This note provides guidance on how to approach and assess energy subsidies, quantifying them where possible. It suggests a definition of subsidies and describes options for categorizing and measuring subsidies. It also outlines policy issues to consider in reforming the subsidies in developing countries. These issues include different ways in which subsidies can arise and be delivered, pitfalls in subsidy design and delivery, frequently observed discrepancies between design and implementation, and unintended consequences, including effects on energy suppliers.
The note describes the challenges of quantifying subsidies in both data collection and subjective judgment, and how the magnitude of subsidies so calculated may differ markedly from subsidies received by its intended beneficiaries. It covers fuels, electricity, and district heating. It also touches on non-energy use of oil, gas, and coal, such as naphtha, liquefied petroleum gas (LPG), and natural gas serving as feedstocks to make petrochemicals and fertilizers. ESRAF uses the word “prices” to refer to prices paid for all forms of energy, and “tariffs” to refer to a schedule of prices subject to economic regulation, such as those for electricity, natural gas, and district heating.
This note excludes from detailed discussion subsidies specifically targeting renewable energy, except certain liquid biofuels that are blended with petroleum fuels and renewable energy that is part of the power mix. Because district heating is confined largely to Europe and Central Asia, it is covered in the definition and categories of subsidies, but is otherwise not treated in detail.
The note is available for download from the World Bank website.