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Finding Common Ground in the Measurement of Perverse Subsidies. Workshop on Environmentally Harmful Subsidies OECD Paris, France November 7-8 2002. Doug Koplow Earth Track, Inc. 2067 Massachusetts Avenue, 4th Floor Cambridge, MA 02140 (617) 661-4700 DKoplow@earthtrack.net.

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finding common ground in the measurement of perverse subsidies

Finding Common Ground in the Measurement of Perverse Subsidies

Workshop on Environmentally Harmful Subsidies

OECD

Paris, France

November 7-8 2002

Doug Koplow

Earth Track, Inc.

2067 Massachusetts Avenue, 4th Floor

Cambridge, MA 02140

(617) 661-4700

DKoplow@earthtrack.net

finding a common definition
Finding a Common Definition
  • Common building blockscan be used to support multiple subsidy metrics.
    • Although different parties may use information for different ends, common building block approach makes international tracking feasible.
  • Definitional problems have both technical and political attributes. Technical conflicts sometimes overplayed due to political drivers.
  • Subsidy tracking can proceed even with remaining areas of definitional disagreement.
transparent though not identical building blocks needed
Transparent, though not identical, building blocks needed
  • Estimates of US Subsidies to Fossil Fuels range from $200 million to $1.7 trillion per year (Koplow/Dernbach, 2001)
    • Range renders data useless for policy decisions, unless can understand drivers of variance, make value decisions.
    • Building block approach - with intervention-specific data as the basic building block - makes integration and interpretation possible.
  • Variance due to definition, valuation techniques, and politics.
    • Inclusion of wide range of externalities drives highest estimates.
    • Exclusion of many programs of direct benefit to fossil fuels drives lowest estimates.
    • Uncertainty regarding measurement of specific interventions often not that large.
different types of programs generate larger variance in estimates
Different Types of Programs Generate Larger Variance in Estimates

High

  • Financial transfers (grants, R&D support)
  • Below-market provision of goods or services, including risk-bearing, intermediation benefits
    • Loans, loan guarantees
    • Indemnification
    • Government-owned enterprises
    • Provision of market intelligence
  • Tax breaks [special taxes] for particular activities
  • Purchasing preferences [bans]
  • No accrual for predictable long-term consequences of production by current producers (facility closure, externalities)
  • Granting [revocation] of property rights

Budget

Visibility/

Ease of

Quantification

Low

attaining comparable data sets divide and conquer
Attaining Comparable Data Sets:Divide and Conquer
  • Intervention-level data is the building block of all further analysis.
    • Inclusivity. Wide range of intervention types program types should be tracked, using a zero cost/zero intervention baseline. Attempts to pre-screen programs not even to track should be resisted.
    • Neutrality. Tracking and valuation should be separated from assessing social or environmental impacts of the program.
    • Externality measurement separated from direct subsidies to ease comparability and narrow variance.
  • A general accounting system should be used to help highlight gaps in coverage.
  • Anticipated program impacts, though separated from valuation, should be clearly presented in a way that allows sensitivity testing of core assumptions.
  • Standardized approaches for aggregating intervention data into commonly-used metrics, such as PSE/CSE help ensure comparable values.
improving data resolution
Improving Data Resolution
  • Data quality, even at level of specific programs, often limited.
  • Different levels of government often additive; sub-national data spotty.
  • Allocation of shared subsidies to recipient sectors: capital; key inputs; R&D; etc. often not done at all.
  • All of these weaknesses need to be clearly presented; improved over time.
  • Presenting cascading details: from aggregate metrics down to intervention-specific information on programs, ensures true data transparency.
  • Ability to create different views leverages value of baseline data set:
    • With/without externalities.
    • Sorted by fiscal magnitude, environmental impact, etc.
    • Linkage to end-products (e.g., energy, water flow-through to agricultural sector).
comparing regulatory and fiscal oversight in the us
Comparing Regulatory and Fiscal Oversight in the US
  • Existing checks and balances often institute stringent controls over regulatory activities, lax controls over fiscal activities.
  • Demonstrates need for improved transparency, accountability.
moving forward
Moving Forward
  • Macro level: continued refinement of aggregate metrics, estimation techniques, evaluation of filtering routines for environmental impact.
  • Micro level: creation of library of intervention-level data.
    • Information on government support programs highly fragmented; complex to value.
    • Strong political interests protect existing subsidy regimes/institute new ones; sometimes even block data collection.
rules of thumb for deciding whether an intervention is a subsidy
Rules of Thumb for DecidingWhether an Intervention is a Subsidy
  • Would this industry/company have to pay more, or bear greater risks, if not for the government program?
  • Are uncompensated risks being shifted to the general population or to future generations?
  • Would a private-sector cost accounting system treat this as a real cost (e.g., holding costs of oil inventory in strategic petroleum stockpiles)?
  • Would a different procurement/production decision likely be made if not for this program?
earth track building policy level detail on interventions
Earth Track: Building Policy-Level Detail on Interventions
  • Web site dedicated to transparency of government interventions in energy markets: www.earthtrack.net.
  • Consolidate and standardize information on government interventions in energy markets from hundreds of sources and data providers in countries around the world.
  • Provide an unbiased source of information on these policies outside of the pressures and politics of international organizations.
  • Present information on subsidies and complicated financial, accounting, and regulatory policies in a manner accessible to non-technical audiences.
  • Present a holistic picture of the impact of government policies by energy type, type of policy, or geographic region.
  • Accelerate the process of developing new information by facilitating improved integration of workplans and work sponsors.
  • Quantify the value of existing subsidies and taxes whenever possible to allow evaluation of time trends, patterns across fuels and regions, and to serve as inputs to macro-economic models.