for making a Mandarin version of this presentation available as well.