Enhancing comparability of data on estimated budgetary support and tax expenditures for fossil fuels : final report

Phasing out subsidies to producers and users of fossil fuels is increasingly seen as an attractive policy option for climate change mitigation and resource efficiency. A major obstacle to this seemingly obvious strategy is the lack of agreement on the definition of a fossil fuel subsidy and on a common methodology to measure or estimate the levels of financial support from public budgets benefitting fossil fuel production and use. The present study aims at developing a harmonized approach to the identification and quantification of government support to fossil fuels and by applying this approach to all 28 EU Member States. This could improve the comparability of estimated levels of support between Member States and enable measurement of progress in phasing out fossil fuel subsidies. Compared to the existing databases, the information reported on in this study also covers a slightly wider range of support types, for instance by including subsidies to fossil fuel infrastructure such as pipelines. Furthermore, the country coverage is extended to the EU's 28th Member State, Croatia. Data are reported for 2010 or 2011 and compared with the situation 5 to 10 years earlier. The estimated support levels include support to fossil fuel based electricity (by multiplying the total support to electricity by the share of fossil fuels in each Member State's electricity generation fuel mix). The study focuses on budgetary support (in OECD terms 'direct transfer of funds') and tax expenditures ('tax revenue foregone'). Both types of support can accrue to producers as well as to consumers. Budgetary support to producers includes not only financial transfers (e.g. to coal mining), but also R&D subsidies as well as public investment in infrastructure (to the extent that it is considered state aid under EU rules). Tax expenditures benefitting producers include for instance reduced rates in royalties and corporate taxes. Support to energy users is mostly provided by means of tax expenditures. Reduced tax rates or preferential tax provisions can benefit specific sectors (e.g. aviation, shipping, agriculture, energy intensive industry), specific fuels (e.g. diesel, LNG) or households.