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Policy Monitor—Principles for Designing Effective Fossil Fuel Subsidy Reforms

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  • Jun Rentschler
  • Morgan Bazilian

Abstract

There is mounting evidence that fossil fuel subsidies are detrimental to economic, environmental, and social sustainability, as they tend to drain national budgets, encourage overconsumption of fossil fuels, and aggravate inequality. Despite strong incentives for subsidy reform, the record of success of past reforms has been mixed. Governments have typically focused on managing the downside risks of reform, while falling short of maximizing the development potential associated with subsidy reform. Based on a review of case studies of past fossil fuel subsidy reforms, this article distills and presents key principles for designing effective fossil fuel subsidy reforms. In particular, the article highlights that fossil fuel subsidy reform is not only about removing subsidies, but also requires thorough preparation and a range of carefully designed and sequenced policy measures, which help to ensure public support and social protection of vulnerable population groups. In addition, complementary measures and prudent reinvestment of reform revenues are necessary to ensure that such reforms provide not only short-term relief in times of fiscal crisis, but also serve as a fully integrated component of a long-term sustainable development strategy.

Suggested Citation

  • Jun Rentschler & Morgan Bazilian, 2017. "Policy Monitor—Principles for Designing Effective Fossil Fuel Subsidy Reforms," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 11(1), pages 138-155.
  • Handle: RePEc:oup:renvpo:v:11:y:2017:i:1:p:138-155.
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    File URL: http://hdl.handle.net/10.1093/reep/rew016
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    References listed on IDEAS

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    4. Inter-American Development Bank (IDB) & Deep Decarbonization Pathways for Latin America and the Caribbean (DDPLAC), 2019. "Getting to Net-Zero Emissions: Lessons from Latin America and the Caribbean," EconStor Books, ZBW - Leibniz Information Centre for Economics, number 216902, january-j.
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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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