Fossil Fuel Subsidies: Building a Framework to Support Global Reform

Keynote presentation at the Expert Workshop on Subsidies to Fossil Fuels and Climate Mitigation Policies in Latin America and the Caribbean (LAC), held at the Inter-American Development Bank in Washington, DC on January 14, 2014.  Slides review recent global estimates of fossil fuel subsidies, highlighting both the tallies and the reasons the estimates differ widely from one another. 

With a focus on leveraging upcoming work on subsidies not only by the IADB, but by the World Bank, IMF, and other international organizations, the discussion also calls outs common gaps in all fossil fuel subsidy assessments and suggests ways coverage can be expanded going forward. 

Specific topics discussed include subsidies to bulk fuel transport and the power sector, as well as inaccuracies that can result when mixing fiscal subsidies with widely-varying estimates of energy-related externalities.  The presentation concludes with a suggestion for IADB to go beyond just expanding the countries for which price gap subsidy estimates are prepared, but also identifying a handful of illustrative case studies that delve more deeply into issues common across the LAC region.1   Examples include large government-ownership of energy infrastructure (subsidies are multi-layered, but often difficult to tease out) and improving data on cross-subsidies to energy in remote regions or island states (emerging energy resources may be cost-competitive already once subsidies to distribution are stripped away).  In all of these areas, ensuring efforts are well-coordinated across international organizations is critical, both to leverage limited budgets and to ensure that results of work by one group can be more seemlessly aggregated with work done by another.

  • 1Price gap estimates measure the difference (or gap) between world reference prices for a particular fuel and the price for that same commodity at the point of consumption within a country. Adjustments are made for transport costs and quality differences. The approach is used in subsidy estimates produced both by IEA and by the IMF. Past World Bank studies have relied on the price gap approach as well.