Fossil-fuel subsidies round-up: July and August 2010
Following announcements that fossil-fuel subsidies will be phased out, from the G-20, the Asia-Pacific Economic Cooperation (APEC) and a number of independent countries, including Iran, Nigeria and Bahrain, Subsidy Watch has decided each month to highlight important news stories that touch on this theme …
2 July – Left-wing parties hold a convention in opposition to the Indian government's hike of fuel prices, demanding that the decision be withdrawn and a universal subsidy be used instead of one which is targeted, reports national newspaper The Hindu. They call on party workers to put on a show that will "shake Delhi".
5 July – Strikes break out over India, with the eastern side of the country the hardest hit, forcing the closure of schools, markets, offices and transport lines. CNN and Reuters, among a number of other news sources, cover the event. Spokespersons say that the government will remain firm in its commitment to price reforms.
5 July – The World Wildlife Fund submits a complaint to the European Commission over Spain's decision to support power stations using domestic coal supplies at an estimated cost of €800 million (around US$ 1 billion) over three years. They accuse the country of trying to hand out 'double subsidies', as this support would be additional to existing coal subsidies.
6 July – Sima J. Gandhi, writing for the Center for American Progress, highlights two acts that have been introduced to the United States congress that would cut a number of tax subsidies enjoyed by oil companies: The Close Big Oil Tax Loopholes Act, S. 3405, and the End Big Oil Tax Subsidies Act, H.R. 5644. These propose the elimination of subsidies amounting respectively to US$ 20 billion over ten years and US$ 30 billion over five years, and follow an amendment voted down two weeks previously that included similar provisions.
11 July – The New York Times runs an editorial on 'Big Oil's Good Deal', summarizing that "No industry enjoys the array of tax breaks and subsidies that the oil and gas industry does". It advocates that the U.S. Congress should end the preferential treatment it gives the oil industry and instead focus its efforts on alternative-fuel sources and clean-energy jobs.
12 July – The Economic Times reports that the Indian government may decide not to fully liberalize the price of diesel, contrary to its announcement a month earlier. Currently, the price of diesel is reported to have been capped at INR 2 per litre (US$ 0.04), creating a gap of INR 1.49 per litre (US$ 0.03) between the government-set price and the international market price. The newspaper reports that, going forward, the cap may be removed but with a continuation of the INR 1.49 'cushion', irrespective of variations in the price of the fuel. Four days later, Business Line, a daily from The Hindu group of publications, reported that the mechanism for sharing the subsidy cost had been announced. Public-sector oil and gas companies were told they might end up bearing a higher burden of under-recoveries than before.
14 July – India's Planning Commission gives its approval to a scheme that would see the subsidization of liquefied petroleum gas (LPG) connections for households below the poverty line, reports The Hindu. The plan is to grant INR 1,400 (US$ 300) per household, at a total cost of INR 490 crore (US$ 105 million) in the first phase, with the aim being to increase LPG use in rural areas. The program would be organised by the Petroleum and Natural Gas Ministry and operated by public-sector Oil Marketing Companies (OMCs).According to a Hindustan Times article later in the month, the inspiration for the policy was Indonesia's 'Zero Kero' program, an initiative that aims to convert all kerosene users to LPG, because LPG is cheaper to subsidize.
14 July – Reuters news agency reports that Ukraine has announced plans to raise the price of domestic natural gas by 50% from August, as a condition from the International Monetary Fund (IMF) to secure a US$ 14.9 billion loan. Under the deal, it has committed to reduce its budget deficit from 6.3% to 5.5% of GDP.
14 July – UK newspaper The Guardian reports that 12 major coal companies have applied for emissions reduction credits under the UN's Clean Development Mechanism (CDM) in order to build more efficient coal-fired power stations in China and India. The newspaper objects that the potential crediting would be an effective subsidy for coal, with a total worth of around GBP 3.5 billion (US$ 5.4 billion) at current carbon-market prices. UNFCCC spokesman David Abbass defended the CDM, arguing that fossil energy would be an important energy resource for "years to come" and that it was therefore important to reduce its carbon footprint where possible.
15 July – Susan Jordan in California's Capitol Weekly advocates that the state should institute an 'oil severance tax' immediately – a tax levied upon the production of oil and natural gas – like every other major oil-producing U.S. state. The opinion piece summarizes a wide body of evidence and statements in support of such a move.
15 July – The Malaysian government surprises observers with an unannounced hike of fuel and sugar prices. According to the Associated Free Press, the cuts will save MYR 750 million (US$ 234.4 million) this year. The Free Malaysia Today reports that the price of RON 95 petrol and diesel has been increased by MYR 0.05 per litre (about 1.5 US$ cents) and the price of LPG by MYR 0.10 (3 US$ cents) per kilogram, with one observer calling the move "sneaky and insidious". It also reports that RON 97 petrol would be subject to a 'managed float' but it is not clear if this would involve an immediate price increase. Prime Minister Najib defended the decision, saying that fuel and sugar prices were still the lowest in the region. The next day, The Star Online spoke with a number of analysts who said that the price rises were relatively small and would have a 'minimal' impact on consumption.
20 July – The European Commission presents a plan that would see EU Member countries only able to continue coal mining subsidies on the condition that they intend to close uncompetitive coal mines by 15 October 2014, according to New York Times blog 'Green'and news network EurActiv. This follows controversy over a draft of the same proposal that was leaked the previous month, at which point the text had suggested extending the state aid until 2023. Though news website EU Business reports that Joaquin Almunia, Europe's top competition enforcer, is in support of the proposal, it will still be necessary to get a certain share of approval from the EU's 27 Member governments. In the following days, the Spanish region of Asturias and a number of German politicians reject the plan.
25 July – The UK government considers scrapping a scheme that currently allows bus companies to reclaim around 80% of what they pay in fuel duties, reveals The Guardiannewspaper. The subsidy is said to be worth more than GBP 200 million (US$ 308 million) to one bus company alone, and analysts believe it is most likely to be frozen or phased out, given its importance to company profits. The cuts take place as part of the country's continuing austerity measures.
25 July – In a blogger conference call organised by the America Petroleum Institute, API Policy Manager Stephen Comstock argued that the oil and gas industry was not one of the most heavily subsidized industries, reports blog Bob McCarty Writes. Comstock is said to have argued "… all that you have to do is look at our effective tax rate and realize that that's not true. On the whole our industry's effective tax rate, at least for 2009, was around 48 percent, whereas the rest of the S&P was around 28 percent."
28 July – The Wall Street Journal reports that a draft U.S. energy bill has been proposed that would seek to eliminate the current cap on the damages oil companies can be asked to pay for spills, as well as creating new subsidies for natural gas and electric vehicles. The bill was heavily criticised by the American Petroleum Institute, and would need to be reconciled with a separate bill that House Democrats have drafted in response to the BP disaster in the Gulf of Mexico.
30 July – According to news website Bloomberg, South Korea is due to raise its power and natural gas prices by 3.5% in August, for the first time in more than a year. Concerns are raised about the potential impact this could have on inflation.
2 August – In his New York Times blog Dot Earth, Andrew C. Revkin posts about a Bloomberg press release, which claims that fossil-fuel subsidies are ten times the amount of subsidies to renewables. The same figures will be picked up and repeated throughout the rest of the month, despite various subsidy experts who argue that the numbers, as presented, are misleading. (See the article ‘Apples and oranges? Why the Bloomberg NEF comparison of subsidies to renewables and fossil-fuels caused such a fuss’ in this issue of Subsidy Watch.)
2 August – The G-20 makes available two documents regarding member activities to take forward their commitments to fossil-fuel subsidy reform: a summary document, explaining the initiative and findings so far, and an Annex, listing the strategies and timetables for reform that countries submitted to the Toronto Summit in June.
9 August – News website sify finance reports that the Indian petroleum ministry has rejected the proposal made in July that would see private oil companies bear a higher burden of under-recoveries than they did previously. It is announced that private upstream oil companies will continue to contribute a third of the total value of under-recoveries.
10 August – Steve Kretzmann publishes an announcement on website Oil Change International, alerting users to the creation of a new interactive tool that tracks the flow of oil, gas and coal money in the United States Congress, Dirty Energy Money. Preliminary analysis concludes that US$ 114 million has "been paid by these industries over the last decade to buy access and influence in Congress" and highlights the trend that those who receive more financial support from the industry are more likely to vote in its favour.
11 August – The Asia Times hosts an article by Ranjit Devraj, which highlights the extent to which 'profiteers' have taken advantage of the country's subsidy regimes to date – leading to the adulteration of diesel with kerosene, the diversion of LPG into petrol engines, and, due to a cross-subsidy raising petrol prices and lowering those of diesel, increasing demand for diesel-driven luxury cars and SUVs.
11 August – A new report by the Asian Development Bank concludes that Indonesia could improve its growth from 6.5% to 8%, if it were to tackle a number of economic hurdles, including its subsidy policies, according to the Jakarta Globe. The study argues that the current subsidies fail to efficiently target and benefit the poor. Other major areas identified for reform include infrastructure, corruption, red tape and job opportunities. On the same day, the Jakarta Globe reports that Indonesia has announced plans to remove the subsidy on three-kilogram liquified petroleum gas (LPG) canisters. This causes considerable controversy because the government has been pursuing a 'Zero Kero' program for some years, attempting to convert kerosene users to LPG as part of an attempt to reduce the burden of its kerosene subsidy.
13 August – The Argentine government raises power subsidies for the fourth time in 2010,according to Bloomberg. The successive increases are in response tot he country's unusually cold winter, resulting in higher-than-usual levels of demand.
13 August – Reuters news agency reports that Asian countries are increasingly adopting market-oriented pricing policies for domestic fuel, largely due to the costliness of existing policies. It provides a basic summary of the current arrangement in Vietnam, China, India, Indonesia, Malaysia, Bangladesh and Sri Lanka.
16 August – Indonesian President Susilo Bambang Yudhoyono announces that the 2011 state budget will cut subsidies by 8% in 2011, to IDR 184.8 trillion (US$ 20.5 billion), and improve their targeting, reports The Malaysian Insider. Other issues raised in the budget speech were the need to spend more on infrastructure and to raise tax revenues. An editorial in The Jakarta Post criticises the budget plan, saying that "there is not any daring initiative to significantly lessen the economy's addiction to subsidized fuel".
16 August – News network Voice of America reports that a fuel crisis may be growing in Iran, which has been under U.N. oil-import sanctions since June. Iranian officials deny the rumours. The country first embarked on a program to cut its fossil-fuel subsidies in 2009 in anticipation of such measures, hoping to reduce its domestic consumption and so increase its energy security. The first price increases are expected later this year.
24 August – According to Reuters news agency, Marius Holm, the deputy director of Norwegian NGO the Bellona Foundation, states in an interview that Norway's renewable industry is unfairly hampered because it receives one fifth of the subsidies given to the oil industry.
30 August – The Daily Gulf prints an article by Ali Aissaoui, Senior Consultant at the Arab Petroleum Investments Corporation (APICORP), which reviews in depth the Joint Report on energy subsidies submitted to the G-20 by the IEA, OPEC, the OECD and the World Bank. Aissaoui concludes that despite clear, insightful analysis, it can be inferred that significant differences remain in how authors believe energy subsidies should be defined and measured, which may cause problems for the initiative to move forward with the recommended "country-specific approach".
For readers interested in keeping track of fuel-pricing developments worldwide, GTZ's monthly Fuel Price News is an invaluable resource that announces publications and events, and major fuel-pricing news stories in different regions of the world. For more information see: http://www.gtz.de/en/themen/29957.htm