Publication: Reforming Fossil Fuel Subsidies: Drivers, Barriers and the State of Progress
Loading...
Files in English
645 downloads
Published
2016-06-24
ISSN
1469-3062
Date
2017-09-11
Author(s)
Bazilian, Morgan
Editor(s)
Abstract
This article outlines the current state of affairs in fossil fuel subsidy reform, and highlights its contribution at the nexus of climate policy, fiscal stability and sustainable development. It discusses common definitions, provides quantitative estimates, and presents the evidence for key arguments in favour of subsidy reform. The main drivers and barriers for reform are also discussed, including the role of (low) oil prices and political economy challenges. Commitments to subsidy reform by the international community are reviewed, as well as the progress at the country level. Although fossil fuel subsidy reform indeed plays a critical role in climate policy, experience shows that the rationale for such reforms is determined in a complex environment of political economy challenges, macro-economic, fiscal and social factors, as well as external drivers such as energy prices. The article synthesizes the key principles for designing effective reforms and emphasizes that subsidy reforms cannot only yield fiscal relief, but should also contribute to long-term sustainable development objectives. Areas for future research are also identified.
Link to Data Set
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Distributional and Health Co-Benefits of Fossil Fuel Subsidy Reforms(World Bank, Washington, DC, 2023-04-13)Governments around the world continue to subsidize fossil fuel use, incentivizing unsustainable consumption levels with consequences for the global climate and human health. However, governments have proven reluctant to reform fossil fuel subsidies (FFS). This is mainly due to concerns over potential adverse effects on poverty and equity; the positive effects on air quality and health are often overlooked. This study offers new insights on the distributional consumption incidence of FFS reforms and expected benefits through improved air quality and health outcomes. Using the World Bank-International Monetary Fund Climate Policy Assessment Tool, we conduct country-level analyses of a complete removal of domestic FFS, considering 19 countries for the distributional consumption analysis, and 25 countries for the health benefits analysis. Our findings suggest that across countries, the absolute consumption burden of FFS reform on the richest decile would be 13 times larger than on the lowest-income decile, supporting evidence that FFS are an extremely inefficient way of supporting lower-income groups. In relative terms, however, the disparity is much smaller, with the richest decile bearing a relative consumption burden that is just 1.1 times larger than that borne by the lowest-income decile. In terms of positive health effects, removing FFS in 25 countries could save a total of 360,000 lives by 2035. The magnitude of the health effect depends on country-specific factors, such as the size of initial subsidy programs, and the extent to which these cover the most polluting fuels. FFS reforms can be a first step in improving air quality and reducing the burden of disease associated with air pollution.Publication From Universal Price Subsidies to Modern Social Assistance : The Political Economy of Reform(Washington, DC, 2013)The efficiency and effectiveness of generalized subsidies as part of a safety net system are questionable. This is because generalized subsidies tend to create distortions in the food and fuel markets and are likely to be regressive and to suffer from significant leakage of benefits to the non-poor, diluting their impact on poverty reduction. They also often have higher administrative costs than cash transfers. The policy response to recent crises highlighted an emerging interest for a transition from food and fuel subsidies toward greater reliance on targeted cash transfer programs in several countries. The transition from a strong reliance on generalized subsidies to more modern and administratively more sophisticated social protection has been witnessed in much of the developing world as countries move from lower to middle income status. However, cutting back subsidies has social as well as political implications, and therefore needs to be managed and implemented appropriately. This paper seeks to examine the implications and aspects of subsidies reform, in particular the socio-political risk of cutting subsidies in the context of modernizing social assistance.Publication Building Public Support for Reducing Fossil Fuel Subsidies(World Bank, Washington, DC, 2023-11-29)This study examines which factors influence support for reducing fossil fuel subsidies and what types of information shift people’s views through surveying 37,000 respondents across 12 middle-income countries that provided over US$750 billion in explicit and implicit subsidies for fossil fuels in 2022. Respondents were randomly allocated to receive information about the relative cost of fossil fuel subsidies, how they are regressive, or worsen climate change and air pollution. They were then asked about their support for reforms with and without accompanying policies. These treatments, particularly about environmental damage, increased support for reforms in countries that primarily subsidize gasoline and among respondents who perceive themselves to be middle class. Around 30 percent of respondents supported reducing fossil fuel subsidies in isolation, but this share increased to over 95 percent if accompanying policies were implemented. These findings help inform governments about how to build public support for phasing out fossil fuel subsidies.Publication Political Determinants of Fossil Fuel Pricing(World Bank, Washington, DC, 2013-05)This paper provides an empirical analysis of economic and political determinants of gasoline and diesel prices for about 200 countries over the period 1991-2010. A range of both political and economic variables are found to systematically influence fuel prices, and in ways that differ systematically with countries per-capita income levels. For democracies, the analysis finds that fuel prices correlate positively with both duration of democracy and tenure of democratic leaders. In non-democratic societies there is more often no such relationship or it is the opposite of that for democracies. Regime switches -- transitions from non-democratic to democratic government, or vice versa -- reduce fuel prices. Fuel prices are also lower for more corrupt, or more centralized, governments. Higher levels of gross domestic product per capita lead to higher fuel prices, while export income from selling fossil fuels reduces these prices dramatically. Higher motor fuel consumption also appears to reduce fuel prices, most for gasoline. Absolute "pass-through" of crude oil price changes to fuel prices is found to be high on average.Publication Key Drivers of PPPs in Electricity Generation in Developing Countries : Cross-Country Evidence of Switching between PPP Investment in Fossil Fuel and Renewable-Based Generation(World Bank, Washington, DC, 2012-07)This paper presents new global evidence on the key determinants of public-private partnership investment in electricity generated by fossil fuels and renewable energy based on a panel data analysis for 105 developing countries over a period of 16 years from 1993 to 2008. It aims to identify the key factors affecting private investors' decision to enter electricity generation, through probit analysis, and the amount of investment sunk in this market segment, based on Heckman's sample selection analysis. The paper shows some evidence of switching from investment in fossil fuels to investment in hydro and renewables and within fossil fuels from oil to natural gas. An interesting result of the econometric analysis is that the likelihood of switching toward renewable investment is driven by long-run environmental factors, such as the increases in the price of oil and the introduction of the Kyoto protocol. Another interesting result is that sector governance support schemes, provided by feed-in tariffs, affect only the entry in renewable based electricity generation and have no impact in reducing the amount of investment in fossil fuel based generation. Economy-wide governance factors, including control for corruption and degree of political competition, are factored in by private investors only in the initial stage of the game when the decision to enter into the generation market is taken and not the amount of investment. This confirms that the first generations of independent power producers have been developed on the basis of long-term power purchase agreements guaranteeing a fixed rate of return, through take-or-pay clauses and/or government guarantees.
Users also downloaded
Showing related downloaded files
Publication News and Corporate Governance : What Dow Jones and Reuters Teach Us About Stewardship(World Bank, Washington, DC, 2007-12)Corporate governance in the media faces an intractable problem. There is an important public interest in the integrity of news, which is the lifeblood of an open society. Yet the shareholder value model of governance offers no guarantee that the integrity of news will be protected. Indeed, conflicts of interest abound in a business where dominant CEOs often put their own private interests before those of other shareholders, reflecting the principal/agent problem, as well as before those of society. In this paper Donald Nordberg, a former senior editorial executive at Reuters who also worked as a consultant for Dow Jones, explores the respective governance of these two media giants, which received bids last year respectively from Thomson Corp of Canada and Rupert Murdoch's News Corp. The perception that Rupert Murdoch had given in to pressure from the Beijing government to drop news channels from his company's television transmissions into China raised the issue of conflicts of interest very starkly for executives and journalists on the Wall Street Journal, the crown jewel of the Dow Jones group.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.Publication Lasting Welfare Effects of Widowhood in a Poor Country(2011-07-01)Little is known about the situation facing widows and their dependent children in West Africa especially after the widow remarries. Women in Malian society are vulnerable to the loss of husbands especially in rural areas. Households headed by widows have significantly lower living standards on average than male or other female headed households in both rural and urban areas; this holds both unconditionally and conditional on observable household and individual characteristics including age. Furthermore, the adverse welfare effects of widowhood appear to persist even after widows are absorbed into male headed households. An examination of individual measures of well-being further reveals that, relative to other women, worse outcomes for ever-widowed women persist through remarriage. These detrimental effects are passed on to children, indicating an intergenerational transmission of poverty stemming from widowhood.Publication Direct and Indirect Impacts of Transport Mobility on Access to Jobs: Evidence from South Africa(Washington, DC: World Bank, 2025-11-12)Access to jobs is essential for economic growth. In Africa, unemployment rates are notably high. This paper reexamines the relationship between transport mobility and labor market outcomes, with a particular focus on the direct and indirect effects of transport connectivity. As predicted by theory, wages are influenced by the level of commuting deterrence. Generally, higher earnings are associated with longer commute times and/or higher commuting costs. Local accessibility is also important, especially for individuals with time constraints. Both direct and indirect impacts are found to be significant in South Africa, where job accessibility has been challenging since the end of apartheid. For the direct impact, the wage elasticity associated with commuting costs is significant. Returns on commute are particularly high for women. Local accessibility to socioeconomic facilities, such as shops and health services, is also found to have a significant impact, consistent with the concept of mobility of care. To enhance employment, therefore, it is crucial to connect people not only to job locations but also to various socioeconomic points of interest, such as markets and hospitals, in an integrated manner. This integration will enable individuals to spend more time working and commuting longer distances.Publication Taxes, Spending, and Equity: International Patterns and Lessons for Developing Countries(Washington, DC: World Bank, 2025-11-17)Taxes and public spending underpin the basic administration of government and finance the human capital and infrastructure investments needed for economic growth. They can also have a significant and immediate impact on poverty and inequality. The question of how public finance can support longer-term growth objectives while promoting equity has become even more important in recent years, given the high fiscal deficits and debt levels most countries emerged with in the aftermath of the COVID-19 pandemic. These included the increasing cost of debt and the need to restart environmentally sustainable growth while helping households address the learning losses and other social scars caused by the pandemic. This paper examines the global evidence on which households pay which taxes and who benefits from what spending, and critically, the net effect on different households across the income distribution. The aim is to identify the patterns and lessons that emerge for designing progressive fiscal policies. A global dataset of 96 countries is assembled, spanning all regions of the world and all national income levels, grounded in the Commitment to Equity (CEQ) approach to fiscal incidence.