Article Series: Fossil Fuel Subsidies

Supporting Country Reform Efforts

The GSI works with governments, civil society and the private sector to help progress fossil-fuel subsidy reform. The following resources are intended to support national governments that are reducing fossil-fuel subsidies, as well raise awareness on the process and impacts of reform among the citizens.

Research Type: 

Energy Subsidies in Nigeria

For many years, the Government of Nigeria has subsidized gasoline and household kerosene. The policies have represented an enormous fiscal burden: in part due to the cost of supplying under-priced fuels; and in part due to corruption in subsidy's administration. They have also been unfair, predominantly benefitting Nigeria's richer households, who can afford to purchase larger volumes of gasoline and kerosene. And they promote wasteful consumption, worsening congestion, local and indoor air pollution and GHG emissions. In 2016, the government announced a number of major reforms to fuel subsidies. It remains to be seen whether this will be followed through by the structural reforms to pricing and social assistance policies that are required to maintain full-cost pricing when world oil prices rise once again.

 

Making Subsidy Reform Work for Women in Nigeria (PDF – 1.4 MB)

It is well understood that increasing fuel product prices can be a shock for low-income households, requiring careful mitigation strategies to ensure that subsidy reform does not harm the most vulnerable. But little research has been conducted on understanding the gender disaggregated impacts of subsidy reform: How do price increases affect individual men and women? Do impacts differ in accordance with the linkages between gender roles and energy use? This policy brief summarizes initial research on this topic in Nigeria, focusing on how women may be affected by the reform of subsidies to kerosene, which is widely used across the country as a cooking and lighting fuel.

A Citizens' Guide to Energy Subsidies in Nigeria (PDF - 3.07 MB)

Most people in Nigeria see fuel subsidies as their share of wealth from the country's oil reserves. However, evidence suggests that the subsidies — worth over NGN 2.19 trillion (US$ 13.6 billion) in 2011 — mostly benefit the well-off. Significant amounts of expenditure have simply been lost to corruption. Moreover, the subsidies have increased the reliance on fuel imports and contributed to the lack of investment in oil refining capacity. This guide provides an accessible introduction to the best available information on the costs and benefits of these energy subsidies in 2012. It provides an overview of how various types of energy are subsidized; the implications of these subsidies on various aspects of sustainable development; and how they might be or are being reformed, including a summary of lessons learned from international experience.

Energy Subsidies in Bangladesh

The Government of Bangladesh spends a major share of its budget providing direct subsidies for fossil fuels and electricity, the costs of which have been escalating rapidly in recent years. In FY2012, the government reports it spent BDT 81.4 billion (US$ 944 million) in direct expenditure on energy subsidies. However the GSI, in collaboration with the Bangladesh Institute of Development Studies, estimates that the cost of subsidies is much higher, totalling BDT 148.9 billion (US $1.7 billion) in FY2012 when taking into account off-budget subsidies such as low-interest rate loans that the government provides to the Bangladesh Power Development Board and the Bangladesh Petroleum Corporation. This ongoing programme of work on energy subsidies in Bangladesh seeks to develop practical policy advice to support the Government’s reform efforts.

Energy Subsidies in Egypt

In July 2014, Egypt introduced long-awaited energy subsidy cuts. These had been in the pipeline for over five years, but repeatedly delayed by political instability. Their announcement was therefore seen as a sign of consolidation by the new President, Abdel-Fattah al-Sisi, as well as a positive signal to external investors. With energy subsidies habitually driving a large, structural fiscal deficit, and constant problems of shortages, low fuel and electricity prices were widely seen as a luxury that Egypt could no longer afford.

Fuel Subsidies in India

India’s fuel subsidies are a significant fiscal burden, costing on average 1.4 per cent of GDP since FY 2008. In FY 2012—2013, 13.7 per cent of India’s budget expenditure was allocated to fuel subsidy payments. The GSI, in collaboration with local partners, has evaluated the impacts of phasing out diesel, LPG and PDS kerosene subsidies and examined cash-transfer schemes as a means to support poor citizens transition to higher fuel prices.

Energy Subsidies in Indonesia

In fiscal year 2013, the Indonesian Government allocated IDR 199.9 trillion (US$ 18.0 billion) of the government budget to petroleum product subsidies and IDR 100.0 trillion (US$ 9.0 billion) to electricity subsidies. This amounted to a total of IDR 299.8 trillion (US$ 27.0 billion) of government spending on energy subsidies, equal to around 2.5% of GDP and 25% of total government expenditure. The GSI, in collaboration with local partners, has engaged in a number of projects in Indonesia to help raise awareness about these subsidies to assist the government in implementing subsidy reform.

Energy Subsidies in Turkey

The electricity system in Turkey faces three challenges. First, demand for electricity is growing as economic growth brings increased energy usage. Second, as the electricity supply expands to keep pace with demand there is the need to ensure that electricity prices remain affordable. Third, as energy and electricity are at the heart of modern economies, energy security is critical for the electricity sector. The GSI's work in Turkey looks at how government policy frameworks can balance the competing demands of demand growth, affordability and energy security by promoting technologies and projects that meet these needs and deliver sustainable development.