ARCTIC drilling

[Michael Grove]

“ After talking to the Port about its plans at Terminal 5 and after

reviewing the 20-year-old permit for the operation of the cargo

terminal, (Seattle’s Department of Planning and Development) has

found, and I concur, that the long-term moorage and maintenance of

Arctic drilling equipment falls outside the current permit ” 

Seattle Mayor Ed Murray said, drawing applause at a downtown Seattle

fundraising breakfast for Climate Solutions, a “clean-energy economy”

nonprofit.

David Coady's IMF Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: This paper provides a comprehensive, updated picture of energy subsidies at the global and regional levels. It focuses on the broad notion of post-tax energy subsidies, which arise when consumer prices are below supply costs plus a tax to reflect environmental damage and an additional tax applied to all consumption goods to raise government revenues. Post-tax energy subsidies are dramatically higher than previously estimated, and are projected to remain high. These subsidies primarily reflect under-pricing from a domestic (rather than global) perspective, so even unilateral price reform is in countries’ own interests. The potential fiscal, environmental and welfare impacts of energy subsidy reform are substantial.
Series:	Working Paper No. 15/105

The issue of energy subsidy reform remains high on the international policy agenda, reflecting the need for countries to pledge carbon reductions ahead of the Paris 2015 United Nations Climate Change Conference, the opportunities for reform created by low energy prices, and continuing fiscal pressures in many countries. The sustained interest in energy subsidy reform also reflects increasing recognition of the perverse environmental, fiscal, macroeconomic, and social consequences of energy subsidies:2

• Energy subsidies damage the environment, causing more premature deaths through local air pollution, exacerbating congestion and other adverse side effects of vehicle use, and increasing atmospheric greenhouse gas concentrations.

• Energy subsidies impose large fiscal costs, which need to be financed by some combination of higher public debt, higher tax burdens, and crowding out of potentially productive public spending (for example, on health, education, and infrastructure), all of which can be a drag on economic growth.

• Energy subsidies discourage needed investments in energy efficiency, renewables, and energy infrastructure, and increase the vulnerability of countries to volatile international energy prices.

• Energy subsidies are a highly inefficient way to provide support to low-income households since most of the benefits from energy subsidies are typically captured by rich households.

  Understanding the current magnitude of energy subsidies is critical for advancing energy subsidy reform because it highlights the potential environmental, health, fiscal, and economic benefits to be realized with reform (Bárány and Grigonytė 2015; Clements and others 2013; Clements and others 2014). Existing estimates of subsidies, however, vary substantially, reflecting a range of factors (see Appendix 1 for a discussion of existing estimates). 

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