Article Series: Fossil Fuel Subsidies

Fossil Fuels - At What Cost?

Globally, subsidies to fossil fuels may be on the order of US$ 600 billion per year, of which the GSI estimates about US$ 100 billion is provided to producers. Nobody knows the real number, however, because there is no international framework for regularly monitoring fossil-fuel subsidies.

In the Fossil Fuels - At What Cost? series, the GSI works to improve subsidy estimates by undertaking detailed surveys of fossil-fuel subsidies and their characteristics in different countries.

Research Type: 

Government Support to Upstream Oil & Gas in Russia: How Subsidies Influence the Yamal LNG and Prirazlomnoe Projects

This report identifies, quantifies and evaluates measures of government support to two upstream oil and gas developments in the Russian Arctic: Yamal LNG (gas) and Prirazlomnoe (oil). Using Sigra Group’s RusTax-model and information collected from publicly available sources, the analysis demonstrates how the measures of government support to the two projects have altered their economics. In Russia, the existing benchmark taxation system makes development of many oil and gas fields uneconomic, and introduction of certain measures of government support seeks to rectify such distortions of investment decisions. However, “manual control” of tax breaks and other measures of government support to “cherry-picked” projects comes at the cost of unnecessarily large rent transfers from government (and taxpayers) to companies. Continuing the cherry-picking of projects through ad hoc tax breaks and government infrastructure investments will most likely lead to rent transfers from the government to companies in the future. In the meantime, the lack of solid quantitative estimates precludes a straightforward answer to the question of whether or not the overall social benefits of such developments overweigh their overall social costs, including significant environmental risks.

At What Cost? Government Support for Upstream Oil and Gas Activities in Russia?

The fourth report in the series Fossil Fuels – At What Cost?, a joint publication between GSI and WWF Russia, the initiator of the study, focuses on upstream oil and gas subsidies activities in Russia. At the federal level, the paper identifies 30 such subsidy schemes in 2009 and 2010; and quantifies the value of 17 of these, amounting in 2009 to US$ 8.1 billion and in 2010 to US$ 14.4 billion. The study concludes with a discussion of economic and environmental impacts of these fiscal instruments. It observes that the identified subsidies are largely focused on developing new fields, including in the Arctic, and not improving recovery and efficiency in existing fields. It also finds that Russia needs to establish a mechanism for monitoring and evaluating the impacts of these subsidies as part of fulfilling its G-20 and APEC agreement to phase out inefficient fossil-fuel subsidies.

At What Cost? Government Support for Upstream Oil and Gas Activities in Norway

The GSI’s third report in the series Fossil Fuels – At What Cost? identifies and estimates support for oil and gas production in Norway. This detailed analysis identifies nine subsidies, six of which totalled around NOK 25.5 billion (US$ 4 billion) in 2009. These subsidies include a tax reimbursement for exploration expenses, accelerated deductions on investments, research and development grants, the provision of seismic investigations by the Norwegian Petroleum Directorate, the provision of infrastructure and facilities by Gassco, and special treatment of the Snøhvit field in Northern Norway. The report analyzes the impacts of the three largest subsidies on government revenue, employment levels and carbon emissions. It also provides recommendations for the Norwegian government to improve the transparency of subsidy expenditures.

At What Cost? Government Support for Upstream Oil Activities in Three Canadian Provinces

The GSI’s second report in the series Fossil Fuels – At What Cost? identifies and determines the value and impact of oil production subsidies in Alberta, Saskatchewan and Newfoundland & Labrador. This detailed analysis is the first of its kind in Canada and allows appropriate comparisons of subsidies with other countries. It finds 63 subsidies at the federal and provincial level, amounting to C$ 2.84 billion in 2008. It also sets out the financial, economic and environmental trade-offs implied by the subsidies.

At What Cost? Government Support for Upstream Oil and Gas Activities in Indonesia

The GSI's first report in the series Fossil Fuels - At What Cost? studies the subsidies provided to fossil-fuel producers in Indonesia. It identifies three subsidies totaling US$ 1.8 billion in 2008. This is a lower-bound figure for Indonesia, as at least seven other potential subsidies were identified but could not be assessed or quantified based on available information. Further work could usefully be undertaken to assess the economic, environmental and social impacts of these subsidies in order to determine whether they should be kept or considered for reform.