Finding Common Ground in the Measurement of Perverse Subsidies

1. 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

2. 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.

3. 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.

4. 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

5. 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.

6. 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).

7. 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.

8. 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.

9. 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?

10. 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.