Implementing Energy Subsidy Reforms : An Overview of the Key Issues
Poorly implemented energy subsidies are economically costly to taxpayers and damage the environment. This report describes the emerging lessons that could help policy makers to address implementation challenges, including overcoming political econo...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2012/07/16481583/implementing-energy-subsidy-reforms-overview-key-issues http://hdl.handle.net/10986/11934 |
| Summary: | Poorly implemented energy subsidies are
economically costly to taxpayers and damage the environment.
This report describes the emerging lessons that could help
policy makers to address implementation challenges,
including overcoming political economy and affordability
constraints. The analysis provides strong evidence of the
success of reforms in reducing the associated fiscal burden.
For the selected sample of 20 developing countries, the
average energy subsidy recorded in the budget was reduced
from 1.8 percent in 2004 to 1.3 percent of gross domestic
product in 2010. The reduction of subsidies is particularly
remarkable for net energy importers. In spite of the
relatively price inelastic demand for gasoline and diesel,
fossil fuel consumption in the road sector (per unit of
gross domestic product) declined in the 20 countries
examined from 53 (44) in 2002 to about 23 kilotonnes oil
equivalent per million of gross domestic product in 2008 in
the case of gasoline (diesel). The most notable decline in
consumption was recorded in the low-income and
lower-middle-income countries. This reflects the much higher
rate of growth in gross domestic product in this group of
countries. And it underlines the opportunities to influence
future consumption behavior rather than modifying the
existing consumption patterns, overcoming inertia and vested
interests. Similar trends are recorded for power
consumption. While there is no one-size-fits-all model for
subsidy reform, implementation of compensatory social
policies and an effective communication strategy, before the
changes were introduced, made a difference in securing the
successful implementation of reforms. |
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