Washington—10 October—International experts and senior government officials from ministries of finance and economy gathered on October 10 during the annual meetings of the IMF and World Bank to discuss how to manage the transition to sustainable energy pricing. 

The meeting, supported by the Government of Denmark, focused tools, best practices and policies to minimize the inflationary, welfare and competitiveness impacts stemming from energy pricing reform.

Most countries face significant political and economic challenges in making the transition to more sustainable modes of energy pricing, either by reducing subsidies on the consumption of energy or by optimizing energy taxation and implementing carbon pricing systems.

A barrier to reform of domestic energy pricing systems is the impact of potentially higher energy prices on households and businesses in terms of higher inflation, lower disposable income for households and higher costs for domestic businesses. 

Focusing on the social and welfare impacts of energy reform, participants highlighted the role of social protection and mitigation measures in order to ensure successful reform processes. While energy subsidies mainly create benefits for the wealthier parts of society, increasing energy prices can also have severe impacts on the poorer and more vulnerable groups of society. 

Participants underlined the need for comprehensive social protection measures and noted the key role of communication and consultations in order to determine impacts of reform. In this regard, participants drew attention to the importance of Turkey’s ongoing efforts to identify and mitigate the impacts on vulnerable groups stemming from increased domestic energy prices. 

Participants also highlighted the need for a sector-wide approach to energy reform, given that a key part of successful reform is the ability to coordinate across ministries in order to understand and react to unwanted negative impacts. 

This coordination could be in terms of inter-ministerial working groups for policy consultation with ministries of economy, energy, industry, and social welfare and environment. Combining key competencies of relevant ministries will increase the ability to fully comprehend the broad range of reform impacts and thus the chances for successful reform.   

One of the key takeaways from the meeting was summarized nicely by one of the participants at the meeting: “Energy pricing reform - do it the right way, not right away”. 

In the publication ‘A Guidebook to Fossil Fuel Subsidy Reform’, the GSI has outlined detailed technical guidance to the reform process. The guidance is structured around a three-pillared approach: improving and de-politicizing pricing mechanisms; building support for reform through consultations and communications; and making sure that the impacts of reform, particularly on vulnerable groups, are well understood and can be managed with complementary policies.

In partnership with authors from the World Bank and Green Budget Europe, the GSI prepared a draft report for participants entitled ‘Managing the Impacts of Fossil Fuel Subsidy Reform: A Guide for Finance Ministries’. The report seeks to outline best practices and country experience in mitigating the potential negative impact of fossil fuel subsidy reform, and will be finalised shortly. 

Please find below a list of speakers at the event.

•    Opening remarks by Mogens Jensen, Danish Minister for Trade and Development Cooperation 
•    Peter Wooders, Group Director Energy, IISD (presentation here)
•    Marianne Fay, Chief Economist for Climate Change, World Bank (presentation here)
•    Baris Sanli, Deputy General of Energy Affairs, Ministry of Energy, Turkey (presentation here)
•    Alex Severens, Director, Office of Energy and Environment, US Treasury
•    David Coady, Fiscal Affairs Department, IMF
•    Leonardo Martinez-Diaz, Deputy Assistant Secretary, US Treasury

For more information about the event, please do not hesitate to contact Damon Vis-Dunbar: dvis-dunbar@iisd.org.