1. Tracking fossil fuel subsidies in APEC economies
Toshiyuki Shirai, Senior Energy Analyst, World Energy Outlook
Singapore, April 27, 2017

2. Background
APEC economies play a substantial role in shaping the global energy landscape, accounting for 60% of global energy demand.
In 2009, APEC leaders made a commitment to “rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption”.
Despite significant efforts to remove fossil fuel subsidies, they are still prevalent in some APEC economies.
Fossil fuel subsidies can play a role in facilitating affordable access to energy, although poorly targeted policies are an inefficient way to achieve social objectives.
Energy demand in APEC economies is set to grow rapidly over the coming decades, underlining the imperative for reform & raising the costs of inaction.

3. Major oil product subsidy reforms in APEC economies
Subsidy reforms in APEC economies have gained momentum
Major oil product subsidy reforms in APEC economies 20 40 60 80
100
120
140
160
1996
2000
2005
2010
2015
2017
dollars per barrel, 2015
Chile,
China, Malaysia,
Peru
China, Indonesia, Malaysia
IEA average crude oil import price
Mexico, Peru
Malaysia, Thailand
China,
Viet Nam
Chile, Indonesia,
Indonesia,
Thailand
Thailand
Indonesia
Mexico
Philippines
Philippines
The rise in oil prices in the 2000s and persistently high prices to mid-2014 underlined the case for subsidy reforms in
many APEC economies:
the subsequent fall in prices provided a further opportunity for action

4. Illustration of methodology to estimate fossil fuel subsidies
The IEA methodology for estimating fossil fuel subsidies
Illustration of methodology to estimate fossil fuel subsidies 2 4 6 8 10 12 14
End-user
Reference
Currency unit per litre
(per kg for LPG)
Gasoline
Diesel
LPG
Price gap
End-user price
VAT
Internal distribution
cost
External freight &
insurance cost
International price
The price-gap method compares end-use prices paid by consumers with reference prices that correspond to the full cost of supply – a subsidy is identified if the end-use price falls short of the reference price

5. Trends in fossil fuel consumption subsidies in APEC economies
Fossil fuel subsidies in APEC have declined since 2011
Trends in fossil fuel consumption subsidies in APEC economies 25 50 75
100
125
150
200
300
400
500
600
2010
2011
2012
2013
2014
2015
Billion dollars, 2015
World
Rest of world
APEC economies
Dollars per barrel, 2015
IEA average crude
oil import price
(right axis)
The share of APEC economies in the global estimate for fossil fuel subsidies fell from 30% in to around 20% in 2015, reflecting the region’s progress with pricing reforms

6. The share of energy use that is subsidised is highest for gas & electricity
Share of subsidised energy in APEC economies in 2015, compared with global averages 0% 5%
10%
15%
20%
25%
30%
Coal
Oil
Gas
Electricity
World
APEC
For each fuel, the share of energy consumption covered by subsidies in
APEC economies is lower than the global average

7. Reform progress in APEC economies differs by fuel & sector
Contributing factors to the changes in the value of fossil fuel subsidies in APEC economies 5 10 15 20 25 30
2010
2015
Residential
LPG
Billion dollars, 2015 4 8 12 16
Transport
gasoline 40 50 60 70
electricity
& diesel
Consumption
International
fuel prices
Pricing policies
Subsidies
Pricing reforms have played a major role in bringing down transport oil subsidies,
but lower international fuel prices explain all of the fall in subsidies to electricity and LPG in the residential sector

8. APEC consumers are turning to electricity
Fuel mix in total final consumption in APEC economies in the Current Policies Scenario
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
2000
2014
2020
2025
2030
2035
2040
Mtoe
Renewables
Heat
Electricity
Gas
Oil
Coal
Among the energy consumed directly by end-users, electricity demand is projected to grow by 70% by 2040, although oil continues to be the largest single source of final consumption

9. relative to the Current Policies Scenario
A subsidy reform case shows clear benefits
Changes in total primary energy demand and energy-related CO2 emissions in APEC in the Subsidy Reform Case ,
relative to the Current Policies Scenario
Changes in electricity consumption in the Subsidy Reform Case, relative to the Current Policies Scenario 0% 2% 4% 6% 8%
10%
Mexico
China
Russia
ASEAN
-350
-300
-250
-200
-150
-100
-50
- 120
- 100
- 60
- 40
- 20
2020
2025
2030
2040 Mt
2025
2040
- 80
Mtoe
Gas
Coal
Oil
CO2 emissions (right axis)
Complete phase out of subsidies by 2025 saves around 70 Mt of oil equivalent in primary energy demand
& 210 Mt of CO2 by 2025,
with the largest savings in the power sector

10. Subsidy reforms provide fiscal space for APEC economies
Residential electricity subsidies saved in the Subsidy Reform Case,
relative to the Current Policies Scenario 20 40 60 80
100
120
140
2020
2025
2030
2040
Billion dollars, 2015
Reforming residential electricity subsidies frees up around $90 billion by 2025 to pursue other public policy objectives, including targeted support to ensure continued access to energy among vulnerable groups

11. Reversing course on subsidy reform would come with a large cost
Estimated transport oil subsidies in the Current Policies Scenario if end-user prices were kept flat as of 2015 20 40 60 80
2014
2015
2025
2040
Billion dollars, 2015
Mexico
Indonesia
Subsidies for transport
gasoline and diesel
Billion dollars, 2015
Keeping end-user prices for gasoline & diesel at today’s levels would cost annual subsidies of over $15 billion in Mexico & over $30 billion in Indonesia by 2025, as international oil prices & oil demand increase

12. Conclusions
APEC economies have made great strides in reforming fossil fuel subsidies – maintaining this momentum is vital.
The recent reform effort has concentrated on oil products in the transport sector, but the battle here is not won, especially if international oil prices start to move higher.
Most subsidies in APEC economies now go to the residential sector, for electricity, gas & LPG: the challenge is to reform these subsidies while ensuring affordable energy access.
Subsidy removal, especially when part of a broader policy agenda, brings multiple gains: more efficient energy use, improved environmental performance & more fiscal space.
There are multiple examples of well-planned, carefully implemented reform, to guide future action by APEC economies: the IEA will continue to support these efforts.

13. Thank you!
For questions and comments: