Fossil-fuel subsidies round-up: April and May 2011
6 April Fossil-fuel subsidies worth US$ 312 billion should be realigned to ensure the growth of renewable energy and curb the world's reliance on carbon-intensive fuels, says the latest International Energy Agency (IEA) Clean Energy Progress Report. According to the report, demand for fossil fuels is outstripping the deployment of cleaner technologies. Several newswires and websites report on the IEA’s findings, including Reuters, Business Green, Independent Online, and Energy Efficiency News.
8 April Bangladesh raises the price of furnace oil by 14% to BDT 40 (US$ 0.55) per litre, the second rise since January, to ease the subsidy burden of the state-owned Bangladesh Petroleum Corporation, reports Reuters news agency.
8 April In cooperation with the International Budget Partnership (IBP), the International Institute for Sustainable Development's Global Subsidies Initiative releases a policy brief describing how 80 governments responded when asked “What was the total amount actually incurred during the past three fiscal years on subsidies for oil, gas and coal production and consumption?” The results show that only half of the governments provided a response and most answers were incomplete. The brief concludes that this illustrates the opacity of fossil-fuel subsidy policies and the lack of information available about how governments are spending public money.
11 April The Philippines government’s fuel subsidy for tricycle and jeepney drivers commences, according to the newspaper The Philippines Star. The government has initially allocated PHP 450 million (US$ 10.5 million) to the subsidy.
12 April In an interview in the last edition of Subsidy Watch, the IEA’s Senior Energy Analyst Amos Bromhead outlines the IEA’s latest work on energy subsidies and discusses the relationship between fossil-fuel subsidies and oil price volatility.
15 April Black & Veatch Corp., an international engineering, consulting and construction company, wins preliminary approval for US$ 805.6 million in financing from the U.S. government-backed Export-Import Bank for a coal-fired power plant in South Africa, reports news website Bloomberg. The financing will support construction of a 4,800-megawatt plant that will be one of the world’s largest coal-fuelled stations.
18 April The Financial Times provides a review of fuel subsidies in the Asia region, noting that subsidies are placing governments under increasing fiscal pressure as oil prices rise. The article says that subsidies are cushioning consumers in emerging countries from high wholesale prices, further boosting oil demand and helping to drive prices even higher.
20 April A report commissioned by the European Gas Advocacy Forum, an industry lobbying group, states that the EU could save €900 billion (US$ 1,332 billion) in meeting its 2050 climate targets if it uses gas instead of subsidizing renewable energy, reports UK newspaper the Guardian. The report is based in part on analysis by consultancy firm McKinsey, Making the Green Journey Work.
25 April U.S. President Barack Obama’s proposal to reduce U.S. federal subsidies to the fossil-fuel industry by US$ 4 billion per year gains momentum when U.S. House of Representatives Speaker John Boehner (Republican, Ohio) comments to ABC News that oil companies ought to pay "their fair share" toward government revenue. The Speaker went on to say that the U.S. Congress should consider cutting subsidies to oil companies. His comments were spurred by high gasoline prices and reports of large profits by oil companies. On 26 April, President Obama sends a letter to congressional leaders urging them to support his proposed subsidy cuts and on 28 April, House Budget Committee Chairman Paul Ryan lends his support, as reported by Reuters. On 29 April, however, Speaker Boehner rejects calls by Democrats for a vote on the proposal, according to website The Daily Caller. Not deterred, President Obama’s weekly address to the nation on 30 April urges Congress to take action to reduce the subsidies.
26 April The Nigerian Government is providing a NGN 91 (US$ 0.59) per litre subsidy for gasoline, up 25% since last February, according to Nigerian newspaper The Nation. Over NGN 650 billion (US$ 4.2 billion) was spent by the federal government on subsidies in 2010, a total which is expected to rise this year.
29 April The government of Taiwan announces a three-month fuel subsidy for specific consumers, the Taipei Times reports. Eligible groups include taxis, public transport services, cargo transporters, tour buses, fishers and farmers, who will be provided a subsidy on the differential between the actual price of fuel and government benchmark prices – set at US$ 118 per barrel, or TWD 30.4 (US$ 1.05) per litre for diesel and TWD 33.1 (US$ 1.16) per litre for 95-octane unleaded gasoline. Guidelines vary for each group but taxis are eligible for a TWD 3 (US$ 0.10) per litre reduction, with a maximum of 100 litres per week, and public transport services for people with disabilities are eligible for a TWD 5 (US$ 0.17) reduction, with a maximum of 825 litres per month. The government also announced that it would consider extending the subsidy if oil prices rose above US$ 130 per barrel.
1 May On the eve of Canada’s federal election, the President of the International Institute for Sustainable Development Franz Tattenbach calls on the next Canadian government to act as a champion for the global cause to phase out fossil-fuel subsidies. His editorial opinion published in the Toronto Star encourages the incoming government to actively pursue reform domestically and internationally as a means to combat climate change, improve energy efficiency, remove market distortions and encourage investment in clean energy.
4 May Sierra Leone's government has slashed petrol subsidies to help meet its debt obligations, leading to an overnight 30% price spike for consumers, reports Reuters news agency. Sierra Leone Minister of Trade and Industry Richard Konteh said the move would cut the country's annual fuel subsidy bill from US$ 50 million to US$ 25 million and will help it repay debt.
6 May The Australian Federal Government’s 2011-12 Budget cuts fossil-fuel subsidies that will save A$ 1 billion per year (roughly one-to-one with US$). The Fringe Benefits Tax concession provides bigger tax breaks for company cars that travel more kilometres, encouraging wasteful fuel consumption. The Australian Conservation Foundation (ACF) calculates that reforming the tax break will cut as much pollution as closing a small coal fired power station. It also recommends that the government should turn its attention to the reform of other subsidies such as the Fuel Tax Credits scheme, which costs Australian taxpayers A$ 5 billion a year, A$ 1.7 billion of which benefits big mining companies.
6 May C. Rangarajan, chairman of the Indian Prime Minister's Economic Advisory Council, warns that ballooning subsidy costs are a risk to the government's budget deficit target, reports The Wall Street Journal. India subsidizes diesel, cooking gas, fertilizers and food to shield consumers from global price shocks. The subsidy bill is budgeted at INR 1.44 trillion (US$ 32.21 billion) this fiscal year but could be exceeded due to rising international oil prices. The growing subsidy burden makes it difficult to adhere to the fiscal deficit aim of 4.6% of gross domestic product. Later in the month, on 30 May, the country's biggest refiner and oil retailer Indian Oil Corp reports a 30% slump in fourth-quarter profit, weighed by rising under-recoveries on petroleum products sold at subsidised rates. The state-run firm said it was currently incurring a revenue loss of INR 2.61 billion (US$ 57.8 million) daily on account of fuel sales at below-market prices.
8 May Indian Planning Commission member Saumitra Chaudhuri tells Indian newspaper the Business Standard that the 12th Five Year Plan (2012-17) will include a plan for cash transfers to replace food, fertiliser and fuel subsidies, using ‘smart’ cards. Later, on 29 May, chief minister Sheila Dikshit puts forward a proposal for cash payments to replace kerosene subsidies, reports the Times of India. Under the proposal, the cash equivalent of the monthly kerosene subsidy will be directly transferred to the bank account of the female head of the family.
10 May Director of the International Monetary Fund’s Middle East and Central Asia Department Masood Ahmed calls for food and fuel subsidies in the region to be better targeted, in an article published in the financial news website Seeking Alpha. He notes that although countries in the Middle East and North Africa have relied heavily on food and fuel price subsidies as a form of social protection, subsidies should be targeted to help those most in need and often there will be better alternatives for protecting the poor.
12 May Fatih Birol, chief economist of the International Energy Agency, tells the Financial Times that rising oil prices have more than cancelled out efforts by several developing countries (notably India, Malaysia and Iran) to reform national subsidy regimes. The cost of a barrel of oil averaged US$ 80 last year, compared with US$ 61 in 2009, rendering it more expensive to hold down retail prices for consumers. Governments around the world spent US$ 342 billion on holding down the prices of petrol and domestic fuel in 2009 – six times more than the US$ 57 billion they devoted to subsidising renewable energy.
17 May The United States Senate votes against further consideration of a Democratic proposal to end US$ 2 billion in annual tax subsidies for five major oil companies, reports newswire The Associated Press. The vote was on a procedural question: whether to bring the bill to the floor for debate. Such motions require 60 votes to pass, so although the bill earned a majority, 52 to 48, it still fell short.
17 May Deputy Malaysian Prime Minister Tan Sri Muhyiddin Yassin says that the value of Malaysia’s subsidies this year is expected to rise to MYR 20.58 billion (US$ 6.8 billion) from MYR 10.32 billion (US$ 3.4 billion) in 2010, reports online news service Malaysia Today. Mr Muhyiddin said that MYR 18 billion (US$ 5.9 billion) of this amount was allocated just for petroleum products — regular, diesel and liquid petroleum gas.
31 May Malaysian Energy Minister Peter Chin says that in an effort to reduce subsidy costs about 25% of all residential customers—those consuming the most electricity—will face an average increase of 7% in their electricity bill, reports Singapore online newspaper TODAYonline.
31 May A top official in Saudi Arabia’s power regulator says that the country’s subsidies cost as much as SAR 50 billion (US$ 13.3 billion) every year, according to news website gulfnews.com. The figure is said to take into account both gasoline and electricity production but it is not clear what benchmark was used to assess the total value of the energy consumed. The article adds that around half of Saudi Arabia’s electricity production is currently produced from liquid fuel and that gas reserves are in high demand from its petrochemicals industry. The kingdom is said to be developing a long-term energy strategy including nuclear power, to be made public at the end of the year.
For readers interested in keeping track of fuel-pricing developments worldwide, GTZ's monthly Fuel Price News is an invaluable resource that announces publications and events, and major fuel-pricing news stories in different regions of the world. For more information see: http://www.gtz.de/en/themen/29957.htm