Getting energy prices right, Baoping Shang - International Monetary Fund
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Session 3 presentation from the 2nd Strategic Dialogue of the Carbon Market, 27-28 September 2017
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Getting energy prices right, Baoping Shang - International Monetary Fund
- 1. GETTING ENERGY PRICES RIGHT Baoping Shang Fiscal Affairs Department International Monetary Fund
- 2. • Narrow/pre-tax—undercharging for supply cost of energy, including transportation and distribution costs. • Broad/post-tax—undercharging for supply cost and environmental cost (global warming, local pollution, traffic congestions and accidents etc.), as well as the failure to tax energy consumption just as other consumption goods to raise revenue. Two notions of energy subsidies
- 3. Global energy subsidies are large… 0 2 4 6 2011 2012 2013 2014 2015 Percent of Global … $0 $1 $2 $3 $4 $5 $6 2011 2012 2013 2014 2015 US$ trillions …
- 4. … reflect mostly local factors… Global warming 24% Pre-tax subsidies 6% Local pollution 52% Vehicle externalitie s 12% Foregone revenue 6% Components of global energy subsidies, 2015
- 5. … and are mostly from coal Petroleum 28% Natural gas 10% Electricity 3% Coal 59% Product composition of global energy subsidies, 2015
- 6. Global energy subsidies, by region and component 0 1,000 2,000 3,000 4,000 5,000 6,000 0 5 10 15 20 MENAP Sub-Saharan Africa Com. Of Ind. States E.D. Asia Emerging Europe Advanced LAC World MENAP Sub-Saharan Africa Com. Of Ind. States E.D. Asia Emerging Europe Advanced LAC World US$ billions (nominal) Percent GDP Pre-tax Global warming Local air pollution Vehicle externalities Foregone revenue
- 7. Global energy subsidies, by region and product 0 1,000 2,000 3,000 4,000 5,000 6,000 0 5 10 15 20 MENAP Sub-Saharan Africa Com. Of Ind. States E.D. Asia Emerging Europe Advanced LAC World MENAP Sub-Saharan Africa Com. Of Ind. States E.D. Asia Emerging Europe Advanced LAC World US$ billions (nominal) Percent GDP Coal Petroluem Natural gas Electricity
- 8. • Depress growth – reduce investment in the energy sector – crowd-out critical public spending – over-allocate resources to energy intensive sectors • Exert pressure on balance of payments of energy importers • Create negative externalities (for example, global warming) • Reinforce inequality Consequences of energy subsidies go well beyond fiscal costs
- 9. Distributional impact 3 6 10 19 61 Gasoline 19 20 21 20 21 Kerosene 4 8 13 21 54 LPG 7 12 16 23 42 Diesel Bottom quintile Top quintile 4th quintile 2nd quintile 3rd quintile
- 10. Energy price reform can generate substantial health benefits… Reduction of fossil-fuel emissions-related deaths, 2015 0 10 20 30 40 50 60 70 Emerging Europe E.D. Asia CIS MENAP S.S. Africa Advanced LAC Percent reduction Global average:
- 11. …and carbon emission reductions… Reduction of fossil-fuel related CO2 emissions, 2015
- 12. …as well as a significant fiscal dividend
- 13. • Mispricing of energy is substantial and pervasive across advanced and developing countries • Reforms are needed for domestic reasons • 195 countries signed on to the Paris climate agreement • Low energy prices provide a window of opportunity • Reform process should start now and be gradual Time is now: act local, solve global!
- 14. Some references 1. Reforming energy subsidies 2. Apply appropriate corrective taxes 3. Global magnitude and reform benefits See http://www.imf.org/external/np/fad/subsidies/ http://www.imf.org/external/np/fad/environ/