1 Energy Subsidies - perspectives and reform prospects Joint UNEP and UNECE Expert Meeting on Energy Subsidies November 2007 International Environment House I Châtelaine-Geneva, Switzerland Jyoti Prasad Painuly

2 Developing country- India Prime Minister concerned at rising fuel subsidy 8 Nov 2007 Oil, food and fertilizer subsidy more than US$ 25 billion in 2007 Question from PM to the Planning Commission; "reflect what these mean for our development options and what development options these subsidies are shutting out". “Does it mean fewer schools, fewer hospitals, fewer scholarships, lower public investment in agriculture and poor infrastructure?" “it is important to restructure subsidies so that only the needy and the poor benefit from them and all leakages are stopped.” Energy Subsidies – Eliminate (can/ should it be?) or reform?

3 Subsidies; Eliminate or reform? Where we are; a snapshot  Recently in focus: Energy, transport, fisheries and agriculture  Primarily due to Global Environmental Concerns and Trade related issues  Studies on Environmentally Harmful Subsidies, Perverse Subsidies etc.  Economic efficiency argument Eliminate all for optimization of resource usage + internalize external costs (eg. in fossil fuels)  Environmental efficiency argument Internalize env. costs Level playing field for renewable; subsidize renewable, if external costs are not internalized + subsidize renewable to address market barriers  Sustainable Development argument Integrated assessment; Economic, Environmental and Social

4 Work on “what needs to be done”  Quantification of subsidies; available in ICs (mainly on-budget) and some DCs  Quantification of impacts of subsidies- qualitative and partial analyses  Recommendations Quality information and transparency Fiscal (taxes, EU tax harmonization, polluter pays principles) Legal measures Commitment from politicians!!.

5  Issues Energy subsidy v/s other subsidies  Eg. Transport subsidy and agricultural subsidy has implications for energy use What to eliminate and what to reform?  Eliminate “bad” subsidies? Bad economically, environmentally or socially? Can be politically good  Reform “good subsidies”? For clean energy, energy efficiency, for energy access to poor (targetted), and even for cleaner “fossil fuel” technologies Who will be the change agents and what they need?  Targetted energy users and tax payers (who foot the bill), decision makers  Awareness and information- quantum of subsidy, where it goes, economic and environmental impacts. Its relationship to its objectives, development and welfare needs to be quantified.

6  Who are decision-makers and what they need? Politicians and bureaucrats All that “change-agents" need and; Support from them (change agents + users) Addressing their “real concerns”  Energy security  Competitiveness (including industry relocation)  Employment- Job losses  Regional development  Social issues- access to energy, and affordability (Treatment of these issues is inadequate and unconvincing in the current literature, and may not be able to address the concerns; Eg. support to poor households)  A lack of viable alternatives to address social issues- leads to a much broader issue- governance

7  Can one cap fit the all? Dimension/ IssueICsDCsLDCsRemarks Economic Competitiveness and trade √√ √√√√ √-√- Environmental-local Environmental-Global √ √√√ √√ √ √√ - Local ext. costs Global costs Social- energy access - Affordability ---- √√ √√√ LDC- Else shift to polluting fuels Energy security√√√√√√Increasing en. con. in DCs Awareness Expertize √ √√√ -√-√ ---- Political√√√√√ Most important

8  Energy subsidy and global environmental pollution Global environmental problem seen as a major issue in energy subsidy (and hence focus on fossil fuel subsidies) The solution is other way round  GHG Emissions reductions required to stabilize CO2 concentration (60%?)  Cap on GHG emissions  ET and CDM will internalize and reflect (global) external costs  Renewables and EE will get subsidized (so called “good subsidy”)

9  My personal take Boils down to need for Lifestyle changes in the North (In 1998, gasoline cheaper than bottled water in the US) Governance in the South So long that does not work- efforts to reduce subsidies (a stop-gap arrangement) (Even a real break-through in energy technology can address only energy use issues- not broader resource usage issue (SD))

10 Thank You.