Crude oil and natural gas resources in Argentina include conventional onshore and offshore resources as well as unconventional shale. Although oil production in the country fell by around 30% in 2005-2017, enormous potential remains. As a result of increasing international prices and the implementation of local measures to encourage investment in the energy sector, production has generally increased since 2015 for natural gas, by 3% on average annual growth (2015-2019). Growth in crude oil production however remained more sluggish in the same period and together with natural gas suffered major contractions (-6% and -8% respectively) in 2020 during the height of the pandemic. The main driver for the increases in Argentinian domestic production was the increased activity in the Vaca Muerta formation which holds the second largest shale gas reservoir and the fourth largest shale oil deposit in the world. In terms of power generation, Argentina relies on natural gas (65%), hydropower (18%), followed by nuclear 8%, wind (7%) and solar (1%). A set of public policies have boosted utility-scale projects in variable renewables, taking advantage of its rich solar and wind resources. The country has set a goal for non-hydro renewables to reach 20% of the power mix by 2025 and recent efforts have triggered increased deployment, for instance 12.5% in 2021.
OECD Inventory of Support Measures for Fossil Fuels: Country Notes
Argentina
Energy resources and market structure
Source: IEA (2022), "World energy statistics", IEA World Energy Statistics and Balances (database).
The Secretariat of Energy, under the Ministry of Productive Development, is responsible for the policies in the energy sector. Yacimientos Petrolíferos Fiscales (YPF), the largest oil and gas producing company and the leading downstream firm in Argentina, holds 50% of the refining capacity in the country. Following its nationalisation in 2012, the company has re-launched its exploration activities and more recently, has emerged as the leading Latin American company in unconventional hydrocarbon production. The natural gas transportation pipeline system and distribution is privately owned. The National Gas Regulatory Agency (Ente Nacional Regulador de Gas ― ENARGAS) sets rates for natural gas transmission and distribution. The transmission service is carried out by two companies: TGN and TGS, which connect the five existing basins with the rest of the country. In turn, gas distribution is carried out by nine companies. The electricity generation market includes a wholesale market, operated by Compañía Administradora del Mercado Mayorista Eléctrico S.A. (CAMMESA), where generating companies — mostly private firms — sell their production, accounting 63.5% of fossil sources (mainly natural gas) in 2021. Electricity transmission is carried out at regulated prices by six regional transmission companies and one high-tension transmission company. The National Electricity Regulatory Agency (Ente Nacional Regulador de la Electricidad ― ENRE) is responsible for regulating retail prices in the City of Buenos Aires and some districts of the Greater Buenos Aires area, while provincial regulators are responsible for regulating retail prices in the rest of the country.
Energy prices and taxes
In response to the devaluation of the Argentine peso (ARS) in 2002, the government converted gas and electricity rates from their original value in US dollars into Argentine pesos at a rate of ARS 1 per USD 1. It also froze all regulated distribution and transmission prices, as well as energy payments to power plants. Between 2002 and 2015, due to volatile exchange rates, inflation and increased production costs, the energy policy was mainly aimed at stabilising utility rates and fuel prices through consumption and production subsidies. This regulatory intervention, in effect for more than ten years, significantly dissociated domestic utility rates and fuel prices from the real economic costs of supply. In December 2015, with the energy sector falling into deficit, the government declared an “Energy Emergency” — lasting until December 2017 — and conducted a Comprehensive Rate Review to adjust utility rates to reflect real production costs and normalise the gas and electricity markets. Between 2016 and 2019, natural gas and electricity rates were revised upwards and consumer subsidies gradually withdrawn, while maintaining a social rate for the most vulnerable sectors. In the petroleum upstream sector, the government completely removed incentive programmes for the production of oil and introduced changes in market regulations and conditions to foster strategic investments (e.g. in unconventional reservoirs). The government also lifted local fuel price controls to make them gradually converge with market prices and prompted changes in the fuel tax scheme.
Figure 2. Total tax rebates and support for fossil fuels in Argentina
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
Amid the deepening economic recession in 2019, which saw a steep currency devaluation of 60% and high inflation rates of 53.8%, the government temporarily froze fuel prices and slowed down utility rates increases. Upon the assumption of President Fernandez’ administration in December 2019, an economic emergency was declared for a year freezing electricity and gas rates until June 2020, while re-negotiating the Comprehensive Rate Review to reduce the rates paid by consumers. As of December 2021, a bill to encourage investments in Vaca Muerta has been signed and now in operation. Similar efforts have been seen in the country’s other fossil fuel resources, such as the Rio Turbio coal basin, which saw budget transfers increasing around three-fold in 2020, for which now achieves a production surplus that is exported to other countries.
In the aftermath of the COVID-19 pandemic which initially brought record falls in energy prices in 2020, measures to prop up the country’s fossil fuels sector were announced or implemented. In May 2020, the administration introduced a floor price for oil at USD 45/barrel to prop up production and investment in the Vaca Muerta shale field in northern Patagonia. In October 2020, a four-year price subsidy programme was announced, targeting gas producers to revive the Vaca Muerta field and avoid a jump in imports. Under this, companies that compete for a three-year supply contracts auction can receive a maximum of USD 3.70 per million BTU, with the government covering the difference between the winning bids and the prices currently paid by the public, set at USD 2.30. The programme specifically targets Vaca Muerta, while other natural gas basins in the country are ineligible.
Also in 2020, the Argentinian parliament approved a tax placed on the wealthiest tax bracket to mitigate the economic effects of the COVID-19 pandemic in the most vulnerable population. In the text, 25% of the revenues of the tax will be dedicated to natural gas exploration, development, and production programs. These funds will be managed by the state-owned companies Integrations Energética Argentina S.A (IEASA), and Yacimientos Petrolíferos Fiscales (YPF) for a term of no less than ten years.
In 2022, the Registry of Access to Energy Subsidies (RASE), was created by the Decree No. 332/2022 of the Ministry Energy of Argentina to provide gas and electricity subsidies to vulnerable households. Consumers of gas and electricity are divided into three levels in RASE: High-income service users (N1), Low-Income Service Users (N2) and finally Users of the middle-income service (N3). The purpose of this division is to organise electricity and gas subsidies based on the socio-economic aspects of households to target subsidies to those who need them the most. In January 2023, the Secretary of Energy announced that users registered in tier N2 (lower income) of RASE will have no increase in gas prices for the year 2023, effectively freezing gas prices for three and a half million users registered in RASE.
The fiscal cost of support measures for fossil fuels in Argentina was estimated at ARS 1266.73 billion in 2022 (Table 1). Nine per cent (9%) was directed at end user beneficiaries, as opposed to 90% directed to firms. Support was mainly given out in the form of direct transfers (ARS 1105.35 billion) accounting for 87% of the total fiscal cost of support measures. Tax expenditures amounted to ARS 161.38 billion.
The fiscal cost of support measures for fossil fuels has increased by 752% since 2017. Since last year, tax expenditures have increased by 31%, from ARS 135.75 billion to ARS 161.38 billion and direct transfers increased by 72%, from ARS 898.24 billion to ARS 1 105.35 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 |
40.460 |
44.840 |
66.594 |
83.074 |
135.751 |
161.378 |
|
Direct transfers |
108.167 |
129.548 |
168.123 |
285.861 |
898.237 |
1105.350 |
|
Total |
148.628 |
174.388 |
234.717 |
368.934 |
1033.988 |
1266.728 |
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 |
|
|||
|
Differences Between the Tax Rates applied to Motor Gasoline and Diesel Fuel |
107.869 |
22.021 |
85.848 |
|
|
Tax Exemption for Liquid Fuels Used in the Southern Region of the Country |
29.436 |
7.048 |
22.388 |
|
|
Payment on account of VAT and Income Tax of 45% of the Tax on Liquid Fuels |
24.073 |
5.529 |
18.543 |
|
|
Direct transfers |
||||
|
Operating Aid to CAMMESA |
676.140 |
19.017 |
657.123 |
|
|
Financial assistance to Integración Energética Argentina S.A. (former ENARSA) |
232.515 |
10.436 |
222.079 |
|
|
Strategic Co-ordination and Planning of the National Plan for Oil Investments |
59.133 |
21.924 |
37.209 |
|
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
|
Differences Between the Tax Rates applied to Motor Gasoline and Diesel Fuel |
Through Law 23 966 of 1991 (amended by Law 27 430 of 2017 - Title III Taxes on Liquid Fuels and Carbon Dioxide), the Argentine Government established a tax on liquid fuels imposed on importers, and refining and producing companies of liquid fuels and other hydrocarbon by-products. The changes introduced by Law 27 430 included the application of a flat tax amount in Argentine pesos (instead of an ad valorem tax) per litre of fuel. Flat tax amounts are quarterly updated by the inflation rate (based on the variations of the Consumer Price Index - IPC issued by the National Institute of Statistics and Censuses). The applied flat tax amount depends on the type of fuel (motor gasoline is levied with a higher amount than gas/diesel oil): thus, in the case of gas/diesel oil, a lower flat tax amount in Argentine pesos per litre acts as an incentive to discourage the use of motor gasoline for motor vehicles. In Decrees 820/2021 and 98/2022 (which extend the measure) they propose the freezing of the application of the increases in the fuel tax contemplated for the year 2021 to be applied only until June 2022 for unleaded gasoline, virgin gasoline and diesel. |
|
Tax Exemption for Liquid Fuels Used in the Southern Region of the Country |
Article 7, paragraph d), of Law 23 966 of 1991 (amended by Law 27 430 of 2017 - Title III Taxes on Liquid Fuels and Carbon Dioxide) established a tax exemption for the consumption of liquid fuels in the following areas of Argentina: Provinces of Neuquén, La Pampa, Río Negro, Chubut, Santa Cruz, Tierra del Fuego; Antarctic and South Atlantic Islands; the District of Patagones in the Province of Buenos Aires and the District of Malargüe in the Province of Mendoza. Some of the reasons underlying this tax exemption are: (i) the large distances between these areas and other urban centres with greater population; (ii) the use of motor vehicles as working tools rather than as luxury items; (iii) the high cost of living in the southern region of the country; and (iv) the promotion of activities such as tourism, fishing and transport. The changes introduced by Law 27 430 included the application of a flat tax amount in Argentine pesos (instead of an ad valorem tax) per litre of fuel as of 2018. Flat tax amounts are quarterly updated by the inflation rate (based on the variations of the Consumer Price Index - IPC issued by the National Institute of Statistics and Censuses). |
|
Payment on account of VAT and Income Tax of 45% of the Tax on Liquid Fuels |
Through Law 23 966 of 1991 (amended by Law 27 430 of 2017 - Title III Taxes on Liquid Fuels and Carbon Dioxide), the Argentine Government established a tax on liquid fuels imposed on importers, and refining and producing companies of liquid fuels and other hydrocarbon by-products. As of 2018, it also established that 45% of the tax on gasoil can be computed as payment on account of VAT and Income Tax in certain activities. In the case of VAT, the activities included are public passenger transport services and/or maritime, river or road cargo services; and in the case of Income Tax, agricultural activities, mining and sea fishing [1]. Footnote: [1] Previously, 100% of the tax on gasoil could be computed as payment on account of VAT and Income Tax in the above mentioned activities (as established in Chapter II, Article 3, paragraph g) of Law 24 698 of 1996 and in Decree 987/2001). |
|
Operating Aid to CAMMESA |
Compañía Administradora del Mercado Mayorista Eléctrico S.A. (CAMMESA) was created in 1992 by Decree 1192. It is a privately managed company serving a public purpose. Eighty per cent (80%) of its shareholding is owned by the stakeholders of the Electric Wholesale Market (Mercado Eléctrico Mayorista - MEM), namely electricity generation companies, electricity transmission companies, electricity distribution companies, and large users with a 20% share each. The remaining 20% is held by the Secretariat of Energy [1]. The main functions of CAMMESA include: (i) co-ordination of energy and power despatch operations, and commercialisation of energy and power despatch from imports and binational enterprises; (ii) establishment of wholesale prices; and (iii) administration of economic transactions carried out through the National Interconnected Grid System by managing collections and payments or by validating the transactions conducted between MEM stakeholders. Transfers for current expenditures to CAMMESA have been allocated to the purchase of liquid fuels for the production of energy in thermoelectric power plants [2] and to the payment of operating costs incurred by the sector, as well as other expenditures [3] [4]. This measure is based on the need to guarantee the functioning of the electricity system, which implies costs for the supply of liquid fuels that cannot be afforded by electricity generation companies due to electricity price regulations previously established in the context of increasing production costs – in 2002-2015 the wholesale electricity market was intervened through a virtual freezing of the rates paid by final consumers (residential, commercial and industrial consumers), and this implied significant distortions between final rates and real economic costs of supply (e.g. in early 2016, the rate paid by residential consumers represented an equivalent to 3% of the actual cost of electricity generation). Following the rate normalisation process begun in 2016, transfers for current expenditures have mainly covered the percentage of costs not included in the rates paid by consumers and the operating costs of the energy sector. Thus, as a result of the rate normalisation process, in 2018 the rate paid by consumers covered 61% of the Wholesale Electricity Cost; and 30% of residential consumers had access to the social electricity rate. In addition, in 2015-2019 the consumption of liquid fuels (diesel fuel, fuel oil) and coal for power generation declined by 89% due to a higher availability of domestic natural gas and a decrease in demand. Footnotes: [1] As of September 2018 (formerly Ministry of Energy and Mining, and until December 2015, formerly Ministry of Federal Planning, Public Investment and Services - MINPLAN); [2] Previously, mainly diesel fuel and fuel oil from Venezuela following the 2004 agreement for the supply of diesel fuel and fuel oil between the Argentine Government and Venezuela; [3] Examples include payments for the import of electricity from Brazil and formerly, payments allocated to FONINVEMEM - Fund for Necessary Investments to Increase Electricity Supply in the Wholesale Electricity Market; [4] Although the funds to cover these costs had not been provided for in the budget for the year 2004, they were nevertheless allocated by Administrative Decision 199/2004 in order to ensure the sustainability of electricity supply. Funds to cover these costs were finally included in the National Budget as of 2005. |
|
Financial assistance to Integración Energética Argentina S.A. (former ENARSA) |
Energía Argentina Sociedad Anónima (ENARSA) was created in December 2004 by Law 25 943. It is a state-owned company devoted to the generation and commercialisation of energy. In 2017, the company Integración Energética Argentina S.A. (IEASA) was created as a result of the merger between ENARSA and Emprendimientos Binacionales S.A. (EBISA) (Decree 882/2017). Nowadays, Integración Energética Argentina S.A. is responsible for the purchase of natural gas and liquefied natural gas, activity which was formerly conducted by ENARSA. The origin of the budget transfers to ENARSA can be traced back to two key events. On the one hand, in June 2006, after Argentina and Bolivia signed a Framework Agreement for the sale of natural gas and the implementation of Energy Integration Projects, ENARSA became responsible for the commercialisation of natural gas imported from Bolivia. The contract with Yacimientos Petrolíferos Fiscales Bolivianos (YPFB) was signed in January 2007 for 20 years (i.e. until 2026) [1]. Since then, the outlays from the National Treasury have been primarily intended to compensate the price difference between the sale price in the domestic market and the purchase price of imported natural gas and liquefied natural gas. On the other hand, Resolution 459/2007 of the former Ministry of Federal Planning, Public Investment and Services (MINPLAN) implemented the programme Programa de Energía Total (PET) throughout the national territory in order to encourage: (i) the use of alternative fuels (such as fuel oil, diesel fuel and LPG) rather than natural gas and electricity in the different production activities; and (ii) electricity self-generation in adequately equipped companies. To this end, a compensation scheme was established for liquid fuels producing companies (e.g. Repsol-YPF, Petrobras Energía and Esso Petrolera Argentina) in order to subsidise the domestic sale price of alternative fuels. In 2008, Provision 30/2008 of the former MINPLAN established ENARSA as the technical and operational management unit of the PET, making it responsible for providing PET compensations to liquid fuels producing companies. According to Provision 30/2008 and Provision 287/2008 of the former MINPLAN, it should be assumed that from 2009 the PET (previously reported under measure ARG_dt_15) was included in the amounts transferred to ENARSA, even if in the National Budget this programme is explicitly mentioned among these transfers only form 2010. For the purpose of this inventory, only the amounts attributable to electricity generated by non-renewable sources are reported under this measure. These amounts were calculated based on the IEA’s Energy Balance for Argentina. Footnote: [1] In February 2019, Argentina signed an addendum to the gas supply agreement with Bolivia, establishing a scheme of prices and volumes with greater seasonality in supplies for the period 2019-2020. Thus, Argentina would save USD 460 million in two years. |
|
Strategic Co-ordination and Planning of the National Plan for Oil Investments |
In 2012, Decree 1277, which regulates Law 26 741, created the former Commission for Strategic Co-ordination and Planning of the National Plan for Oil Investments. This Commission, made up by representatives of the former Ministry of Economy and Public Finance and of the Secretariat of Energy of the former Ministry of Federal Planning, Public Investment and Services (MINPLAN), created the programme Strategic Co-ordination and Planning of the National Plan for Oil Investments, with the aim of promoting and securing oil investments. Through this programme, compensations are granted to private companies under the Incentive Programme for the Injection of Natural Gas Surplus (Plan Gas) created by Resolution 1/2013 of the Commission and under the Programme Destined to Companies with Reduced Injection (Plan Gas II) created by Resolution 60/2013. These programmes are intended to provide incentives for investments in the exploration and exploitation of new natural gas fields in order to reduce the gap between gas production and consumption in Argentina. Both programmes guarantee producing companies a price of USD 7.5 per MMBtu for production levels above a threshold previously agreed with the companies, thus subsidising the difference between this value and that paid by distribution companies. Resolution 60/2013 established a tiered pricing scheme for surplus injection, where the maximum price is up to USD 7.5 per MMBtu. The Incentive Programme for the Production of Crude Oil, created by Resolution 14/2015 of the Commission, established temporary economic compensations to encourage oil production for domestic consumption and export. These temporary economic compensations were reformulated in the Incentive Programme for the Export of Crude Oil Surplus from the Gulf of St. George Basin - Resolution 21/2016, effective from 1 January 2016 to 31 December 2016. Finally, incentive programmes for the production of oil were completely removed. As of 2016 this measure (ARG_dt_02) includes all these incentive programmes, Compensations to Propane Manufacturers (Decree 934/2003) and Petróleo Plus. Until 2015, these last two measures had been listed under ARG_dt_14. Since 2016, only outlays from the National Treasury to provide financial support to the private sector have been included under ARG_dt_14. Lastly, in 2016 Resolution 74/2016 of the former Ministry of Energy and Mining created the Incentive Programme for New Natural Gas Projects (Plan Gas III). This programme is aimed at boosting the natural gas production of those companies which submit new projects for the production of natural gas and which do not benefit from Plan Gas or Plan Gas II. Through this programme they can obtain an incentive price of USD 7.5 per MMBtu. Likewise, in 2017 Resolution MINEM 46/2017 created the Incentive Programme for Investments in Developments of Natural Gas from Unconventional Reservoirs (tight gas or shale gas). This programme established decreasing minimum prices for new projects for the production of natural gas from unconventional reservoirs as follows: USD 7.5 per MMBtu for 2018, USD 7 per MMBtu for 2019, USD 6.5 per MMBtu for 2020, and USD 6 for MMBtu for 2021. |
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.