Methodology

• Consumer: transfers to consumers of fossil fuels. Consumption of fossil fuels refers to the stage at which fuels are combusted or used as raw materials by various end-use sectors, whether it occurs in motor vehicles, stationary engines, heating equipment or power plants. Consumption encompasses the following activities:
  • the use of fossil fuels in power and heat generation;
  • their use in industrial processes and activities outside of the energy sector;
  • and all other final uses of fossil fuels, whether in the transport sector, the residential sector, or primary industries outside of the energy sector (e.g. agriculture and forestry).
• Producer: transfers to producers of fossil fuels. Production of fossil fuels encompasses the following activities along the supply chain:
  • exploration and extraction;
  • bulk transportation and storage;
  • and refining and processing.
• General services: transfers or expenditures that cannot be categorised solely under Consumer or Producer support. These represent the value of policy measures that create enabling conditions for the fossil-fuel sector through the development of private or public services, institutions and infrastructure, regardless of their objectives and immediate impact on fossil-fuel production and or consumption. They include policies where fossil fuels are the main beneficiaries, including payments to fund remediation activities to address the legacy of past fossil-fuel extraction, but exclude any payments to individual producers. These transfers do not directly alter producer receipts or costs, or consumption expenditures, although they may affect production or consumption of fossil fuels in the long term. The OECD Inventory categorises such measures as General Services Support. Examples of measures under this category include (but are not limited to):
  • Government funding for sector-wide R&D in relation to fossil-fuel exploration and transformation.
  • Public support for industry-specific infrastructure development such as the construction of coal or natural-gas terminals, refineries or coal mine railways.
  • Inherited liability payments such as to fund remediation activities to address the legacy of past fossil-fuel extraction or payments to assume occupational health, retirement and accident liabilities for workers and retirees.
  • Debt restructuring by the government to absorb debt obligations of fossil-fuel firms.

• Direct budgetary transfers: payments made by governments, or bodies acting on behalf of governments, to individual recipients. This includes direct spending, e.g. for specific support programmes, and government ownership (fully or through equity shares) of energy-related enterprises.
• Tax expenditures: tax concessions that are typically provided through lower rates, exemptions, or rebates of consumption taxes on fossil fuels (mainly value-added taxes and excise taxes) or measures to reduce the cost of the extraction of fossil fuels (including accelerated-depreciation allowances for capital expenditure, investment tax credits, deductions for exploration and development expenses, and preferential capital-gains treatment). Tax expenditures can also take less visible forms such as the special treatment of income from state-owned enterprises, tax relief for income earned on industry sinking funds (e.g. for site remediation), tax exempt bonds, the use of foreign tax credits for what may be considered royalty payments, or preferential tax rates on fuels used as inputs in fossil-fuel production. Tax expenditures are often premised on providing government support to activities or entities deemed to be socially beneficial; or on concerns relating to risk and uncertainty, energy security, capital intensity, high upfront costs, and long project timelines. Various approaches of varying levels of difficulty are used to derive estimates of the cost of tax expenditures. The revenue forgone approach is the most straightforward and the most commonly used in OECD countries (i.e. the difference between the tax revenue raised with and without the tax expenditure, all else being equal). The revenue forgone approach is a static measure. In other words, it does not account for behavioural responses related to the removal of the tax expenditure. Caution is required when interpreting tax expenditure estimates, as relative preferences within a country’s tax system that are measured with reference to a benchmark tax treatment set by that country. The fact that the benchmark tax treatment varies from country to country means that comparing the value of this type of support across countries can be challenging. The fact that a particular country reports higher tax expenditures relating to fossil fuels does not always mean that this country effectively provides a higher level of support.The higher tax expenditures may also be due to factors such as:
  • A higher benchmark tax rate against which tax expenditures are measured;
  • A stricter definition of the benchmark tax system that results in more features being singled out as tax expenditures;
  • A more complete set of tax-expenditure accounts.
  • Greater consumption of the fossil fuel in question. As revenue forgone is usually calculated per physical or energy unit, estimates are sensitive to a country’s fossil-fuel consumption patterns.

  Higher reported tax expenditures for some countries may therefore reflect higher levels of taxation or greater transparency in reporting rather than a higher level of support.

• Induced transfer: estimated subsidies due to market regulation and price support for lower end-user price relative to the full cost of supply. Also known as consumer price support, or the “price-gap” approach, as it can also be applied to measure subsidies to producers when domestic prices are higher than external reference prices. It refers to a change in prices received by producers and paid by domestic consumers as a consequence of government interventions, such as through
  • direct price regulation,
  • pricing formulas,
  • border controls or taxes, and
  • domestic purchase or supply mandates.

  The difference between the end-use price and the reference price (that which would prevail in a competitive market, reflecting the full cost of supply) amounts to the price gap or induced transfer. For countries that import a given product, consumer subsidy estimates derived through the measurement of price gaps are explicit. That is, they represent net expenditures resulting from the domestic sale of imported energy at lower, regulated prices. In contrast, for countries that export a given product – and therefore do not pay world prices – subsidy estimates are implicit and have no direct budgetary impact. Rather, they represent the opportunity cost of pricing domestic energy below market levels. For countries that produce a portion of their fossil-fuel consumption themselves and import the remainder, the estimates represent a combination of opportunity costs and direct government expenditures.

The Fossil Fuel Subsidy Tracker uses data from three sources: the Organisation for Economic Co-operation and Development (OECD), the International Energy Agency (IEA) and the International Monetary Fund (IMF). The sub-sections above in the “Methodology” section provides detailed information on the different but complementary approaches used by these organisations to estimate support for fossil fuels.

The OECD Inventory of Support Measures for Fossil Fuels documents over 1 300 government budgetary transfers and tax expenditures providing preferential benefit to the production and consumption of fossil fuels in 50 OECD, G20 and European Union (EU) Eastern Partnership (EaP) countries.

The IEA provides “price-gap” estimates for 42 economies. In countries where OECD and IEA country coverage overlap (e.g. Argentina, Azerbaijan, People’s Republic of China, Colombia, Indonesia, India, Korea, Mexico, Russia Federation, South Africa and Ukraine), only OECD-sourced data are presented in the individual “Country Data” section of the website. For countries not covered by either the OECD or the IEA, data is complemented with IMF estimates.

In the total aggregated estimate published on the home page, a rule-of-thumb approach is used to combine the IEA estimates of consumer price support with OECD Inventory estimates for these overlapping countries. Since the IEA quantifies the price transfers resulting from under-pricing fossil fuels or from selling products at prices lower than international prices, individual support measures in the OECD Inventory are sorted according to whether they lower the domestic price and then used to estimate an equivalent price transfer estimate. The rule of thumb then instructs to choose the estimates for which the total of the last six-year period of available data is the larger of the two. This rule of thumb addresses the potential discrepancies between the two estimates that can stem from budgetary reporting rules, measurement errors, or time lags in the price pass-through, but means that the joint OECD-IEA estimates for overlapping countries cannot be broken down to the level of granularity displayed in the “Country Data” section of the website (OECD, 2018). This is why only OECD-sourced data is displayed for those countries in the individual “Country Data” section of the website. Global aggregates derived from the individual “Country Data” section may therefore differ from total aggregated estimate published on the home page.

OECD and IEA data for fossil fuel subsidies are updated more frequently than IMF estimates, which may lead to differences in the latest year available (for country data sourced from the respective organisations).

Gross Domestic Product data series for OECD and G20 economies are sourced from the OECD National Accounts Statistics database, complemented and expanded with the OECD Economic Outlook, World Bank World Development Indicators, IEA World Indicators and the IMF World Economic Outlook database. Data series are available in the OECD Green Growth Indicators database. The share of FFS per unit of GDP is calculated as the ratio of total subsidies over GDP, both expressed in nominal USD.

National population data are sourced from the UN World population prospects database complemented and expanded with the World Bank World Development Indicators. Data series are available in the OECD Green Growth Indicators database. Per capita figures are expressed in nominal USD of country total subsidies per inhabitant.