OECD Companion to the Inventory of Support Measures for Fossil Fuels 2015

Attributed Authors: Jehan Sauvage, project manager; Franck Jésus and Ronald Steenblik, project supervisors 2015

The combustion of fossil fuels is a leading contributor to climate change, and many countries have already taken steps to reduce their emissions of CO2 and other pollutants. Some policies remain, however, that encourage more production and use of fossil fuels than would otherwise be the case. In so doing, these policies increase emissions and make mitigation more costly than necessary. Fossilfuel subsidies are one such policy.

Not only do fossil-fuel subsidies undermine efforts to mitigate climate change, but they are also costly and distortive. By distorting costs and prices, fossil-fuel subsidies generate inefficiencies in the production and use of energy economy-wide. This can affect the allocation of resources across industries, including by directing long-term capital investment toward sectors that produce fossil fuels or use them intensively, at the expense of cleaner forms of energy and other economic activities more generally. In so doing, these subsidies accentuate the risk that long-lived capital assets end up locking in polluting technologies for years or decades. Fossil-fuel subsidies can also impose considerable strain on government budgets since they either increase public expenditure or reduce tax revenue, and this at a time when many countries are taking painful steps to reduce their public debt.

To help improve understanding of the range and magnitude of fossil-fuel subsidies, the OECD has identified, documented, and estimated almost 800 individual policies that support the production or consumption of fossil fuels in OECD countries and six large partner economies (Brazil, the People's Republic of China, India, Indonesia, the Russian Federation, and South Africa). In line with previous OECD work looking at support for the agriculture sector and the fisheries sector, the scope of the policies inventoried here is broad and differs from some conceptions of "subsidy". It includes both direct budgetary transfers and tax expenditures that in some way provide a benefit or preference for fossil-fuel production or consumption relative to alternatives.

The database and the present report do not provide any analysis of the impacts of specific support measures, and so do not pass any judgement on which measures might be usefully kept in place, and which ones a country might wish to consider for possible reform or removal. Their purpose is rather to provide comprehensive information about policies that confer some level of support, as a starting point for subsequent analysis looking at the objectives of particular measures, their impacts (economically, environmentally and socially), and possible reforms and alternatives.  First and foremost, this inventory seeks to promote the transparency of public policies and government budgets, and eventually a greater accountability for how public resources are used. It can also be understood as a contribution toward the broader issue of how to make fiscal policy and tax systems "greener" or more environmentally friendly.

Using data obtained from government sources, the report finds that the many measures the database contains had an overall value of USD 160-200 billion annually over the period 2010-14, with support for the consumption of petroleum products accounting for the bulk of that amount.

Although progress has been notable, this edition of the Inventory shows that there remains plenty of room for reform. The time is also not one for complacency. Global greenhouse-gas emissions are still largely above the levels required for limiting average expected temperature increases. Recovery from the Great Recession of 2008-09 remains slow and difficult by historical standards. Fiscal positions continue posing a challenge to policy makers in many countries as they struggle to identify opportunities for cutting spending and raising more revenues, and this without adding to alarmingly high levels of unemployment. In this context, the reform of measures supporting fossil fuels appears more relevant than ever. Other better-targeted policy instruments likely exist that would offer suitable alternatives for meeting the policy objectives support measures for fossil fuels intended to reach in the first place.  

Access to related subsidy data

Text description of policies, trends, and findings

Subsidy data sets

 

Tags: OECD fossil fuel subsidies producer subsidies subsidy reform trends