By Peter OBIORA InvestAdvocate

Lagos (INVESTADVOCATE)-The United States (US), China and Russia are ranked as the top three Global Energy subsidizers.

This is contained in a Subsidy paper titled “Energy Subsidy Reform: Lessons and Implications” by the International Monetary Fund (IMF) and made available to InvestAdvocate.

The paper said in absolute terms, subsidies in these countries are the United States ($502 billion), China ($279 billion), and Russia ($116 billion).

The Executive Summary of the Paper says that Energy subsidies have wide-ranging economic consequences. “While aimed at protecting consumers, subsidies aggravate fiscal imbalances, crowd-out priority public spending, and depress private investment, including in the energy sector” the Paper said.

It affirmed that subsidies distort resource allocation by encouraging excessive energy consumption, artificially promoting capital-intensive industries, reducing incentives for investment in renewable energy, and accelerating the depletion of natural resources. Most subsidy benefits are captured by higher-income households, reinforcing inequality. Even future generations are affected through the damaging effects of increased energy consumption on global warming.

“Energy subsidies are pervasive and impose substantial fiscal and economic costs in most regions. On a pre-tax basis, subsidies for petroleum products, electricity, natural gas, and coal reached $480 billion in 2011 (0.7 percent of global GDP or 2 percent of total government revenues)” the IMF Paper said.

According to the Report, the cost of subsidies is especially acute in oil exporters, which account for about two-thirds of the total. On a ―post-tax basis—which also factors in the negative externalities from energy consumption—subsidies are much higher at $1.9 trillion (2½ percent of global GDP or 8 percent of total government revenues).

“The advanced economies account for about 40 percent of the global post-tax total, while oil exporters account for about one-third. Removing these subsidies could lead to a 13 percent decline in CO2 emissions and generate positive spillover effects by reducing global energy demand’ the IMF said.

The Paper said Petroleum and electricity subsidies accounted for about 44 percent and 31 percent of the total respectively, with most of the remainder coming from natural gas. “Coal subsidies are relatively small at $6½ billion” it said.

 According to the IMF, pre-tax subsidies are concentrated in developing and emerging economies. Oil exporters—most of which are developing or emerging economies—tend to have the largest subsidies. “This finding holds not only when measuring subsidies in absolute terms, but also as a share of GDP and on a per capita basis” the Paper affirmed.

The Paper further affirmed that the Middle East and North Africa region accounted for about 50 percent of global energy subsidies. Energy subsidies totaled over 8½ percent of regional GDP or 22 percent of total government revenues, with one-half reflecting petroleum product subsidies. The regional average masks significant variation across countries. Of the 20 countries in the region, 12 have energy subsidies of 5 percent of GDP or more. Subsidies are high in this region for both oil- exporters and importers.

The IMF said countries in Emerging and Developing Asia were responsible for over 20 percent of global energy subsidies. They amounted to nearly 1 percent of regional GDP or 4 percent of total government revenues, with petroleum products and electricity accounting for nearly 90 percent of subsidies. Energy subsidies exceeded 3 percent of GDP in four countries (Bangladesh, Brunei, Indonesia, and Pakistan).

While the Central and Eastern Europe and CIS accounted for about 15 percent of global energy subsidies, including the highest share (at nearly 36 percent) of global natural gas subsidies. Energy subsidies amounted to over 1½ percent of regional GDP or 4½ percent of total government revenues, with natural gas and electricity accounting for about 95 percent. They exceeded 5 percent of GDP in four countries (Kyrgyz Republic, Turkmenistan, Ukraine, and Uzbekistan).

The Latin America and Caribbean made up over 7½ percent of global energy subsidies (approximately ½ percent of regional GDP or 2 percent of total government revenues), with petroleum subsidies accounting for nearly 65 percent. Energy subsidies exceeded 5 percent of GDP in two countries (Ecuador and Venezuela).

However, Sub-Saharan Africa accounted for about 4 percent of global energy subsidies. Energy subsidies amounted to 1½ percent of regional GDP or 5½ percent of total government revenues, with electricity subsidies accounting for over 70 percent. Total subsidies exceeded 4 percent of GDP in three countries (Mozambique, Zambia, and Zimbabwe).

“The only advanced economy where energy subsidies were a non-negligible share of GDP was Taiwan Province of China at 0.3 percent of GDP (electricity)” the IMF Subsidy Paper said.

The IMF says pre-tax subsidies are pervasive and impose significant fiscal costs in most developing and emerging regions. They are most prominent in Middle East and North Africa, especially among oil exporters. Given that energy consumption can be expected to rise as incomes grow, the size of subsidies could climb in regions where they currently account for a small share of the global total, such as sub-Saharan Africa.

“Virtually all of the world’s economies provide energy subsidies of some kind when measured on a tax-inclusive basis, including 34 advanced economies. For some products, such as coal, post-tax subsidies are substantial because prices are far below the levels needed to address negative environmental and health externalities” the IMF said.

The fact that energy products are taxed much less than other products also contributes to the high level of post-tax subsidies. In MENA, for example, applying the same rate of VAT or sales taxes to energy products as other goods and services would generate ¾ percent of GDP. Of the global total, pre-tax subsidies account for about one-quarter, and tax subsidies account for about three-quarters.

Click here to download full subsidy paper by the IMF