On a framework for compiling and comparing the various support elements. Jehan Sauvage Ronald Steenblik OECD Trade and Agriculture Directorate

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1 On a framework for compiling and comparing the various support elements Jehan Sauvage Ronald Steenblik OECD Trade and Agriculture Directorate OECD Expert Workshop on Estimating Support to Fossil Fuels, Paris, November 2010

2 Choosing a framework The price-gap approach is helpful but for a full picture it has to be complemented by other data Price-gap estimates reveal nothing about the underlying interventions. They capture only a subset of subsidies. The PSE framework combines market transfers with transfers provided directly by governments Information requires more effort to obtain but allows tracking changes in the nature of support over time. The framework is especially useful for countries with multiple forms of interventions. OECD Trade & Agriculture Directorate 2

3 The Producer Support Estimate Defined as: the annual monetary value of gross transfers to or from consumers and taxpayers to producers, measured at the farm or factory gate, arising from policy measures that support the sector, regardless of their nature, objectives or impacts on production or income. Key advantages include flexibility and comprehensiveness as both producers (PSE) and consumers (CSE) can be covered under a single overarching framework. The GSSE category accounts for assistance that does not target current production or consumption. OECD Trade & Agriculture Directorate 3

4 Adapting the PSE Framework to Fossil-Fuels (1) We plan to report the information along several dimensions: The type of transfer mechanism (direct grant, tax expenditure, etc.) The type of formal or statutory incidence (to whom and what a transfer is first given) A narrow fuel category that matches the IEA classification of fuels (gasoline, lignite, anthracite, LPG, etc.) A broader fuel group equivalent to the agricultural PSE s commodity groups (basically the Coal group and the Oil & Gas group) OECD Trade & Agriculture Directorate 4

5 Transfer Mechanism (how a transfer is created) Statutory or Formal Incidence (to whom & what a transfer is first given) Direct consumption Output returns Enterprise income Unit cost of consumption Household or enterprise income Cost of intermediate inputs Costs of Production Factors Direct transfer of funds Unit subsidy Governmentsubsidized life-line electricity rate Per-tonne subsidy for metallurgical coal Operating grant to coal-mining company Input subsidy for electricity used in mining Capital grant linked to acquisition of mining-related capital Transfer of risk to government Price-triggered subsidy Means-tested coldweather grant Government expenditure on coal buffer stock Government limit on producer liability for mining accidents Security guarantee for coal trains Credit guarantee linked to acquisition of mining-related capital Tax revenue foregone Excise-tax concession on fuel Tax deduction related to energy purchases that exceed given share of income Production tax credit for making liquid fuels from coal Reduced rate of income tax on coal-mining companies Reduction in excise tax on fuel used by mining machines Tax credit for investment in mining equipment Other government revenue foregone Under-pricing of access to a natural resource harvested by final consumer Reduced royalty payments on access to coal deposits Under-pricing of a good, government service or access to a natural resource Under-pricing of access to government land used for storage of coal Induced transfers Regulated price; cross subsidy Mandated life-line electricity rate Import tariff or export subsidy on coal Monopoly concession to coal company Export restriction on domestically produced coal Wage controls on mining labour OECD Trade & Agriculture Directorate 5

6 Adapting the PSE Framework to Fossil-Fuels (2) In addition, programme-specific information is being developed to provide: The ability to track subsidies provided through programmes that change in name over time The level of government at which measures are provided in the case of federal countries (i.e. federal or subnational) Each country file is thus provided with a cookbook documenting how data were handled and modified whenever this was the case. It also includes: A brief description of the specifics and history of programmes The year of entry into force if known The sources used OECD Trade & Agriculture Directorate 6

7 Examples of Data Display (1) This chart is based on the data collected so far for which the sample includes only three countries. It comprises both producer and consumer subsidies to all types of fossil fuels for the year OECD Trade & Agriculture Directorate 7

8 Examples of Data Display (2) This chart is based on the data collected so far for which the sample includes only three countries. It comprises consumer subsidies only for the year OECD Trade & Agriculture Directorate 8

9 Examples of Data Display (3) OECD Trade & Agriculture Directorate 9

10 Challenges to measuring support (1) The example of government funding of oil stockpiling Is it a producer subsidy, a consumer subsidy, or both? Does it apply to crude or to the whole supply chain? What part of government funding should be considered a subsidy? The example of accelerated capital depreciation provisions How to account for the time value of money while providing annual estimates? Are such estimates feasible given the extent of data reporting by national governments? OECD Trade & Agriculture Directorate 10

11 Challenges to measuring support (2) The example of preferential loans and credit guarantees How to estimate the implicit subsidy involved in the assumption of risks by governments? What should the benchmark interest rate be? The example of fuel-price stabilisation schemes Should each instance of undershooting of the price forecast be considered a subsidy? Should it rather be the net fiscal cost to government (net cumulative losses) given that overshooting equally gives rise to implicit taxes? The example of fuel-tax exemptions or reductions for certain sectors or professions What should the relevant benchmark be? When should off-road use of fuel preclude the inclusion of a tax measure? OECD Trade & Agriculture Directorate 11

12 Next Steps Additional work on the trade effects of fossil-fuel subsidies reform Increasing the country coverage before updating the PSE database on a regular basis OECD Trade & Agriculture Directorate 12

13 Thank You For more information: Visit our website: OECD Trade & Agriculture Directorate 13