IEA Energy Statistics Training Week IEA, Paris, 3 March, 2016

Energy Prices and Taxes

Mariano Berkenwald Energy Data Centre © OECD/IEA 2016

Energy prices: why are they important?

Energy prices: why are they important?

Calculating end-use prices

Key statistical concepts Moving to real prices

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Exercises

2

Energy prices: important to us all!

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 Energy prices are constantly in the news, reflecting their importance to both individuals and society as a whole.

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Energy prices vary across countries  Energy prices can be differ greatly from one country to another depending on the availability of energy resources and government policy. Gasoline pump prices in 2014

© OECD/IEA 2016

(USD/liter) Turkey UK Israel Germany Ireland France Austria Hungary DR Congo Mozambiq… Chile Peru Cambodia Armenia Canada Thailand China Swaziland India Ghana Indonesia Egypt Malaysia Nigeria Kuwait Saudi…

0

In 2014, consumers in Turkey paid 14 times more for gasoline than those in Saudi Arabia.

Prices in bordering countries can be very different… In 2015, Venezuela closed several border crossings with Colombia to stop informal fuel trade, equivalent to 100 kbbl/d of oil according to the Venezuelan government. Gasoline is more than fifty times cheaper in Venezuela!

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Sources: IEA Energy Prices and Taxes Database for OECD countries German Agency for International Cooperation for non-OECD countries

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Energy prices can reflect global events

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 Energy markets are global and changes in energy prices can often be linked to major events, fundamental economic developments and even natural disasters.

Source: OECD Factbook

Crude oil is traded in US dollars exchange rates can have a big impact for buyers!

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Energy prices can change very quickly  Movements in primary input prices affect end-use prices differently depending on each country’s taxation policy. End-use prices for oil products in OECD countries and IEA crude import costs 1Q2014-4Q2015

-33%

1Q2014-4Q2015

-12%

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Energy Taxation Notes:

Consumption-weighted average prices including taxes, using current exchange rates for Canada, France, Germany, Italy, Japan, Spain, UK and USA. Crude oil import price is for all IEA countries.

Source: IEA Energy Prices and Taxes Database

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A major expenditure for the economy  Energy is a major cost for the economy and represents, on average, 8 to 10% of a country’s Gross Domestic Product (GDP).

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Energy costs to GDP ratios for USA and OECD (1949-2008)

Source: Bashmakov, 2007

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A major cost for households and industry  In addition to being a major and growing cost for industry, energy is responsible for 8-12% of household’s total expenditures. Estimates for Households' direct expenditure on energy for selected OECD countries as a percentage of total household expenditure Slovenia Italy Denmark Sweden Netherlands Germany Portugal Canada Israel Finland UK USA Australia

0%

5%

10%

15%

20%

© OECD/IEA 2016

In 2014, in Slovenia, over 15% of total household expenditure was on energy. Source: OECD, National Accounts, detailed tables online, households’ final consumption expenditure

8 Source: EC, Energy Economic Developments in Europe, European Economy 1/2014

Why taxes on energy?  Taxes make up a big component of end-user prices and are implemented by governments to raise funds, compensate side-effects of energy use and to drive behavioural changes.

Why do governments tax energy use?

Average effective tax rates on energy in OECD countries

Revenue raising Energy demand is relatively inelastic, making energy products good targets for taxation for revenue raising.

Internalizing costs Compensating for environmental and health problems resulting from emissions.

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Driving change Taxes can provide signals aimed at changing behaviours.

Source: OECD Centre for Taxation Policy, 2013, Taxing Energy Use

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Key statistical concepts: Calculating end-use prices

Energy prices: why are they important?

Calculating end-use prices

Key statistical concepts Moving to real prices

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Exercises

10

What do consumers pay? The concept of end-use price  An end-use price is the sum of an ex-tax price and a tax component, which is made up of an excise tax and a value added tax.

End-use price

Total tax

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Value added tax

Ex-tax price

Excise tax

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What is the ex-tax price?  The ex-tax price includes everything except taxes.

• • • • •

Ex-tax prices covers all costs before the product reaches the consumer: Raw materials Capital expenditure Production costs Transport and distribution Profit margins

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Everything except taxes Ex-tax Price 12

A tale of two countries: Ex-tax price

EXAMPLE: Ex-tax price of gasoline for household use

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Ex-tax Price €/L

COUNTRY A

0.6

COUNTRY B

0.4

Excise Tax €/L

VAT rate %

VAT amount €/L

Total Tax €

End-use price €/L

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What is the excise tax?  Excise tax is levied on a volume basis and is the result of government decisions.

Excise taxes are levied on a volume basis (€/litre) and include: • Environmental taxes • Carbon taxes • Mineral oil taxes • Emergency stock fee • Labour market taxes

TAX EXAMPLE: Excise taxes of gasoline in Finland

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• • • •

Energy/CO2 tax Environmental damage tax Precautionary stock fee Oil pollution fee

Source: IEA, Energy Prices and Taxes

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A tale of two countries: Excise taxes

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EXAMPLE: Excise taxes of gasoline for household use Ex-tax Price €/L

Excise Tax €/L

COUNTRY A

0.6

0.2

COUNTRY B

0.4

0.4

VAT rate %

VAT amount €/L

Total Tax €

End-use price €/L

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What is the value added tax?

Value added tax

 Value added-tax (VAT) is levied on a value basis after all other taxes have been added. The total VAT amount is calculated as a percentage (VAT rate) Value added tax

VAT is a consumption tax on value added and is calculated after all excise taxes have been added.

• Refunded to intermediate “consumers” (e.g. industry) • In non-VAT countries, the equivalent is Sales Tax

As of 2015, over 160 countries had VAT or an equivalent (such as GST) in place.

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A further dozen are currently considering implementing it in the near future. Source: OECD, Centre for taxation policy

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Value added tax

Who pays VAT?

 In general, producers don’t pay VAT as they deduct their own VAT payments from the VAT amounts received from consumers. Refiner

GASOLINE

CRUDE OIL

20$ + 4$ VAT

Consumer

10$ + 2$ VAT

VAT received

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VAT paid

4$ 2$ Net VAT due:

Tax Authority

Oil Producer 2$

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Value added tax

A tale of two countries: Value added tax

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EXAMPLE: Value added taxes of gasoline for household use Ex-tax Price €/L

Excise Tax €/L

VAT rate %

COUNTRY A

0.6

0.2

15%

COUNTRY B

0.4

0.4

20%

VAT amount €/L

Total Tax €

End-use price €/L

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Value added tax

A tale of two countries: Value added tax

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EXAMPLE: Value added taxes of gasoline for household use Ex-tax Price €/L

Excise Tax €/L

VAT rate %

VAT amount €/L

COUNTRY A

0.6

0.2

15%

0.12

COUNTRY B

0.4

0.4

25%

0.2

Total Tax €

End-use price €/L

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Total Tax

A tale of two countries: Total tax

EXAMPLE: Value added taxes of gasoline for household use

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Ex-tax Price €/L

Excise Tax €/L

VAT rate %

VAT amount €/L

Total Tax €

COUNTRY A

0.2

0.12

0.32

COUNTRY B

0.4

0.2

0.6

End-use price €/L

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A tale of two countries: End-use price

End-use price €/L

EXAMPLE: End-use price of gasoline for household use

© OECD/IEA 2016

Ex-tax Price €/L

Excise Tax €/L

VAT rate %

VAT amount €/L

Total Tax €

End-use price €/L

COUNTRY A

0.6

0.32

0.92

COUNTRY B

0.4

0.6

1.00

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A wide variety of prices across countries  Thanks to the collaboration with professionals like you, the IEA can publish updated information on energy prices and taxes on a quarterly basis.

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Unleaded Gasoline Prices and Taxes

Source: IEA, Energy Prices and Taxes

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Test your knowledge!

Do companies ultimately pay VAT? 2 3

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4

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End-use price

Total tax

Ex-tax price

Is this kind of data available in your country? YES

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NO SOME OF IT 24

Key statistical concepts: Moving to real prices

Energy prices: why are they important?

Calculating end-use prices

Key statistical concepts Moving to real prices

© OECD/IEA 2016

Exercises

25

How to compute real prices?  In order to compare energy prices over time, we need to correct the nominal values (current prices) by using an appropriate price index depending on the user.

Nominal price

Real price Price index

A price index removes “inflation” so that, for example, diesel prices in 1995 and 2010 can be compared.

CPI Consumer Price Index

or PPI

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Producer Price Index

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Calculating real price indices EXAMPLE: USA electricity prices for Industry

2012 © OECD/IEA 2016

2013

140

57.3 61.6 63.9 68.3 68.1 67.9 68.2 67.0 68.1

86.0 89.4 92.9 100.2 95.3 100.0 107.8 110.1 110.5

66.7 68.9 68.9 68.1 71.5 67.9 63.3 60.9 61.6

130 120 110 100 90

Nominal price index

2013

2012

2011

2010

2009

80 2008

2011

C =A/B

2007

2010

B

2006

2009

A

2005

2008

150

2004

2007

160

2003

2006

$/MWh

2002

2005

(2010=100)

Real 2010 Price

2001

$/MWh

PPI

2000

Nominal Price

Real price index, 2000=100

Source: IEA, Energy Prices and Taxes

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Why do real prices matter?

Nominal and real crude oil import costs (IEA average) 140

120

100

80

60

40

20

© OECD/IEA 2016

0 1981

1983

1985

1987

1989

1991

1993

1995

Nominal

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

Real (2014 USD)

Source: IEA, Energy Prices and Taxes

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Test your knowledge!

Nominal Prices

Real Prices

Current Prices

Constant Prices

Prices in Value

Prices in Volume

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Test your knowledge!

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Which of the following is the opposite of “real prices” ? Nominal prices

vote

2

Unreal prices

vote

3

Constant prices

vote

4

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How does IEA disseminate prices data?

ENERGY PRICES & TAXES QUARTERLY STATISTICS Paper and pdf publication, CD-Rom and online data service Available at: http://data.iea.org/

MONTHLY OIL PRICE STATISTICS REPORT Free of charge. Available at http://www.iea.org/statistics/topics/pricesandtaxes/

OIL MARKET REPORT © OECD/IEA 2016

Monthly publication, online subscription

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Thank you for your attention

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[email protected]

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Exercises

Energy prices: why are they important?

Calculating end-use prices

Key statistical concepts Moving to real prices

© OECD/IEA 2016

Exercises

33

Prices Exercises End-use prices – The EPT questionnaire

•

MS Excel

•

in the EPT publication

•

Country notes for details on all tax components

20X1 20X2 20X3 1Q20X1 2Q20X1 3Q20X1 4Q20X1 1Q20X2 2Q20X2 3Q20X2 4Q20X2 1Q20X3 2Q20X3 3Q20X3 4Q20X3

AUTOMOTIVE DIESEL price for NON-COMMERCIAL USERS Ex-Tax Excise VAT VAT Price Tax % Amount A B C D 16.729 9.95 0.19 5.07 12.085 9.95 0.19 4.187 .. .. .. .. 16.371 9.95 0.19 5 18.116 9.95 0.19 5.33 18.405 9.95 0.19 5.39 14.026 9.95 0.19 4.56 11.152 9.95 0.19 4.01 12.083 9.95 0.19 4.186 12.586 9.95 0.19 4.282 12.521 9.95 0.19 4.269 13.555 10.95 0.2 4.904 14.996 10.95 0.2 5.189

per litre Total Tax E 15.02 14.137 .. 14.95 15.28 15.34 14.51 13.96 14.136 14.232 14.219 15.851 16.139

Total Price F 31.749 26.222 .. 31.322 33.398 33.742 28.536 25.112 26.219 26.818 26.74 29.406 31.135

=D/(A+B)

=B+D

=D/(A+B)

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=[F/(1+C)]-B

=(A+B)*C =[F-(F/(1+C)]

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Exercise basics (1)

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Exercise basics (1) The basic relationship: • Total Price = Extax Price + Excise Tax + [(ExtaxPrice+Excise Tax)*VAT Rate]

Please note: • Ex-tax price = wholesale price + profit margin + charges • Excise tax = all taxes except VAT • VAT is usually given in % and • VAT Amount = % x (Ex-tax price + Excise Tax) • Industry does not pay VAT • Sometimes households do not pay Excise Tax (in one exercise here...) 35

Exercise basics (2)

Dealing with cyclical demand For example, heating oil is used more commonly during winter months

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 Solution: Base the annual average price on a weighted average (by quarterly consumption) of the quarterly prices

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Exercise basics (3) • Basic end-use prices: Total average prices = Sum (all revenues) / Sum (all quantities sold) (or equally)

= Sum (expenditures) / Sum (all quantities consumed)

• Weighted average end-use prices: Weighted average prices = Sum (prices x quantities) / Sum (quantities) (e.g. annual from quarterly data)

• Weighted average quantities: Weighted average calorific values = Sum (calorific values x consumption) / Sum (consumption)

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Weighted average VAT % = Sum (% x time periods) / Number of time periods

(e.g. Jan.+Feb. at 15%, Mar. at 18% is calculated as [(15x2)+(18x1)] / 3) 37

Exercise basics (4)

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• Pay attention to units!!  Mass = Volume (m3) x Density (kg/m3)  Standard m3 = Normal m3 x 1.055  GCV amount = NCV amount / 0.9 (for natural gas)  1 kWh = 3600 kJ  1 MWh = 1000 kWh  1 GWh = 1000 MWh  1 billion of currency (€) = 109 € • Calculate quarterly results before calculating weighted average annual price from quarterly results. 38

Exercise basics (5)

• The basic relationship Total Price = Extax Price + Excise Tax + [(ExtaxPrice+Excise Tax)*VAT Rate] • When only Total Price is available, work backwards: (1) Extax Price = [Total Price / (1 + VAT%)] – Excise Tax

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(2)

VAT = [Total Price – (Total Price / (1 + VAT%)]

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