Transcript Public Subsidies and Policy Failures: How Subsidies
Building a Grand Deal to phase out harmful energy subsidies André de Moor
INFORSE-Europe Seminar, 29 November 2002, Brussels
Sustainable Energy for Europe
Public Subsidies and Policy Failures 1 [email protected]
Public Subsidies and Policy Failures:
How Subsidies Distort the Natural Environment, Equity and Trade, and how to Reform them
Cees van Beers Delft University of Technology The Netherlands André de Moor RIVM Netherlands Institute of Public Health and the Environment The Netherlands Edward Elgar Publishers, Cheltenham UK, November 2001 Public Subsidies and Policy Failures 2 [email protected]
Key Messages:
Current energy subsidies run up to $240 billion a year worldwide, mostly targeted towards fossil fuels
Current support ineffective in serving policy objective of promoting growth.
At the same time, there are large negative effects on the natural environment and international trade
Scope to close a Grand Deal on phasing out fossil fuel subsidies and phasing in sustainable energy while serving the UNFCCC
Ingredients for reform: transparency, de-coupling, institutional enhancement Public Subsidies and Policy Failures 3 [email protected]
Cost of energy subsidies (1995-98, $US bln/yr)
Coal Oil Gas All fossil fuels Electricity Nuclear Renewable & end-use Non-payments and bail outb
Total
Per capita (in $US) OECD countries 30 19 8 57 a) 16 9 0
82
88 non–OECD countries 23 33 38 94 48 nil nil 20
162
35 total 53 52 46 151 48 16 9 20
244
44
a) Subsidies for electricity in OECD countries have been attributed to fossil fuels according the shares.
b) Subsidies from non-payments and bail out operations have not been attributed to energy sources.
Source
: de Moor (2001), van Beers and de Moor (2001)
Public Subsidies and Policy Failures 4 [email protected]
Motives and impacts of energy subsidies: economic potential for reform
Effectiveness and Efficiency
energy subsidies do not encourage economic growth
eliminating energy subsidies in non-OECD countries stimulates global economic growth
Environmental consequences
eliminating energy subsidies in non-OECD countries reduces global CO 2 by 5%
other studies show that eliminating all energy subsidies reduces global CO 2 by 8%
Conclusion: economic potential for reform Public Subsidies and Policy Failures 5 [email protected]
Political Potential for Reform: the Promise of Jo’burg
Broad support at WSSD for phasing out harmful subsidies
Subsidy reform in energy (article 19):
Article 19p: “Policies to reduce market distortions ... by removing market distortions, including restructuring taxation and phasing out harmful subsidies, where they exist, to reflect their environmental impacts, with such policies taking fully into account the specific needs and conditions of developing countries with the aim of minimizing the possible adverse impacts on their development”
Article 19q: “Take action, where appropriate, to phase out subsidies in this area that inhibit sustainable development, taking fully into account the specific conditions and different levels of development of individual countries and considering their adverse effect, particularly on developing countries” Public Subsidies and Policy Failures 6 [email protected]
Lock-in mechanisms and subsidy addiction
Economic Barriers
rent-seeking: adjust behaviour to maximise subsidy revenues
subsidies affect incentives, get capitalised and lead to subsidy addiction
Institutional and Political Barriers
get support from political groups or consumers
cover up favours stick into rules inherited from the past
International Barriers
prisoners dilemma: reluctant to act alone
fear of losing competitiveness fear that benefits of reform may leak away Public Subsidies and Policy Failures 7 [email protected]
Building a Partnership on Subsidy Reform:
Integrate a Grand Deal in broader political vision
initiate transitions
Good governance
improve transparency in policies and institutions
clear and feasible targets and timetables develop common and clear subsidy methodology and information networks
de –link subsidies from prices and taxes
Identify winners and losers
address all interests
use benefits to create win-win situations and compensate losers introduce a Subsidy Reform Fund Public Subsidies and Policy Failures 8 [email protected]
Building a Partnership on Subsidy Reform:
Enhance effective and transparent institutional structures:
link subsidies to trade relations: WTO versus UNFCCC
stronger and broader mandate for a WTO ‘plus’ to include domestic subsidies (f.e. in energy, forestry, fisheries sectors)
more transparency through independent Decision Panel and allowing for ‘outside’ complaints
Wanted: political leadership
OECD in the strongest economic and financial position Public Subsidies and Policy Failures 9 [email protected]
Grand Deal on energy, forestry and climate change
The Deal is simple:
ban OECD fossil fuel subsidies in exchange for financial and technology assistance in removing non –OECD subsidies and
commitment to Kyoto Protocol or in concrete terms: phase out fossil fuel subsidies and phase in sustainable energy
Why?
major step for OECD countries in realizing Kyoto targets
financial and technology transfers to non –OECD countries motivate US re –involvement in international climate policy (?) minimal implications for international trade environmental benefits
Include forestry subsidies: as sinks are in CDM, necessary to prevent double perversity Public Subsidies and Policy Failures 10 [email protected]
Key priorities for energy subsidy reform
Improve and strengthen subsidy transparency
Develop a clear methodology to identify and assess energy subsidies
Set up information networks
Initiate a process for (gradual) reform of ineffective and harmful energy subsidies
Work towards an international Grand Deal:
common methodology
clear and feasible targets and timetables identify winners and losers use benefits for creating win-win situations introduce a Subsidy Reform Fund Public Subsidies and Policy Failures 11 [email protected]