Governments around the world continue to subsidize fossil fuel use, incentivizing unsustainable consumption levels with consequences for the global climate and human health. However, governments have proven reluctant to reform fossil fuel subsidies (FFS). This is mainly due to concerns over potential adverse effects on poverty and equity; the positive effects on air quality and health are often overlooked. This study offers new insights on the distributional consumption incidence of FFS reforms and expected benefits through improved air quality and health outcomes. Using the World Bank-International Monetary Fund Climate Policy Assessment Tool, we conduct country-level analyses of a complete removal of domestic FFS, considering 19 countries for the distributional consumption analysis, and 25 countries for the health benefits analysis. Our findings suggest that across countries, the absolute consumption burden of FFS reform on the richest decile would be 13 times larger than on the lowest-income decile, supporting evidence that FFS are an extremely inefficient way of supporting lower-income groups. In relative terms, however, the disparity is much smaller, with the richest decile bearing a relative consumption burden that is just 1.1 times larger than that borne by the lowest-income decile. In terms of positive health effects, removing FFS in 25 countries could save a total of 360,000 lives by 2035. The magnitude of the health effect depends on country-specific factors, such as the size of initial subsidy programs, and the extent to which these cover the most polluting fuels. FFS reforms can be a first step in improving air quality and reducing the burden of disease associated with air pollution.

Countries around the world are spending up to $500 billion per year on subsidising fossil fuel consumption. By some estimates, the G20 countries alone are spending around another $450 billion on subsidising fossil fuel production. In addition, the indirect social welfare costs of these subsidies have been shown to be substantial – for instance due to air pollution, road congestion, climate change, and economic inefficiency, to name a few. Considering these numbers, there is no doubt that fossil fuel subsidies cause severe economic distortions that compromise countries’ prospects of achieving equitable and sustainable development. This book provides a guide to the complex challenge of designing, assessing, and implementing effective fossil fuel subsidy reforms. It shows that subsidy reform requires a careful balancing of complex economic and political trade-offs, as well as measures to mitigate adverse effects on vulnerable households and to assist firms with implementing efficiency enhancing measures. Going beyond the purely fiscal perspective, this book emphasises that smart subsidy reforms can contribute to all three dimensions of sustainable development – environment, society, and economy. Over the course of eight chapters, this book considers a wide range of agents and stakeholders, markets, and policy measures in order to distil the key principles of designing effective fossil fuel subsidy reforms. This book will be of great relevance to scholars and policy makers with an interest in energy economics and policy, climate change policy, and sustainable development more broadly.

Fossil fuel subsidies reform has been intensively debated and promoted as a concrete step towards sustainable development, with anticipated benefits of reduced carbon emissions, saved public spending, and improved social distribution. But does this "triple-win" policy deliver what it promises? This working paper focuses on the social "win"--The narrative of social and distributional gains of the energy subsidies reform. The research follows a comparative analysis approach. Three countries were selected as target for in-depth case studies based on their diverse political, economic and social contexts: Ghana, Indonesia and Iran. We examine in each case the distributional effects of subsidy removal, the design and implementation of social programmes and their impact on welfare, as well as the political economy around sustainability of the reform. Based on comparative studies across the three cases, a set of political, economic and social factors are identified to have key impact on the social outcome of reforms. The key conclusions are as follows. There is no quick fix for social "win". Instead, the social outcome is influenced by a set of political, economic and social factors at different levels. Governments need to put the energy subsidies reform in the bigger context and manage the complex mix of influencing factors, to anchor the policy on a broad coalition of interests. Long-term political commitment to subsidies reform is key. A clearly communicated commitment would help win trust from the public in energy subsidies reforms and support for the government to implement relevant policies. A long-term and gradual reform strategy which takes into account both immediate cushion and long-term distributional effects is essential to achieving social gains. Social gain needs to have a prominent role in energy subsidy reforms. The three case studies indicate a clear dynamic between social gains and subsidy reform processes. Thorough analysis using a social lens approach can identify important factors to be taken into account for reform policies to be sustained and more importantly, deliver a social win. Rather than to be taken as a given, a social win from fossil fuel subsidy reforms requires the social dimension to be a central part of the reform policy.

The need to reform energy subsidies was one of the pressing issues highlighted at the World Summit on Sustainable Development. Many types of subsidy, especially those that encourage the production and use of fossil fuel, and other non-renewable forms of energy, are harmful to the environment. They can also have high financial and economic costs, and often only bring few benefits to the people for whom they are intended.Removing, reducing or restructuring such energy subsidies is helpful for the environment and the economy at the same time. Potential social costs in terms of employment in the conventional energy industry or reduced access to energy could be addressed by redirecting the money formerly spent on subsidies to income support, health, environment, education or regional development programmes.Of course, subsidies can have certain positive consequences, particularly where they are aimed at encouraging more sustainable energy production and use. Temporary support for renewable energy and energy-efficient technologies to overcome market barriers, and measures to improve poor or rural households' access to modern, commercial forms of energy, for instance, could be positive measures in support of sustainable development.Based on ground-breaking work undertaken by UNEP and the International Energy Agency, this book aims to raise awareness of the actual and potential impacts of energy subsidies and provide guidance to policy-makers on how to design and implement energy-subsidy reforms. It provides methodologies for analysing the impact of subsidies and their reform, and reviews experiences with energy subsidies in a number of countries and regions. Drawing on these case studies, it analyses the lessons learned as well as the policy implications, and provides guidance on how to overcome resistance to reform.The book provides an analytical framework which aims to set the scene for the detailed discussion of energy-subsidy issues at the country level. It considers how subsidies are defined, how they can be measured, how big they are and how their effects can be assessed. A more detailed discussion of methodological approaches to the assessment of the economic, environmental and social effects of subsidies and their reform is contained in the Annex.Chapters 3–11 of the book contain country case studies from contributing authors, which review various experiences and issues related to energy subsidies in selected countries, but do not strive for a common approach. They are organised along geographical lines, beginning with a review of energy subsidies generally in OECD countries. Case studies of energy subsidies in transition economies – the Czech and Slovak Republics (Chapter 4) and Russia (Chapter 5) – follow. Three studies of Asian countries focus on the costs of different types of energy subsidy: electricity subsidies in India (Chapter 6), oil subsidies in Indonesia (Chapter 7) and energy subsidies generally in Korea (Chapter 8). Chapter 9 reviews the effect of energy subsidies in Iran and suggests a pragmatic approach to reforming them. This is followed by an assessment of the LPG subsidy programme in Senegal (Chapter 10) and an analysis of the effects of removing coal and oil subsides in Chile (Chapter 11).Chapter 12 analyses the lessons learned from these case studies, focusing on the economic, environmental and social effects and their implications for policy. Finally, Chapter 13 discusses the implications of these findings and makes practical recommendations for designing and implementing policy reforms.This book will be essential for both practitioners and academics involved in the energy sector and for governments and policy-makers wishing to examine the reform of energy subsidies.

Energy subsidies are aimed at protecting consumers, however, subsidies aggravate fiscal imbalances, crowd out priority public spending, and depress private investment, including in the energy sector. This book provides the most comprehensive estimates of energy subsidies currently available for 176 countries and an analysis of “how to do” energy subsidy reform, drawing on insights from 22 country case studies undertaken by the IMF staff and analyses carried out by other institutions.

Addressing the poverty and distributional impacts of carbon pricing reforms is critical for the success of ambitious actions in the fight against climate change. This paper uses a simple framework to systematically review the channels through which carbon pricing can potentially affect poverty and inequality. It finds that the channels differ in important ways along several dimensions. The paper also identifies several key gaps in the current literature and discusses some considerations on how policy designs could take into account the attributes of the channels in mitigating the impacts of carbon pricing reforms on households.

The effort to address climate change cuts across a wide range of non-environmental actors and policy areas, including international economic institutions such as the Group of Twenty (G20), International Monetary Fund (IMF), and the Organisation for Economic Co-operation and Development (OECD). These institutions do not tend to address climate change so much as an environmental issue, but as an economic one, a dynamic referred to as 'economisation'. Such economisation can have profound consequences for how environmental problems are addressed. This book explores how the G20, IMF, and OECD have addressed climate finance and fossil fuel subsidies, what factors have shaped their specific approaches, and the consequences of this economisation of climate change. Focusing on the international level, it is a valuable resource for graduate students, researchers, and policymakers in the fields of politics, political economy and environmental policy.

This comprehensive volume provides the first book-length account on the politics of fossil fuel subsidies. This title is also available as Open Access.

In the Middle East and North Africa (MENA) countries price subsidies are common, especially on food and fuels. However, these are neither well targeted nor cost effective as a social protection tool, often benefiting mainly the better off instead of the poor and vulnerable. This paper explores the challenges of replacing generalized price subsidies with more equitable social safety net instruments, including the short-term inflationary effects, and describes the features of successful subsidy reforms.

The reform of energy subsidies is an important but challenging issue for sub-Saharan African (SSA) countries. There is a relatively large theoretical and empirical literature on this issue. While this paper relies on that literature, too, it tailors its discussion to SSA countries to respond to the following questions: Why it is important to reduce energy subsidies? What are the difficulties involved in energy subsidy reform? How best can a subsidy reform be implemented? This paper uses various sources of information on SSA countries: quantitative assessments, surveys, and individual (but standardized) case studies.