Energy Subsidy Reform Assessment Framework : Assessing the Fiscal Cost of Subsidies and Fiscal Impact of Reform
The objective of this good practice note is to outline the ingredients of an assessment of the fiscal impacts of energy subsidies in an economy from the aggregate fiscal perspective of the government. It demonstrates the interrelations between the...
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| Format: | Report |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Online Access: | http://documents.worldbank.org/curated/en/958771530881102150/Assessing-the-Fiscal-Cost-of-Subsidies-and-Fiscal-Impact-of-Reform-Energy-Subsidy-Reform-Assessment-Framework-ESRAF-Good-Practice-Note-2 http://hdl.handle.net/10986/30253 |
| Summary: | The objective of this good practice note
is to outline the ingredients of an assessment of the fiscal
impacts of energy subsidies in an economy from the aggregate
fiscal perspective of the government. It demonstrates the
interrelations between the fiscal balance, its financing,
and impact on key debt and fiscal sustainability indicators.
As discussed in the Energy Sector Reform Assessment
Framework (ESRAF) Good Practice Note on the definition of
energy subsidies (Good Practice Note 1), energy subsidies
may be provided through various channels on the production
and consumption sides, and may generate contingent
liabilities—explicit or implicit—for a government that must
be monitored and managed as part of overall macroeconomic
management. ESRAF defines an energy subsidy as a deliberate
policy action by the government that specifically targets
electricity, fuels, or district heating and that reduces the
net cost of energy purchased, reduces the cost of energy
production or delivery, increases the revenues retained by
energy suppliers, or has any combination of these three
effects. ESRAF also covers non-energy use of oil, gas, and
coal, such as natural gas used as a feed stock for
fertilizer manufacture and naphtha and liquefied petroleum
gas (LPG) used as feed stocks in petrochemicals. Subsidies
are not always paid for by the government. Consumers may
subsidize producers, producers may subsidize consumers, and
financiers and other actors not linked to energy consumption
or production, including those outside the country, may be
covering the costs of subsidies. This note focuses on the
costs of subsidies to the government. One important form of
subsidies consists of direct budgetary transfers from the
government to either consumers or producers, which are
recorded in the government public sector budget. For
instance, with the justification of social benefits,
governments often establish consumer prices for energy that
are below reference prices (prices that would have
prevailed in a competitive market, or the cost of efficient
production if a competitive market does not exist), and
then compensate the energy suppliers for the difference
(also referred to as the price gap) between the reference
prices and the government controlled prices.' Another
subsidy delivery mechanism is provision of the subsidy
benefits directly to end users, typically households. In
addition, a government may provide subsidies in the form
of tax exemptions to energy service providers, tax credits
for investment, or allowing the energy-related public
utilities and national oil companies to run arrears on
their debt service and other payment obligations to the government. |
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