This November, the Global Subsidies Initiative released the first of its series of reports on fossil-fuel subsidies, The Politics of Fossil-Fuel Subsidies.

The report, written by David Victor, Director of Stanford University's Laboratory on International Law and Regulation, investigates the logic behind the creation and endurance of perverse subsidies: despite the seemingly obvious problems they cause, entrenched vested interests among beneficiaries can create political obstacles to reform.

Victor considers two main types of subsidies - "populist" subsidies such as consumer subsidies, and subsidies benefitting more concentrated interest groups such as producers of fossil fuels. Consumer subsidies are often broad-based (though typically benefit the richer segments of societies), overt, transparent and can be difficult to reform without provoking civil unrest.

The study observes that subsidies to producers are more often indirect (e.g. through tax breaks or reduced-rate loans) and less transparent. Interest groups that demand and receive subsidies are usually well organized and aware that it is in their interest to defend the subsidy policy, and to block reform. Taxpayers and other parties that carry the burden are often unaware of the cost they are paying, making it difficult to pursue an informed debate over the subsidy.

It also looks that the entities which provide subsidies, noting that they often do so for political advantage, such as gaining voters' favour or securing donations for political campaigns. It is also the case that supply mechanisms require little administrative capability. Moreover, governments do not always speak with one voice. The arm of government that sets a subsidy policy may have little control over the arm of government that could implement a more effective and efficient policy for the same objective.

Victor draws four lessons for subsidy-reformers:

1. Any reform strategy must either compensate powerful interests for consenting to a change in policy, or find a way to inoculate policy reforms against strong opposition.
    
2. An effective political strategy usually benefits from transparency in the cost and purpose of the subsidy, to facilitate informed debate.
    
3. Where subsidies are unavoidable, better subsidy design can help reduce the perverse effects and ease the transition for future reform.
    
4. Subsidy-reformers can be more successful when governments have better administrative tools at their disposal.

The Politics of Fossil-Fuel Subsidies can be downloaded here.