Fossil-Fuel Subsidies in the EU’s Eastern Partner Countries

Annex I. OECD Fossil-Fuel support database

Breaking down fossil-fuel support data to economic sector beneficiaries in the OECD Inventory Database

When first launched, the OECD Inventory of Support Measures for Fossil Fuels was organised following the OECD’s Producer Support Estimate1 – Consumer Support Estimate2 (PSE-CSE) framework. Under this framework, measures providing benefits to fossil-fuel producers are classified under PSE, while those that provide benefits to individual fossil-fuel consumers fall under CSE. A third category, the General Services Support Estimate3 (GSSE), is assigned to measures that do not increase production or consumption of fossil fuels at present but may do so in the future.

The PSE-CSE classification framework is broad enough and does not allow further disaggregation of beneficiaries by economic sector. It can isolate which measures benefit the upstream or midstream fossil-fuel sectors. However, it is difficult to isolate and pinpoint in greater detail the final end-user economic sectors (e.g. industrial, transport, residential, commercial, agriculture, fisheries, etc.) targeted by fossil-fuel measures. Identifying and quantifying the benefit received by each economic sector in fossil-fuel support is key to evaluate the distributional impacts of proposed fossil-fuel reforms. It is also needed to evaluate whether a targeted support programme is efficient in reaching its intended beneficiaries.

The OECD recently further improved disaggregation of beneficiaries by economic sectors to better identify the end-user economic sectors that benefit from government fossil-fuel support. To that end, it introduced sector tagging mechanisms for each support measure in the database.

Sector tagging mechanics for fossil-fuel support measures

For each measure in the Inventory, two types of information are provided: i) fiscal information on the budgetary transfers or tax expenditure (monetary value); and ii) textual metadata with contents on a measure’s beneficiaries, eligibility criteria, historical background and any relevant budgetary data, procurement and processing information.

Information on the textual metadata is used to identify which economic sector benefits from each measure. In tagging each measure, the economic activity nomenclature follows the classification used in the IEA World Energy Balances flows.4 Measures can receive a single (in case only one economic sector gets the benefits) or multiple sector tags. In case of a single sector tag, the attribution of values is straightforward and the whole value of the measure gets assigned to the single sector. However, there are cases where a measure is designed to benefit multiple sectors (e.g. preferential tax rates for natural gas targeting both residential and commercial sectors). In this case, allocations to each sector are based on calculated proportions from the reported energy consumption figures in the IEA World Energy Balances.

Finally, after the sector tagging exercise, the results are aggregated and mapped according to the broad sectoral categories in Table A I.1.

Table A I.1. Selected tags for sectoral disaggregation of fossil-fuel support measures

Broad sector	Remarks and included sectors (IEA short names)
Fossil-fuel production	This category comprises measures that benefit the upstream and midstream segment of fossil-fuel production. It includes measures targeted towards the exploration, production, trade (import or export), transportation or storage of fossil fuels. Each type of measure is given a certain code in the database, such as: INDPROD, IMPORTS, EXPORTS, STOCKCHA or TES (Total energy supply) (if no detail available).
Electricity generation	This category represents measures that provide support to fossil fuels used as inputs in power generation. Only input fuels fall under this category. It does not include support for consumption of electricity by end-use consumers. Each type of measure is given a certain code in the database, such as: MAINELEC, AUTOELEC, MAINCHP, AUTOCHP, MAINHEAT, AUTOHEAT.
Transport	Measures in this category cover fuels used in the following transport activities: road vehicles, agricultural and industrial highway use, aircraft for domestic aviation, rail traffic (including urban or suburban transport systems), energy used for pipelines transporting fossil fuels, domestic maritime navigation (i.e. port of departure and arrival of the same country), and all transport not specified elsewhere. Each type of measure is given a certain code in the database, such as: DOMESAIR, ROAD, RAIL, PIPELINE, DOMESNAV, TRNONSPE.
Residential	Measures classified under the residential sector include consumption by households (including households with employed persons), with fuels used for transport.
Other sectors	Other sectors include measures that support use of fossil fuels in energy transformation other than electricity and heat generation, industry and manufacturing, commercial and public services, agriculture, forestry and fisheries and non-energy use. Each type of measure is given a certain code in the database, such as: THEAT, TBOILER, TELE, TBLASTFUR, TGASWKS, TCOKEOVS, TPATFUEL, TBKB, TREFINER, TPETCHEM, LIQUEFAC, TNONSPEC, OWNUSE, EMINES, EOILGASEX, EBLASTFUR, EGASWKS, EBIOGAS, ECOKEOVS, EPATFUEL, EBKB, EREFINER, ECOALLIQ, ELNG, EGTL, EPOWERPLT, EPUMPST, ENUC, ECHARCOAL, ENONSPEC, TRANSFER. IRONSTL, CHEMICAL, NONMET, PAPERPRO, NONFERR, TEXTILES, MINING, TRANSEQ, MACHINE, FOODPRO, PAPERPRO, WOODPRO, CONSTRUC, INONSPEC. RESIDENT, AGRICULT, FISHING, COMMPUB, ONONSPEC, NONENUSE.

Source: Adapted from IEA (IEA, 2020[1])and IEA World Energy Statistics and Balances (database).

The routines were implemented using Stata to automate the allocation of each measure. At the end of the tagging exercise, each measure is classified according to three dimensions: a) fuel(s) benefited; b) PSE-CSE indicator; and c) sector beneficiaries. For the sectoral aggregates, allocation is done in dual dimensions, with more than 100 fuel-sector combinations. This made the calculation computationally-intensive, with the dual dimension structure requiring O(n²) polynomial time complexity.

The disaggregation is conducted when certain subsidy schemes benefit more than one economic sector or fuel. Therefore, the values of such subsidy measures in the country tables of this report may differ from values published in the OECD Inventory online database. In addition, the values of electricity subsidies reported in the country tables and in the online database may also differ. This may occur because the non-fossil-fuel component in electricity generation has been subtracted from the electricity subsidy value for the purposes of the OECD database.

References

[1] IEA (2020), “Data and statistics”, Energy Balances Statistics, (database), https://www.iea.org/data-and-statistics/data-tables?country=WORLD (accessed on 14 January 2021).

Notes

← 1.  The Producer Support Estimate (PSE) indicator measures the annual value of transfers from consumers and taxpayers to producers of fossil fuels.

← 2.  Consumer Support Estimate (CSE) reflects the value of transfers to consumers of fossil fuels regardless of their nature, objectives or impacts on consumption.

← 3.  General Support Services Estimates (GSSE) represents the value of transfers arising from policy measures that create enabling conditions for the fossil-fuel sector. These conditions are created through the development of private or public services, institutions and infrastructure regardless of their objectives and impact on fossil-fuel production and/or consumption. GSSE includes policies where fossil fuels are the main beneficiaries but does not include any payments to individual producers. GSSE transfers do not directly alter producer receipts or costs, or consumption expenditure, although they may affect production or consumption of fossil fuels in the long term.

← 4.  For more information see: http://wds.iea.org/wds/pdf/WORLDBAL_Documentation.pdf.