During the last two decades, as well as for the next 30 years, the Costa Rican administration have banned the exploration and exploitation of crude oil inside the country. Co-ordinated by various state institutions, oil and liquified petroleum gases (LPG) are imported primarily for supplying the demands of the transport sector, and secondarily for manufacturing sectors. Among imports in 2021, diesel represented (by volume) around 37.1%, followed by the various gasoline grades (around 20% each kind of them) and LPG (11.2%), coming chiefly from the United States, Netherlands Antilles, Nicaragua, and Belgium. Nevertheless, Costa Rica’s total energy supply mix for 2021 accounted 49% from oil, 13% from hydroelectric sources and around 38% for geothermal, wind and biofuels and wastes combined. This high share of renewables is mirrored within the electricity generation mix, in which 69.4% comes from hydroelectric generation, about 30.4% from geothermal, wind, solar and biofuels and a very marginal share generated from fossil fuels.
OECD Inventory of Support Measures for Fossil Fuels: Country Notes
Costa Rica
Energy resources and market structure
Source: IEA (2022), "World energy statistics", IEA World Energy Statistics and Balances (database).
In Costa Rica, the importation of oil and LPG, refining and wholesale distribution is a state monopoly headed by the Refinadora Costarisence de Petroleo (RECOPE). In the same vein, RECOPE also operates stockpiling facilities for imported crude oil and petroleum products and leads new infrastructure projects and maintenance operations of ports, storage facilities and distribution hubs for fossil fuel trade.
Electricity is provided by a mix of private and public companies with quotas assigned by the Centro Nacional de Control de Energía. The Instituto Costarricense de Energía and the Compañia Nacional de Fuerza y Luz (Grupo ICE) has two-thirds of production and installed capacity in the country as of 2021 and are the two largest public electricity companies in the country. The rest of the public electricity firms are either municipally-owned (in Cartago and Heredia) or a consortium of small rural electrification firms. Private electricity firms include around thirty enterprises, complemented by “distributed generation” units (numbering around 2423 as of December 2021). Electricity transmission is considered a natural monopoly held by the ICE, and is linked to Nicaragua and Panama grids following the establishment of the Energy Regional Market. Costa Rica is a net electricity exporter. Finally, distribution is handled by similar electricity generation companies following the tariffs approved by the Autoridad Reguladora de Servicios Públicos (ARESEP).
Energy prices and taxes
Energy retail prices in Costa Rica are regulated by the ARESEP for both renewable and fossil fuel energy sources. The electricity market is segmented with differing tariffs for residential units, between specific time blocs of the day, and for “social-interest” consumers such as water utility supply, education, and social aid institutions. The prices of the products distributed by RECOPE are adjusted subject to a pricing methodology that integrates the international price of the fuel, RECOPE’s operating margins, transportation costs, any state subsidies, and a unique fuel tax. The country’s pricing methodology aims to smoothen international price volatility and incorporates new direct subsidies when the government decides to. Fuel taxation works by establishing unique charges depending on product type as well as granting preferential exemptions for certain consumer types or for specific economic activities. The fishing industry, for example, is a protected sector which benefits from specific cross-subsidisation for the sector’s fuel use.
Figure 2. Total tax rebates and support for fossil fuels in Costa Rica
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Recent developments and trends in support
The process of tax simplification implemented by the country during the last 30 years created a supportive environment for fossil fuel resource exploitation and overall energy production. These measures presented incentives for private enterprises to engage in these activities, however, oil exploitation bans and recent green energy transition measures in the country has restricted its impact in the economy. To ensure the reliability of domestic energy supply and improve energy efficiency, RECOPE invests in fossil fuel infrastructure projects such as new LPG storage units in Plantel Moín, new aircraft fuel storage units at the Tobías Bolaños Airport, a new fuel terminal at Plantel Barranca along the country’s pacific coast and the enlargement of the Plantal la Garita-Barranca, delivered between 2019 and 2020.
The Costa Rican government has been reconsidering the active role of subsidies as policy instruments since launching the National Energy Plan 2015-2030, aiming to improve the energy efficiency of the country’s industrial sector and increase the share of LPG as a preferred industrial and transport fuel. This goal led to a temporary freezing in the adjustment’s mechanisms of this fuel during 2022. Part of this was the sectoral policy for LPG, bunker fuel and asphalt of January 2016, by having these fuel products’ domestic price approach international prices though cross-subsiding these from charges levied on other fuels (e.g. gasoline, diesel, jet fuels). The pandemic’s adverse effect on the country’s tourism sector pushed aircraft fuels to be granted an exemption from the cross-subsidisation charges formerly subjected to, in an effort to support the recovery of the airline industry from May 2020. This conditions, joined with the effects of the war of Russia and Ukraine leaded to an inflation process that motivated the government to deploy direct transfers to vulnerable households for holding the purchase power, among other measures.
The fiscal cost of support measures for fossil fuels in Costa Rica was estimated at CRC 130.55 billion in 2022 (Table 1). Ninety-nine per cent (99%) was directed at end user beneficiaries, as opposed to 0% directed to firms. Support was mainly given out in the form of tax expenditures (CRC 95.46 billion) accounting for 73% of the total fiscal cost of support measures. Direct transfers amounted to CRC 35.09 billion.
The fiscal cost of support measures for fossil fuels has increased by 106% since 2017. Since last year, tax expenditures have increased by 244%, from CRC 35.45 billion to CRC 95.46 billion and direct transfers increased by 56%, from CRC 22.54 billion to CRC 35.09 billion. All growth rate percentages above are expressed in terms of nominal national currency amounts.
Table 1. Fiscal cost of support measures for fossil fuels (in billions of national currency)
|
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|---|---|---|---|---|---|---|
|
Tax expenditures |
40.477 |
40.605 |
46.056 |
24.547 |
35.452 |
95.461 |
|
Direct transfers |
22.950 |
21.153 |
19.214 |
22.463 |
22.538 |
35.088 |
|
Total |
63.427 |
61.757 |
65.270 |
47.010 |
57.990 |
130.549 |
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
Table 2. Selected support measures for fossil fuels with a large fiscal cost (in billions of national currency)
|
Measures associated with large fiscal cost in 2022 |
2022 |
2017 |
Variation since 2017 |
|
|---|---|---|---|---|
|
Tax expenditures |
||||
|
Unique tax on Fuels Total exemptions |
63.550 |
40.477 |
23.073 |
|
|
Suspension of the mechanism of the single fuel tax increase for six months. |
20.000 |
Started in 2022 |
20.000 |
|
|
Reduction of the Single Fuel tax for LPG |
11.325 |
Started in 2022 |
11.325 |
|
|
Direct transfers |
||||
|
Cross-subsidy of government policy for Diesel |
18.238 |
Started in 2022 |
18.238 |
|
|
Price differential for Fuels under the Sectoral Policy for the prices of liquefied petroleum gas, bunker, asphalt and asphalt emulsion |
16.010 |
21.565 |
-5.555 |
|
|
Differential of the base calculation of actual billing for fuels used in non-sport fishing fleet |
0.840 |
0.924 |
-0.084 |
|
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports).
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 3. Description of selected support measures for fossil fuels
|
Unique tax on Fuels Total exemptions |
The Law for Tax Simplification and Efficiency (Law 8114 of 2001), established a per unit<i/> tax for the production, refining or importation of each one of the fuel types distributed by the National refinery company RECOPE: gasoline (regular and “super”), diesel (regular and heavy), LPG, jet fuel, asphalt, asphalt emulsion, Bunker, kerosene and Naphtha (light and weight). The quantity of the tax for each product is adjusted every three months by the Ministry of Finance and applied to the fuel price by the Regulatory Authority ARESEP. These adjustments can be used as incentives for prioritising one fuel type over others. In 2022, for example, Law No. 10110, modified uniquely the tax for the LPG and fixed for 6 years to smooth eventual increases of its price and encourage the transition to this fuel kind. However, the measure also includes exceptions for the fuel consumption of airlines, merchant and passenger ships, the fishing fleet (a sector protected by the art. 45 of the Law 7384, which seeks to stablish preferential prices, closer to the international ones) as well as of the Red Cross, diplomatic missions, and international organisations. The law as well presents an exemption for fuel production when destined for exportation. It is important to mention that there is a change in the measuring methodology of this tax from 2019: The Law for strengthening the public finances (Law 9635 of 2018), approved a VAT on consumption goods starting 2019. Nevertheless, in the case of the fuels, the structure (the amounts and the adjustment process) was held almost identical as it was described in the Law 8114 for the fuels. In 2022, the law 10110 aproved a reduction on the the tax aplied to LPG was reduced from 51,75 to 24 colones per fuel litter. This this reduction aims to ecourage the recovering post-covid of the restaurants and industries obtaining energy from this source. |
|
Suspension of the mechanism of the single fuel tax increase for six months |
In July 2022, Law 10295 was approved through which the update of the CPI included in the calculation of the value of fuels was temporarily frozen. In this way, from July to the end of the year, the calculation of updating the single tax on fuels included the value of the CPI registered for June 2022. This measure is taken as a way of mitigating the high values of inflation in the preceding months, partly explained by the war Russia-Ucraine. |
|
Reduction of the Single Fuel tax for LPG |
Law 10110 of January 2022 reduces the single fuel tax charge in the case of LPG to 24 CRC per liter. This measure implied a sudden reduction of 28 CRC per liter and represented a brake for a growing dynamic in it. The measure, which is expected to be valid for 6 years, forces support the country's social recovery and economic reactivation processes and reduces the costs of households that use fuel for cooking or to fuel their cars, as well as for industry and the service sector that can make use of it. |
|
Cross-subsidy of government policy for Diesel |
Between June and July 2022, decree 43575-MINAE was in force to reduce the impact of the price of diesel fuel on the productive and most vulnerable sectors of the country. This regulation proposes the implementation of a cross subsidy that would lower the price of Diesel fuel and cover this difference with a surcharge on the price of gasoline. This, in response to the marked increase in the price of Diesel for automotive use of 50 ppm from 2021 and anticipating an acceleration after the start of the war between Russia and Ukraine. A reduction of around 50CRC in the price of fuel was estimated. The planet measure that the subsidy will be mostly absorbed by around 1 million people, assumed vulnerable, who make use of public transport and but also by the productive sectors such as farmers, fishermen, commercial and cargo carriers. |
|
Price differential for Fuels under the Sectoral Policy for the prices of liquefied petroleum gas, bunker, asphalt and asphalt emulsion |
Through Executive Decree No. 39437-MINAE, the Sectoral Policy for the prices of liquefied petroleum gas, bunker, asphalt and asphalt emulsion is made official. This document creates a price differential for liquefied petroleum gas (LPG) and Fuel Oil No. 6 (bunker C), setting the sales prices on terminal without taxes for the products Liquefied Petroleum Gas, Bunker, Asphalt, Asphalt Emulsion maintains a relationship with respect to the international price similar to that which has been in force in the period 2008-2015. The differences generated in the stock sale price set by ARESEP for these products will be transferred to the stock sale price of the remaining products sold by RECOPE, except for jet fuel. Making this subsidy a cross product type of induced transfer. Recently, executive decree 43576-MINAE added to this sectoral policy the decrease of CRC 2 per liter in the price of gasoline and Diesel. |
|
Differential of the base calculation of actual billing for fuels used in non-sport fishing fleet |
The Subsidy to the non-sporting national fishing fleet (Subsidio a Pescadores), established by the Executive Branch through Law No. 7384 (Creation of the Costa Rican Institute of Fisheries and Agriculture and its reforms and Law 9134 Authentic Interpretation of Article 45 of Law No. 7384 Differential of the base calculation of actual billing for regular gasoline (RON 91) and diesel that goes to the non-sport fishing fleet. This differential directly affects RECOPE's operating margin since the following components are excluded from it: Losses in transit, Costs of support management, Safety Inventory in finished product, Investment (depreciation) Costs for delays in shipments and transfers. This price difference then is charge to the rest of the products distributed by RECOPE, making this a cross product type of induced transfer. |
Data sources
Note on the Methodology
Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.
The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.