Reforming Energy Prices to Support
Sustainable Development
UNECE Committee on Sustainable Energy
21-22 November 2001
Geneva, 22 November 2001
Energy prices play a crucial role in bringing energy supply
and demand into balance. They are a powerful instrument for influencing the
behaviour of producers and consumers. Since 1990, all countries with economies
in transition have taken steps to restructure their energy sectors along
market-based principles and practices as well as to raise their domestic
energy prices. But despite this, energy prices (except for petroleum products)
remain below economic and international levels in most countries with
transitional economies.
"These price distortions impede structural
adjustments, hinder investments in energy conservation and energy efficiency,
discourage investment in environmentally-sound energy infrastructure and are a
drain on state budgets" said George Kowalski, Director of the Division
for Sustainable Energy. "Prices will need to be steadily raised to levels
approximating their "economic" value or to international market
levels, in conjunction with the introduction of measures to alleviate the full
impact of higher energy prices on those least able to absorb them."
Energy pricing is viewed as politically very sensitive in
most countries with transitional economies. It not only has a crucial impact
on the success of reforms and on investment in the energy sector but also
because of its impact on household disposable incomes and the spill over
effects on industry and agriculture where energy is an important cost
component. Achieving the right balance between the benefits of market pricing
and other policy goals is often not easy.
Energy prices have been raised most in the countries of
central Europe that are most advanced in the implementation of market reforms.
This is particularly the case for industrial consumers where prices are now
approaching economic and international price levels. However, the gap
continues to be large for those countries where market reforms are lagging or
countries that are less dependent on energy imports. The current gap between
prices in economies in transition and western countries ranges from 20 per
cent up to 85 per cent. For example, electricity prices in countries in
eastern Europe are now about 80 per cent of the average European Union price
for industrial consumers and 52 per cent for households.
Delegates to the Committee on Sustainable Energy, meeting
in Geneva, 21-22 November, stressed the importance of raising energy prices to
reflect, at a minimum, "economic" costs, that is, the costs of
production, transportation, distribution and use of energy.
In addition, delegates called upon all ECE member States to
increasingly internalise in every day decision-making the costs to human
health and the environment associated with energy production and use (often
referred to as negative environmental externalities). They noted that
Governments had a wide array of policy instruments at their disposal for
internalising those costs in decision-making, ranging from regulations,
economic instruments, including fiscal measures, and voluntary agreements.
Hence, it should be possible for each country to select a mix of instruments
best suited to their individual circumstances and economic conditions to
promote the sustainable production and use of energy.
With this in mind, the Committee on Sustainable Energy and
the Committee on Environmental Policy have agreed to jointly elaborate
guidelines to reform energy prices with the view of (a) assisting economies in
transition in their efforts to raise energy prices to levels approximating
their "economic" value, in conjunction with measures to alleviating
the impact on those least able to pay; (b) assisting policy makers to phase
out, in a socially responsible manner, energy subsidies having an adverse
environmental impact; and (c) promoting the development and use of mechanisms
to internalise external environmental costs associated with energy production
and use.
These Guidelines will be submitted for consideration and
endorsement to the Fourth Environmental Ministerial Conference
"Environment for Europe" scheduled for May 2003, in Kiev,
Ukraine.
Fore more information please contact:
Mr. Slav Slavov
Division for Sustainable Energy
United Nations Economic Commission for Europe (UNECE)
Palais des Nations
CH-1211 Geneva 10, Switzerland
Telephone: + 41 22 917 24 44
Telefax: + 41 22 917 00 38
E-mail: [email protected]
Internet: http://www.unece.org
Ref: ECE/ENE/01/03