Victoria Bassetti and Kelsey Landau
As the COVID-19 pandemic upended long-settled fossil fuel supply and demand expectations, natural resource governance experts contemplatedsomething that seemed politically insurmountable just a year ago: a sharp restructuring of fuel subsidy systems across the world.
Initially, the pandemic-fueled events of 2020—which included a dramatic drop in oil prices and consumption as part of a general global economic downturn—was seen as an unexpected entry point for much-needed fuel subsidy reform efforts as some countries cut fuel subsidies. But whether these cuts presage durable reform or were simply short-term situational responses remains an open question.
Fuel subsidies are rampant across the world. From Iran to Argentina to Nigeria, governments subsidized fossil fuels and electricity to the tune of at least $320 billion in 2019—while using a broader definition of subsidies that includes associated externalities of pollution, climate change, and more—raises the true price tag to around $5 trillion (in 2015).
Prior to the pandemic, the world’s largest direct benefit transfer was a fuel subsidy program in India that at one point helped more than half of the country’s population access low-cost liquified petroleum gas for use in cooking. India is not unique: A 2019 OECD inventory of fuel subsidies administered across 44 countries (including subnational jurisdictions) chronicled more than 1,000 of them. In total, fuel subsidies are in place in more than 40 countries, with the largest amount going to oil, followed by electricity.
There are a number of ways to define a fuel subsidy. In general, we follow the one used by World Bank researchers: “a deliberate policy action by government that specifically targets oil, gas, coal, or fossil-fuel-based electricity or heat, with one or more of the following effects: 1. Reducing net cost of energy purchased; 2. Reducing cost of production or delivery of energy; 3. Increasing revenues retained by energy suppliers.”
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