The Role of Pricing, Taxation and Incentives for Introducing Cleaner Fuels in Asia

1. The Role of Pricing, Taxation and Incentives for Introducing Cleaner Fuels in Asia Grant Boyle, ADB Consultant May 22, 2006, Manila, Philippines Developing Fuel Quality Roadmaps for Conventional Fuels in Asia

2. Pricing, taxation and incentives and cleaner fuels governance/policy

3. What are the sources of cleaner fuel supply in Asia? Domestic Refinery Upgrades? Regional Imports? (Singapore, South Korea, Chinese Taipei, Japan, Australia, India…) Global Imports? ( Middle East…) Source: BP Statistical Review 2005; *APERC, 2005

5. Regulatory Framework: Industry Structure Source: US DOE, 2005; APERC, 2005; Petroleum Intelligence Weekly, 2005

6. Regulatory Framework: Pricing &Tax Source: Metschies, 2005; APERC, 2005

7. Impact of Rising Oil Prices • In October 2005, Indonesia increased diesel prices 105% Rp 2100 ($US 0.22) to Rp 4300 ($US 0.46) and gasoline prices from 88% Rp 2400 ($US 0.26) to Rp 4500 ($US 0.48). • In 2005 Malaysia forewent a fuel sales tax, which amounted to RM7.9 billion (US$2.2 billion). As of March 2006, pump prices had risen 40% for gasoline and 100% for diesel since October 2004. • China: PetroChina lost 19.8 billion Yuan (US$2.4 billion) on refining and fuel sales in 2005. In 2005, the government gave Sinopec a payment of Rmb9.42 billion (US $1.18 billion) to compensate for its refining losses. 2006 introduced a ‘special revenue charge’ on crude oil producers; varies according to international crude prices between 20% and 40% on prices exceeding US$40 per barrel.

8. Implications of Regulatory Framework for Cleaner Fuel • Controlled pricing regimes can preclude opportunity to pass costs of cleaner fuels on in consumer prices. • Does preferential tax treatment for diesel have cleaner fuel implication? (Also, subsidies to kerosene may encourage fuel adulteration). • Less competitive, protected markets will not move to cleaner fuels unless mandated by government or may not be prepared to do so. • Industry structure and ownership influences financing arrangements.

10. Cleaner Fuel Incentives 3 pence per liter 2 pence per liter 1 pence per liter Source: HM Customs and Excise,2000- in Environment Canada, 2000

11. Cleaner Fuel Incentives in Asia Euro Spec/ ULSD Unleaded

12. Cleaner Vehicle Incentives Source: Land and Transport Authority OMV (Open Market Value) is the basic price of the vehicle determined by customs ARF (Additional Registration Fee) is typically 110% of OMV

13. Cleaner Vehicle Incentives in Asia

14. Conclusions • The global experience shows that regulations are instrumental in establishing the market for cleaner fuels. Tax advantages and incentives have helped accelerate and support cleaner fuels globally and in Asia, but have not acted as substitutes for regs. • Asian countries have managed to introduce cleaner fuels quickly without incentives, especially importing countries.

15. Conclusions • Market pricing that allows refiners to pass higher costs of cleaner fuels on to consumers may be the most important fuel pricing policy issue concerning cleaner fuel investments. High international prices in recent years have illustrated the non-sustainable nature of subsidized fuel prices in general, as well as the feasibility of letting retail prices rise, but also the challenges of fuel poverty. • Over the short term, advantageous pricing and taxation for cleaner fuels can be adopted, based on existing industry structures and pricing regimes.

16. Thank you boyle@hq.unu.edu