Subsidies are measures that keep prices for consumers below market levels or for producers above market levels, or reduce costs for consumers and producers. Energy subsidies may be direct cash transfers to producers, consumers, or related bodies, as well as indirect support mechanisms, such as tax exemptions, and rebates, price controls, trade restrictions, and limits on market access. They may also include energy conservation subsidies.
Types of energy subsidies are :
- Direct financial transfers – grants to producers; grants to consumers; low interest or preferential loans to producers.
- Preferential tax treatments-rebates or exemption on royalties, duties, producers levies and tariffs; tax credit; accelerated depreciation allowances on energy supply equipment.
- Trade restrictions – quota, technical restrictions and trade embargoes.
- Energy-related services provided by government at less than full cost-direct investment in energy infrastructure; public research and development.
- Regulation of the energy sector-demand guarantees and mandated deployment rates; price controls; market-access restrictions; preferential planning consent and controls over access to resources.
- Failure to impose external costs-environmental externality costs; energy security risks and price volatility costs.
- Depletion allowance-allows a deduction from gross income of up to – 27 % for the depletion of exhaustible resources (oil, gas, minerals).