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Lessons Learned from Brazil's Experience with Fossil-Fuel Subsidies and their Reform

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Lessons Learned from Brazil's Experience with Fossil-Fuel Subsidies and their Reform

Brazil's attempts to reform fuel subsidies have often been frustrated by interest groups trying to maintain the use of certain consumer subsides. The paper examines the rationale used by governments to justify these subsidies and the interest groups which benefitted from them. Government policy during the 1980s, prior to the eventual liberalization of energy markets, involved complex cross subsidization between energy sectors. Due to high inflation during this period, the precise quantitative evaluation of the fossil fuel subsidies was difficult. During the 1990s market liberalization, some energy subsidies were reduced while others continued. The Brazilian experience is useful for understanding the rationale for subsidies in countries with large regional and social disparities. Changes in fossil fuel subsidy policy often produced an uneven economic and social impact on different regions of Brazil and Brazilian society, depending on wealth and access to alternative energy sources. The report on the lessons learned from liberalizing Brazil's energy market focuses on government attempts to address the rationale used by interest groups to continue the use of existing subsidies.

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