Energy Subsidy Reform Assessment Framework : Analyzing the Incidence of Consumer Price Subsidies and the Impact of Reform on Households — Quantitative Analysis
This note aims to provide guidance on how to assess the distributional implications of energy subsidy reform (ESR) using quantitative methods.It is intended for use by those familiar with the basics of welfare measurement, ideally part of a multi...
| Main Authors: | , |
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| Format: | Report |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/250011530882467380/Analyzing-the-Incidence-of-Consumer-Price-Subsidies-and-the-Impact-of-Reform-on-Households-Quantitative-Analysis-Energy-Subsidy-Reform-Assessment-Framework-ESRAF-Good-Practice-Note-3 http://hdl.handle.net/10986/30254 |
| Summary: | This note aims to provide guidance on
how to assess the distributional implications of energy
subsidy reform (ESR) using quantitative methods.It is
intended for use by those familiar with the basics of
welfare measurement, ideally part of a multi-disciplinary
team. Ideally this assessment would therefore be
complemented by insights from qualitative analysis and by
an analysis of the effectiveness of feasible compensatory
measures. The note focuses on how to assess the
distributional implications of household level impacts of
ESR (as opposed to firm level, discussed in Good Practice
Note 6). Its scope is confined to cases where ESRs lead to
higher prices paid by energy consumers. As Good Practice
Note 1 outlines, ESRs do not necessarily lead to higher
prices, and could even decrease prices actually paid, such
as when producer subsidies in the form of price support
paid for by consumers are eliminated, or when consumer
price subsidies lead to illegal diversion and
out-smuggling, acute fuel shortages, and prices that are
even higher than official prices on the black markets. The
latter is particularly important, because a lack of data
often forces the distributional analysis of ESRs to take
observed expenditures on subsidized energy and scale them in
proportion to the calculated price gaps—the gap between the
unsubsidized price and the official price—to estimate the
incidence of subsidies, whereas in practice consumers may be
paying much higher prices than the official prices. Further,
this note is not confined only to ESRs in that the
distributional effects of higher prices of fuels used as
feed stocks—such as natural gas used in fertilizer
manufacturer—are also captured. In addition, while this note
tries to present a general approach, practical pointers are
provided that are relevant for the analysis of different
types of energy, the prices of which are rising, and which
are used either directly or in the production of goods and
services widely in the economy. Overall, therefore, the
note discusses the analysis of liquid fuels, gas,
electricity and district heating (a source of heating used
primarily in Eastern Europe). The word prices applies to all
forms of energy, while tariffs applies to schedules of
regulated prices that are applicable to regulated
electricity, gas, or district heating. For households—the
focus of this paper—two main channels of impacts can be
identified, relating respectively to consumption patterns
and income streams. goth consumption and income can be
affected directly by higher prices for energy, or indirectly
through other price changes triggered by the changes in
energy prices (most notably through higher transport costs
caused by rises in gasoline and diesel prices). These
indirect effects, though harder to quantify than direct
effects, can be significant for petroleum products. |
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