Hard-earned reforms to fossil fuel subsidies are coming under threat

Worldwide fossil fuel consumption subsidies almost halved between 2012 and 2016, from a high point in 2012 of more than half a trillion dollars. But the estimate crept higher again in 2017, according to new data from World Energy Outlook 2018, and the run-up in the oil price in 2018 is putting pricing reforms under pressure in some countries.

The new data for 2017 show a 12% increase in the estimated value of these subsidies, to more than $300 billion. Most of the increase relates to oil products, reflecting the higher price for oil (which, if an artificially low end-user price remains the same, increases the estimated value of the subsidy). In 2016, for the first time, the value of subsidies to fossil-fuelled electricity were higher than for oil. The 2017 data sees oil return as the most heavily subsidised energy carrier.

Fossil fuel consumption subsidies are in place across a range of countries. These subsidies lower the price of fossil fuels, or of fossil-fuel based electricity, to end-consumers, often as a way of pursuing social policies including energy access.

There can be good reasons for governments to make energy more affordable, particularly for the poorest and most vulnerable groups. But many subsidies are poorly targeted, disproportionally benefiting wealthier segments of the population that use much more of the subsidised fuel.

Such untargeted subsidy policies encourage wasteful consumption, pushing up emissions and straining government budgets. Phasing out fossil fuel consumption subsidies is a pillar of sound energy policy.

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Source: International Energy Agency (IEA)

Date: November 2018

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