ta: preparing for fossil- fuel subsidy reforms · fuel subsidy reforms india, indonesia and...
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TA: Preparing for fossil-fuel subsidy reforms
India, Indonesia and Thailand
Shikha Jha, Asian Development Bank
Asia Clean Energy Forum
20 June 2014
Objectives of the study
1. Quantify subsidies
2. Estimate reform impacts
a) Households and industry sectors
b) Energy system
c) GHG emissions and the macro-economy
3. Evaluate safety nets
2
Countries covered
3
India
Indonesia
Thailand
A range of country
circumstances
Variety of subsidies and
reform approaches
Majority of electricity derived from fossil fuels
• India – 67%
• Indonesia – 86%
• Thailand – 93%
4
Scope of subsidies
• Consumption o All fossil fuels – oil, coal and natural gaso Electricity
• One area of upstream fossil-fuel supply chaino Coal (India)o Electricity (Indonesia)o Natural gas for vehicles (Thailand)
5
Comprehensive Inventory of Consumer Subsidies
• Direct spending
• Revenue forgone: Tax holidays, duty exemptions
• Losses from state-owned energy companies
• Goods, services provision at below market rates
• Credit support
6
Estimates of Consumer Subsidies
7
US$ billion
% of GDP
US$ per capita
India (FY 2011-12)
49 2.7 41
Indonesia (2012)
36 4.1 147
Thailand (2012)
7 1.9 109
8
India Indonesia Thailand
57% 68%
87%
1%
10%
15%
27%
30%
3%
Electricity
Coal
Natural Gas
Petroleum$7b
$36b
$49b
Breakdown of Consumer Subsidies
Total subsidies (US$ mil)
9
Energy type
India FY 2011-12
Indonesia 2012
Thailand 2012
Consumer 48,782 36,003 6,975
Producer 208 208 46
… are rising (US$ billion)
10
$30
$37
$29
$35
$49
$23$10
$18
$32$36
$3 $2 $3 $5$7
2008 2009 2010 2011 2012
India Indonesia Thailand
… and eating into other development priorities
11
2.7
4.1
1.91.85
0.1
2
India Indonesia Thailand
Annual public spending, 2012 (% of GDP)
Fossil fuel subsidy Social assistance
ADB subsidy estimates exceed most others
12
49
36
7
4034
4
40
22
10
32 28
7
82
45
16
India Indonesia Thailand
US$ billion
ADB 2012
Government 2012
IEA 2011
IMF 2011 pre-tax
IMF 2011 post-tax
Models to analyze reform impacts
1. SAM (Social Accounting Matrix) – I-O model
Households and industry sectors
2. MARKAL– MARKet ALlocation Model
Energy system
3. CGE – Computable General Equilibrium E3MG – energy-environment-economy
GHG emissions and macro-economy
13
Analysis of Reforms
No single model can give all the answers but consistent
patterns emerge
14
1. Negative economic impacts if public expenditure is reduced
• Subsidy reduction without reallocation of savings
o reduces consumer demand
o lowers GDP, production, incomes, employment
o increases inflation
Safety nets are important to protect the poor
15
2. Reallocation of savings offsets negative impacts of reform
16
• Fully compensating all households shows consistently positive results
• neutralizes negative employment, income, growth effects; mitigates inflationary impact
• wealthier households stimulate demand
• compensation protects the poor from higher prices
Reallocation is fundamental to allay govt fears
3. In the long run, higher energy prices
(a) reduce energy demand & emissions;
17
Projections to 2030
India Indonesia Thailand
Final energy consumption
-0.6% -0.8% -1.5%
Emissions -1.3 to -1.8% -5.1 to -9.3% 2.8%
Interventions are necessary to ensure energy poverty is not entrenched
(b) impact energy intensive sectors;
• For all countries, most affected sectors are
o Agricultureo Industry o Residential sector
• Transport is also affected in Thailand but impact on transport is limited in
o India due to low demand elasticity o Indonesia due to fuel switching
Encourage renewable, clean energy investment
18
(c) … but improve the energy mix
19
• Higher prices stimulate users to switch fuels
o India: coal and oil use
o Indonesia: coal, natural gas, petroleum, biomass
o Thailand: natural gas, petroleum, biomass, electricity
Interventions required to improve access to cleaner fuels
To sum up, subsidy reforms
• improve overall economic efficiency and equity
• reduce fiscal vulnerability
• discourage energy overuse and reduce the need for rationing
• spur investment in clean energy
20
Policy implications
• Inject subsidy savings back into the economy
• Build on government programs to cover the poor
• Ensure availability and access to cleaner fuels
• Encourage renewable energy investments
21
-0.6
-0.4
-0.2
0
0.2
0.4
2010 2015 2020 2025 2030
Full reallocation to households
No reallocation
Indonesia: Projected Impact on GDP (% relative to baseline)
0
0.5
1
1.5
2
2.5
3
3.5
2010 2015 2020 2025 2030
Full reallocationto households
No reallocation
Indonesia: Projected Impact on Consumer Price Inflation (% relative to
baseline)
-0.1
-0.05
0
0.05
0.1
0.15
0.2
0.25
2010 2015 2020 2025 2030
Full reallocationto households
No reallocation
India: Projected Impact on GDP(% change relative to baseline)
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
2010 2015 2020 2025 2030
Full reallocationto householdsNo reallocation
India: Projected Impact on CPI(% change relative to baseline)