Energy Prices and Subsidies
Sales No. E/F/R.03.II.E.52
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Background Information on UNECE and Energy Pricing, Subsidisation and the Internalisation of Externalities
The UNECE is developing a programme of work related to energy pricing, subsidisation and the internalisation of externalities. These issues are particularly relevant to both western developed countries and UNECE economies in transition. However, priorities and approaches differ between the two groups of countries. For example, energy pricing is much less of an issue for western countries since prices are already at economic levels. On the other hand it is a pressing issue for the governments of transition countries where energy prices have not yet been raised to economic levels. For western countries subsidisation and internalisation of negative environmental externalities are of most relevance. Obviously, the policy concerns and policy measures implemented by both groups of countries will invariably converge over time and also with the impending enlargement of the European Union.
Energy subsidies often fail to meet their intended objectives. They fail either to correct market imperfections or to meet social objectives, such as to protect the most vulnerable groups in society. While it is difficult to quantify the costs and benefits of subsidisation it is clear that subsidies keep energy prices below economic levels, contribute to environmental degradation and contribute and inappropriate depletion of natural resources. Removing subsidies, once in place, is an acute political problem for governments, particularly the economies in transition where social safety nets are weak or non-existent.
At their annual sessions in 2001, the UNECE Committees on Sustainable Energy and on Environmental Policy established a Task Force on Environment and Energy for the period 2002-2005 with a mandate to develop non-legally binding guidelines for decision-makers on reforming energy prices to support sustainable energy development. The guidelines should help, inter alia, in preventing and reducing waste of energy and energy-related environmental impact. Energy and environmental experts have been designated by a number of UNECE Governments in response to the secretariat invitation to participate in the Task Force. As a first step, the joint Task Force focused on parts I and II of the guidelines, namely, on (a) raising energy prices to economic levels in countries in transition, and (b) reforming energy subsidies throughout Europe. Two consultants were engaged to prepare elements for these guidelines, respectively, using as a basis documents developed by the International Energy Agency, OECD, UNEP, the United Nations Commission on Sustainable Development, UNECE and other forums. The revised Summary of Recommendations as annexed to the present document (Reforming Energy Prices and Subsidies) was checked and approved by the Committee Bureau, thereafter. The Committee on Sustainable Energy and that of the Committee on Environmental Policy have jointly approved the guidelines and agreed to submit them to the Ministerial Conference "Environment for Europe" in Kiev, for endorsement.
A copy of the Guidelines and other documentation on Reforming Energy Prices and Subsidies is available on the Documents page of this website.
UNECE Intergovernmental Task Force on Reforming Energy Prices for Sustainable Development
- Committee on Environmental Policy: ECE/CEP/74, para. 35; Committee on Sustainable Energy: ECE/ENERGY/43, para. 37; and the Economic Commission for Europe: E/2001/37, E/ECE/1387, with respect to encouraging intersectoral cooperation, paras. 27-36).
- Parent Bodies
- UNECE Committee on Environmental Policy and Committee on Sustainable Energy.
Political commitments of ECE member States to shift national economies and energy markets towards a more sustainable path of development (e.g., Agenda 24, Kyoto Protocol); the need for urgent implementation of political commitments; the need to complement current efforts to liberalize energy markets in order to promote more sustainable energy development; the need to harmonize policies at regional level and integrate energy markets of western and eastern countries in a sustainable way.
Scope of the Programme of Work
The Programme of Work will focus on the following main elements:
- review and assessment of energy pricing in economies in transition with the aim of elaborating guidelines on energy pricing for policy makers in time for the May 2003 Kiev Ministerial Meeting;
- analysis of energy subsidization in western and eastern countries of the ECE with the aim of elaborating guidelines on the issue by mid 2004; and
- assessment of methodologies for internalising environmental costs through the use of fiscal instruments, including taxation, and measures to promote their use, to be completed by the end of 2005.
The specific programme will, however, depend upon the decisions arrived at by the two Committees regarding a number of issues raised in sections A, B and C of document ENERGY/2001/6 "Reforming Energy Prices for Sustainable Development".
Reforming energy prices for achieving the objectives of sustainable energy development in the ECE region, including:
- assisting economies in transition in their efforts to raise energy prices to levels approximating their “economic” value or to international market levels, in conjunction with measures to alleviate the full impact of higher energy prices on those least able to absorb higher prices;
- assisting policy makers to phase out, in a socially responsive manner, energy subsidies for environmentally damaging sources of energy; and
- promoting both the development and use of mechanisms to internalise external costs of energy production and consumption and promoting the more extensive use of fiscal instruments to meet environmental objectives.
Non-legally binding guidelines for policy makers.
Members of the Task Force to be personally nominated by governments and organisations, to meet twice or more a year. Substantive work and consultations carried out through use of electronic correspondence. On the request of Task Force, the ECE secretariat may additionally organise workshops for wider discussions and consultations.
Four years, commencing 2002 and ending 2005.
Government officials or government- nominated representatives, working in the field of environmental, energy, economic and fiscal policies; experts from national institutes dealing with energy and environment; representatives of international organisations, such as UNEP, OECD, IEA, IAEA, WHO.
The ECE secretariat and a number of member countries will provide logistic support for meetings of the Task Force and workshops. Governments interested in designating regular experts to the Task Force should finance their participation. However, extrabudgetary resources will be needed to cover consultancy work, involvement of experts from some economies in transition and incidental expenses.