Inventory of estimated budgetary support and tax expenditures for fossil fuels This publication provides preliminary, quantitative estimates of direct budgetary support and tax expenditures supporting the production or consumption of fossil fuels in selected OECD member countries. The information has been compiled as part of the OECD’s programme of work to develop a better understanding of Inventory of estimated environmentally harmful subsidies (EHS). It has been undertaken as an exercise in transparency, and to inform the international dialogue on fossil-fuel subsidy reform. It is also intended to inform the ongoing efforts of G20 nations to reform fossil-fuel subsidies. budgetary support and tax For each of the 24 OECD countries covered, the Inventory provides a succinct summary of its energy economy, and of the budgetary and tax-related measures provided at the central-government level (and, in the expenditures for fossil fuels case of federal countries, for selected sub-national units of government) relating to fossil-fuel production or consumption. Many measures listed in this inventory are relative preferences within a particular country’s tax system rather than absolute support that can be readily compared across countries, and for that reason no national totals are Inventory of estimated Inventorybudgetaryof support fuelstax fossil andexpenditures for provided. ISBN 978-92-64-12872-9 22 2011 05 1 P -:HSTCQE=VW]\W^: PRELIMINARY VERSION Inventory of estimated budgetary support and tax expenditures for fossil fuels FOREWORD FOREWORD The recovery of the world economy from the worst economic crisis of our lifetimes remains fragile. In the meantime, the room for policy manoeuvres is increasingly limited, especially in more advanced economies. In this context, structural reforms are essential to stimulate growth and employment. There are very few quick wins though. One of them is the removal of inefficient subsidies. Reforming or eliminating support for the consumption or production of fossil fuels can contribute to achieving economic and fiscal objectives, while also helping tackle environmental problems like climate change. In September 2009, G20 Leaders agreed to rationalise and phase out, over the medium term, inefficient fossil-fuel subsidies. A similar commitment was made by leaders of the Asia-Pacific Economic Cooperation (APEC) forum in November 2009. The OECD, together with other inter-governmental organisations, has contributed to several reports on energy subsidies in response to G20 Leaders‟ mandates and requests. Any reform of policies to support fossil-fuel production and use necessitates first an examination of what those policies are, and what financial transfers they generate. Previously the only multi-country data series on fossil-fuel support were the estimates of energy-consumption subsidies provided for emerging and developing economies by our sister organisation, the International Energy Agency (IEA). Getting a handle on features of tax codes of countries designed to encourage oil and gas production or relieve particular end-use sectors from excise taxes is a more complex exercise. This Inventory of estimated budgetary support and tax expenditures for fossil fuels marks the first attempt to provide such information in a consistent manner for the majority of OECD countries. This Inventory indicates that the value of budgetary support and tax expenditures relating to fossil-fuel production and consumption in the 24 OECD countries examined amounted to between USD 45 billion and USD 75 billion a year during 2005-10. Over 250 individual producer or consumer support mechanisms for fossil-fuels are identified in the Inventory. Not all these mechanisms are clearly inefficient, and caution is required in interpreting the support amounts. Nevertheless, there is ample scope for both saving money and improving the environment through fossil-fuel subsidy reform, not only in developing and emerging economies but, as this Inventory shows, in advanced economies as well. I hope that the Inventory will inspire more countries to increase transparency in this area, and that it will help spur productive debate about policies that influence the production and use of fossil fuels. Further work to expand the geographical coverage and deepen the Inventory to cover more measures applied by sub-national governments is already underway. Both developed and developing countries need to make progress in reforming inefficient support to fossil fuels. The OECD stands ready to help in these efforts. Angel Gurría Secretary-General INVENTORY OF ESTIMATED BUDGETARY SUPPORT AND TAX EXPENDITURES FOR FOSSIL FUELS © OECD 2011 3 ACKNOWLEDGEMENTS ACKNOWLEDGEMENTS This volume is the result of a collective effort by three OECD Directorates: the Trade and Agriculture Directorate (TAD), which provided overall co-ordination; the Centre for Tax Policy and Administration (CTPA); and the Environment Directorate (ENV). The identification, documentation and estimation of budgetary support and tax expenditures was undertaken principally by Jehan Sauvage and Jagoda Sumicka, under the guidance of Ronald Steenblik, Senior Trade Policy Analyst. The following internal OECD staff and external consultants contributed additional information on particular countries: Belgium Gimin Kang Mexico Anthony Halley Canada Anthony Halley Netherlands Cees van Beers, El Arkesteijn-van Chile Mattias Salamanca Orrego Schaik, Perrine de Vleeschouwer Hungary Lukács András, Károly Kiss, New Zealand Darryl Jones Pavics Lázár Norway Morten Anker, Matias Ireland Scott Foster Kristoffersen Egeland Israel Tidhar Wald, Philip Hemmings Sweden Jens Lundsgaard, Michelle Italy Laura Giacomassi, Chiara Martini Harding Japan Tetsuya Uetake, Satoshi Urasawa United Kingdom Kerryn Lang, Tom Moerenhout Korea Gimin Kang Turkey Heymi Bahar In several cases, countries themselves provided additional data; these efforts are greatly appreciated. All allocations of transfers to specific fuels (where necessary) were performed by the OECD Secretariat. Trevor Morgan drafted the overviews of national policies provided at the beginning of each country chapter for Australia, Belgium, Canada, France, Germany, Hungary, Ireland, Italy, Japan, Korea, Mexico, Netherlands, New Zealand, Norway, Poland, Spain, Sweden, Turkey, United Kingdom, and the United States. Chapter 1 (Introduction) was written by Ronald Steenblik, Michael Ash, James Greene, Jens Lundsgaard, and Jehan Sauvage. Other staff in the OECD provided extensive feedback on the Inventory document throughout its development: Nils Axel Braathen, Carmel Cahill, Jonathan Coppel, Anthony Cox, James Greene, Michelle Harding, Chiara Martini, Stephen Matthews, Olga Melyukhina, and Helen Mountford. Thanks is owed to Amos Bromhead and Karen Treanton of the IEA for their inputs. The advice of Masami Kojima, Doug Koplow and Michael Thöne is also gratefully acknowledged. Special thanks also go to Nadine Rocher and Kristina Jones for their help in preparing contracts for external consultants; Eavan Coyle and Theresa Poincet for formatting early versions of the documents; and Jane Kynaston for the final preparation of the manuscript for publication. The Inventory was discussed in 2011 by two OECD subsidiary bodies: the Joint Meetings of Tax and Environment Experts (JMTEE), and the Joint Working Party on Trade and Environment. The comments and corrections provided by delegates to these bodies have been instrumental to the project. This book is published on the responsibility of the OECD Secretary-General. 4 INVENTORY OF ESTIMATED BUDGETARY SUPPORT AND TAX EXPENDITURES FOR FOSSIL FUELS © OECD 2011 TABLE OF CONTENTS TABLE OF CONTENTS FOREWORD ................................................................................................................................................... 3 ACKNOWLEDGEMENTS ............................................................................................................................ 4 ABBREVIATIONS ....................................................................................................................................... 13 CURRENCY ABBREVIATIONS ................................................................................................................ 14 1. INTRODUCTION ............................................................................................................................... 17 Structure of the report ................................................................................................................................ 18 Coverage, method and data sources ........................................................................................................... 19 Interpretation of the data ............................................................................................................................ 24 Types of tax expenditures relating to fossil fuels ................................................................................... 24 Measurement and interpretation of tax expenditures ............................................................................. 29 International comparability .................................................................................................................... 33 References .............................................................................................................................................. 35 2. AUSTRALIA .....................................................................................................................................