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
WWW.EARTHTRACK.NET
Finding a Common Definition
• Common building blocks can 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 definitionalWWW.EARTHTRACK.NET
disagreement.
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.
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Different Types of Programs
Generate Larger Variance in
Estimates
• 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
Hig
h
Budget
Visibility/
Ease of
Quantificatio
n
Low
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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 prescreen 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.
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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).
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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.
Core Element
1) Public Availability of
Basic Information
Use in Regulatory Process
Use in Fiscal Process
Text of all final regulations is collected in
Code of Federal Regulations
-Some but not all subsidies identified in annual
federal budget
Public Notice of Proposal
-Publish proposal with explanation in
Federal Register
No advance notice required.
Required Justification
-Agency must explain basis and purpose of
proposal
-Agency must analyze costs and effects,
and consider regulatory alternatives
-Public comments solicited on proposed
rulemaking
-Agency must respond to significant
comments
Publish final rule in Federal Register with
changes and explanation
-Early analysis of proposals contains only
budgetary impact; often proprietary with no
public access.
-No information on other impacts.
-No public comment process prior to passage.
2) Public Justification
Public Comment Process
Final Result
3) Analysis of
Environmental Effects
-Environmental impact statement, including
consideration of alternatives.
-Cost impacts are in Budget (including Analytical
Perspectives chapters)
-Descriptive definitions, but little evaluation of
broader impacts.
No review or comment.
-Public notice and comment.
Source: Koplow/Dernbach (2001)
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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.
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Rules of Thumb for Deciding
Whether 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?
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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.
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