ronald steenblik (oecd) - organisation for economic co-operation

OECD Expert Workshop on Estimating Support to Fossil Fuels, Paris, 18-19 November 2010

Estimating support to biofuels: lessons learned

Ronald Steenblik Senior Trade Policy Analyst

OECD Trade and Agriculture Directorate

OECD Trade & Agriculture Directorate 2

Interest: rapid rate of growth

o Government support to ethanol traces back to the 1970s in Brazil and the United States, 1990s for the EU, and 2000s in other countries.

o Production and hence subsidies was small until recently. However, with boom in energy prices, and consequent new policies, production soared.


Increasing share of agricultural output

2007 actual 2013-17 average

(new initiatives)

Maize, US

Share of US output 23.2% 38%

Share of world output 8.4% 13%

Vegetable oils, EU

Share of EU output 47.2% 129%

Share of world output 8.7% 20%


OECD estimation of impact of removing biofuel support on world commodity prices, 2013-2017 average


Potential environmental effects

Concern about land-use and other effects


Measurement motivation: to assess cost-effectiveness

Policy rationales for support policies:

1. Aid farmers, or the rural sector more generally

2. Improve foreign exchange, through import substitution

3. Reduce dependence on energy imported from “unstable”counries

4. Improve quality of the air in cities

5. (Later) Reduce greenhouse gas (GHG) emissions


The initial theory: biofuels are C-neutral

Source: Energy Future Coalition (www.energyfuturecoalition.org/biofuels/benefits_env_public_health.htm)

http://www.energyfuturecoalition.org/biofuels/benefits_env_public_health.htm


Who undertook the work?

• Little initial interest in measuring subsidies at the international level.

• However, some organizations — notably the Global Subsidies Initiative (GSI) — noticed that there was a gap in information on subsidies to the sector, and anticipated the need. Started a series of studies in 2006.

• That work eventually spawned new academic work, but generally on analysis, not data.


Feedstock crop

Energy

Labor

Capital

Water

Intermediate inputs

Land

Subsidies to

value-adding factors

Subsidies to the supply

of intermediate inputs

Crop & irrigation

subsidies

Energy subsidies

Subsidies to

production:

• Production-

linked payments

and tax credits;

•Tax

exemptions;

•Market price

support ( e.g.

import tariffs)

Value-adding factors

Biofuel

By-products

Subsidies to

storage and

distribution

infra-

structure

Vehicles

(car, bus,

truck)

Subsidies for

purchase of

biofuel

Subsidies for

purchase of or

operation of

vehicle

Consumers

of by-

products

(e.g.,

livestock

producers)

Subsidies to

by-product

consuming

industry

Subsidies to

intermediate inputs

Production Consumption

Biofuel Manufacturing

Plant

How the sector is subsidized


What were the data challenges?

• Direct budgetary expenditure only small part of the picture, and often spread across different ministries and jurisdictions.

• Data on capital-related subsidies are scarce.

• Most important subsidies typically tax related. Information on rates of tax usually available, but not on tax expenditure.

• Estimates of support often required knowing affected volumes, but data on volumes produced or consumed was often not reported by governments.


What were the methodological challenges?

• Price support often provided through a combination of import tariffs, tax credits or exemptions, and blending mandates.

• Conceptually difficult to disentangle effects in the absence of good price data.

• What should be the reference price for MPS calcula-tions: world biofuel prices, or substitute petroleum products?


What was the response to the information?

• Initial estimates for just the largest OECD countries placed biofuel support at $11 billion in 2006, and rising rapidly.

• Cost of subsidies was generally in excess of $250 per tonne of CO2-eq avoided.

• Industry generally tried to discredit estimates, or point to employment or taxes it paid.

• Main impact was to raise questions among the environmental and development communities, but eventually also has influenced debate on budget priorities.

http://i160.photobucket.com


What monitoring continues?

• GSI has provided updates of two of its studies (USA and EU). Partial updates have been undertaken in some cases by studies by national environmental NGOs.

• New country-level studies appearing.

• OECD, through its agricultural PSEs and CSEs picks up some of the support, but only a small fraction.


Recent IEA estimates of support to biofuels

• For its World Energy Outlook 2010, the IEA published global estimates; updated specific estimates for the USA, the EU and China; and produced new estimates for Brazil.

• Global estimates came to $20 billion in 2009, two-thirds benefitting ethanol, and USA and EU collectively accounting for 80% of government support.

• The IEA projects that, globally, government support to biofuels (under its “New Policies Scenario”) could average $45 billion a year between 2010 and 2020, and $65 billion a year between 2021 and 2035.

http://www.oecd-ilibrary.org/energy/world-energy-outlook-2010_weo-2010-en


Lessons learned

• Possible now, thanks to Internet, for non-governmental entities to track down information on subsidies.

• However, clearly easier if countries co-operate with researchers.

• NGOs can be the “forward scouts” of subsidy research, but serious monitoring requires large resources.

• No matter who undertakes work, it helps to have guidance on estimation methods. Re-inventing the wheel each time is wasteful.


Thank You

For more information: [email protected]

www.oecd.org/agriculture

www.oecd.org/trade

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