Article Series: Fossil Fuel Subsidies

Modelling the Impacts of Fossil-Fuel Subsidy Reform in Asia

Fossil fuel subsidies are a prominent feature of many Asian economies, but they contribute to fiscal imbalances and restrict public expenditure on development priorities such as education, health, and infrastructure. In collaboration with the Asian Development Bank, the GSI coordinated a series of studies seeking to identify fossil-fuel subsidies in a range of Asian countries and to use economic models and energy system models to project the impacts of policy reform.

Research Type: 

Modelling the Impacts of Fossil-Fuel Subsidy Reform in Indonesia

Download: Fossil Fuel Subsidies in Indonesia Trends, Impacts and Reforms (PDF - 2.3 MB)

Subsidized energy is provided to all Indonesian citizens as a public service obligation. This study measures the size of fossil fuel subsidies such as underpricing of petroleum products and electricity, tax exemptions, and subsidized credit. It then uses economic and energy-system models to project the potential economic, energy, and environmental impacts of reducing subsidies. Finally, it discusses options for social safety nets to mitigate the impacts of the reforms. It shows that the short-term adverse impacts of subsidy reform turn positive in the long term as households and industry respond to changing market realities by adjusting energy demand, supply, and production capacity. Policy options for sustainable energy use are provided to aid policy makers in their current subsidy reform process.

Modelling the Impacts of Fossil-Fuel Subsidy Reform in Thailand

Download: Fossil Fuel Subsidies in Thailand Trends, Impacts and Reforms (PDF - 2.9 MB)

Heavily dependent on imported energy sources, significant subsidies on fossil fuels present a heavy burden on public finances in Thailand. This study measures the size of fossil fuel subsidies such as tax breaks for diesel and natural gas, market price support for natural gas for vehicles and free electricity for low-income consumers. It then uses economic and energy-system models to project the potential economic, energy, and environmental impacts of reducing subsidies. Finally, it discusses options for social safety nets to mitigate the impacts of the reforms. With adequate reallocation of subsidy savings, the short-term adverse impacts of subsidy reform are shown to turn positive in the long term as households and industry respond to changing market realities by adjusting energy demand, supply, and production capacity. Policy options for sustainable energy use are provided to aid policy makers in their current subsidy reform process.