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Should Energy be
subsidized?
Presented By:
Singhzee’s Economics Group
VS
Renewable
Non-Renewab
le
Objectives
To learn about subsidy and its various forms
To evaluate whether energy should be subsidized or not
To assess the pros and cons of shifting energy subsidies from non-renewable sources (NRES) to renewable(RES)
What is Subsidy?
Government financial assistance In the form of
GrantsTax breaksExemptions Price Controls
Subsidy: the Whys?
Lowering Price and CostEnsuring Power Supply=DemandProviding Access to the PoorPreserving Domestic
Competitiveness Maintaining Employment
Types of SubsidiesGovernment Intervention ExampleDirect Financial Transfer Grant to Producer/Grant to Consumer
Low Interest or Preferential Loans to Producer
Preferential tax treatment Rebates, exemptions, duties, levies, tariffs, etcTax CreditAccelerated Depreciation
Trade Restrictions Quotas, technical restrictions
Direct Government Energy related services
Direct investment in energy infrastructurePublic R&D
Regulation of the energy sector
Price ControlMarket Research Restriction
Case Overview January 2007, Subsidy Transfer
Proposal US$ 14 billion
June 2007, still languishing in senate
Subsidy came into focus Increase in energy prices of 06/07Arguments for and against
subsidy
Should Energy be Subsidized? Class POLL
64%
24%
12%YESNOMAYBE
YOU VOTED!!!
Subsidy Statistics
Economic Zone US$OECD 10 billion
20 of the largest nations outside OECD
48 billion
Annual Fossil-fuel Consumption Subsidies US$ 230 billion(1992)Regional Studies (1997)
Subsidy Statistics
Year US$2009 110 billion2010 412 billion2011 523 billion
International Energy Agency(IEA)
Source :IEA(www.worldenergyoutlook.org)
Energy Subsidies: PROS
Energy Access to the Poor Improvement of Living StandardControl on InflationReduction of Air Pollution and
Deforestation (E.g. Senegal)
Energy Subsidies: PROS
Cross-SubsidiesExample: KEPCO
Customer Type Payment (%) of the Total Cost
Commercial Customers
134%
Industrial Sector 96%
Agricultural Sector 48%
Increased Consumption of Energy
Irresponsible Use of Energy(Esp. Developed countries)
Energy Subsidies: CONS
Energy Subsidies: CONS
Faster Depletion of Fossil Fuels Increased GHG Emissions
Energy Subsidies: CONS
Distortion of Costs and Prices(Non-Renewable Sources)
Substantial Environmental Damage(Electricity Generation)
Heavy Burden of Government Finances
Increased Trade Deficit
Unbalanced benefits to HI and LI groups
Transfer of Subsidies: PROSRenewable Sources: More Competitive
NRE
S
RES
Transfer of Subsidies: PROSSolution to GHG EmissionsHelp Save Environment
Transfer of Subsidies: PROS Initiatives taken by Some countries
Nation
Period
Subsidies subject to reduction
Amount of
Reduction(US$)
EFFECT
China 1990-1997
Annual Fossil Fuels Subsidies
24.5b to 10b
•Coal Consumption ↓ by 14%(1996-2000)•CO2 Emissions ↓ by 17%(1997-2000)
1993-1995
Coal Subsidies 750m to 240m
Tax on high-sulfur coals
Chile 1995•CO Emissions ↓ by 8%(1996)
Transfer of Subsidies: PROS
Energy SecurityEmploymentForeign Exchange(E.g. Denmark,
Australia, Japan)Saving of billions of dollars(through
redirection of subsidies budget)
Transfer of Subsidies: CONS
Shift of
Subsidies from NRES
TO RES
High Energ
y Prices
Inflation
Burden on the Poor
Low Energy
production
Environment
al Hazar
ds
Future Outlook
THANK YOU !!!