Structure of Presentation

Transcription

1 Energy Subsidy Reform David Coady Division Chief Fiscal Affairs Department International Monetary Fund Colombo, Sri Lanka July, 2016 Structure of Presentation I. Definition of energy subsidies II. Magnitude of energy subsidies III. Benefits of energy subsidy reform IV. Design of energy subsidy reform 2

2 I. Definition of Energy Subsidies 3 Two notions of energy subsidies 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. Substantial variations across regions, countries and energy products 4

3 II. Magnitude of Energy Subsidies 5 Global energy subsidies are large US$ trillion ns (nom minal) $ $5.2 $ $5 $4.6 $ $4 $3 $2 $1 $0 $ GDP Perce ent of Global 6

4 .. reflect mostly local factors.. Components of global energy subsidies, 2015 Vehicle Foregone Global externalities 12% revenue 6% warming 24% Local pollution 52% Pre-tax subsidies 6% 7.. and are from coal Product composition of global energy subsidies, 2015 Petroleum 28% Coal 59% Natural gas 10% Electricity 3% 8

5 Global energy subsidies, by component Sub-Saharan Saharan Africa US$ billions (nominal) 0 1,000 2,000 3,000 4,000 5,000 6,000 ED Source: IMF staff estimates Percent GDP Pre-tax Global warming Local air pollution Vehicle externalities Foregone revenue 9 Global energy subsidies, by product US$ billions (nominal) 0 1,000 2,000 3,000 4,000 5,000 6, Percent GDP Coal Petroluem Natural gas Electricity Source: IMF staff estimates 10

6 Consequences of energy subsidies go well beyond fiscal costs 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 11 Distributional impact Bottom quintile Gasoline 2nd quintile 3 6 3rd quintile 10 Kerosene th quintile 21 Top quintile LPG Diesel

7 III. Benefits of Energy Subsidy Reform 13 Energy subsidy reform can generate substantial environmental benefits Percentage reduction of CO2 emissions Percentage reduction of air pollution deaths Coal Petroleum Natural gas 14

8 .. as well as a significant fiscal dividend US$ billions (nominal) ,000 1,500 2,000 2,500 3,000 3,500 Pe ercent of rev venue US$ billions Percent of GDP Percent Coal Petroleum Natural gas Electricity 15 Macroeconomic impact Boost long-term economic growth by Promoting more efficient resource allocation (steering the economy away from energy/capital intensive industries) Encouraging private investment in the energy sector including renewables Creating fiscal room for growth enhancing-public investment (infrastructure, education and health) Reducing incentives for smuggling Reduce fiscal and external balance volatility Lead to inflation and negatively affect competitiveness and economic growth in the short term 16

9 Distributional Impact: India (Percent of household consumption) 16 Diesel LPG Petrol Kerosene 14 Electricity Coal Indirect effect coal Indirect effect diesel household consumption decile 17 Distributional Impact: India (Share of total loss) 18

10 IV. Design of Energy Subsidy Reform 19 Six key reform ingredients (i) Acomprehensive reform plan clear long-term objectives assessment t of the impact of reforms consultation with stakeholders (ii) A far-reaching communications strategy inform the public of the size of subsidies and benefits of reform strengthen t th transparency in reporting subsidies bidi 20

11 Six key reform ingredients (iii) Appropriately phased and sequenced price increases permit p households and enterprises time to adjust and governments to build social safety nets sequence increases differently across products (iv) Improvements in the efficiency of state-owned enterprises (SOEs) to reduce their fiscal burden improve p information on their costs, set performance targets and incentives, and introduce competition where appropriate improve collection of energy bills 21 Six key reform ingredients (v) Targeted mitigating measures to protect the poor targeted g cash transfers are preferred when cash transfers are not feasible, other programs can be expanded as administrative capacity is developed SOE restructuring may also require targeted measures (e.g., job training) (vi) Depoliticize price setting implement automatic price mechanism (with price smoothing) establish an autonomous body to oversee price setting 22

12 IMF analytical work and tools Analytical work: IMF Working Paper: How Large Are Global Energy Subsidies? IMF Book: Getting Energy Prices Right: from Principle to Practice IMF Book: Energy Subsidy Reform: Lessons and Implications Tools: Energy Subsidies Template Interactive Tool to Assess Energy Tax Reform Interactive Tool to Assess the Distributional Impact of Energy Subsidies & Fuel Price Smoothing Template EdX course on energy subsidies 23