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Implementing Energy Subsidy Reforms : Evidence from Developing Countries

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  • Maria Vagliasindi

Abstract

Poorly implemented energy subsidies are economically costly to taxpayers and damage the environment through increased emissions of greenhouse gases and other air pollutants. Energy subsidies also create distortive price signals and result in higher energy consumption or production as well as barriers to entry for cleaner energy services. Subsidies to consumption, by lowering end-use prices, can encourage increased energy use and reduce incentives to conserve energy efficiently. Universal energy-price subsidies tend to be regressive because benefits are conditional upon the purchase of subsidized goods and increase with expenditure. This report selected a representative sample of case studies in 20 developing countries, based on a number of criteria, including the countries' level of development (and consumption) and energy dependency (distinguishing between net energy exporters and importers). The case studies have been selected on the hypothesis that energy dependence and per capita income appear to be the key drivers of subsidy reforms in developing countries. Of the two criteria, energy dependence is expected to be the most powerful determinant of the choice to engage in energy reforms, whereas the level of per capita income may pose different challenges in relation to the distributional impact of such reforms on the poor. Energy net importers are expected to have more incentives to undertake energy subsidy reforms when the fiscal burden of such subsidies reaches a significant percentage of Gross Domestic Product (GDP), particularly when there are already macro unbalances related to high thresholds of public budget and debt. Low- and middle-income countries are expected to display a larger impact of energy subsidy reforms on consumption. This impact reflects the opportunities to influence future behavior rather than current consumption trends because of inertia, vested interests, and the presence of affordability issues.

Suggested Citation

  • Maria Vagliasindi, 2013. "Implementing Energy Subsidy Reforms : Evidence from Developing Countries," World Bank Publications - Books, The World Bank Group, number 11965, December.
  • Handle: RePEc:wbk:wbpubs:11965
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    References listed on IDEAS

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    Cited by:

    1. Nicolina Angelou & Sanjukta Roy, 2019. "Integrating Gender and Social Dimensions into Energy Interventions in Afghanistan," World Bank Publications - Reports 33472, The World Bank Group.
    2. Edgar F.A. Cooke & Sarah Hague & Luca Tiberti & John Cockburn & Abdel-Rahmen El Lahga, 2016. "Estimating the impact on poverty of Ghana’s fuel subsidy reform and a mitigating response," Journal of Development Effectiveness, Taylor & Francis Journals, vol. 8(1), pages 105-128, March.
    3. Schaffitzel, Filip & Jakob, Michael & Soria, Rafael & Vogt-Schilb, Adrien & Ward, Hauke, 2020. "Can government transfers make energy subsidy reform socially acceptable? A case study on Ecuador," Energy Policy, Elsevier, vol. 137(C).
    4. Mr. Kangni R Kpodar & Ms. Stefania Fabrizio & Kodjovi M. Eklou, 2019. "Export Competitiveness - Fuel Price Nexus in Developing Countries: Real or False Concern?," IMF Working Papers 2019/025, International Monetary Fund.
    5. Cécile Couharde & Sara Mouhoud, 2018. "Fossil fuel subsidies, income inequality and poverty. Evidence from developing countries," Working Papers hal-04141691, HAL.
    6. Guy Jobbins & Jack Kalpakian & Abdelouahid Chriyaa & Ahmed Legrouri & El Houssine El Mzouri, 2015. "To what end? Drip irrigation and the water-energy-food nexus in Morocco," International Journal of Water Resources Development, Taylor & Francis Journals, vol. 31(3), pages 393-406, September.
    7. Abdelkrim Araar & Nada Choueiri & Paolo Verme, 2017. "The Quest for Subsidy Reforms in Libya," Natural Resource Management and Policy, in: Paolo Verme & Abdlekrim Araar (ed.), The Quest for Subsidy Reforms in the Middle East and North Africa Region, chapter 0, pages 119-156, Springer.
    8. Benedict Clements & David Coady & Stefania Fabrizio & Sanjeev Gupta & Baoping Shang, 2014. "Energy subsidies: How large are they and how can they be reformed?," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    9. Troncoso, Karin & Soares da Silva, Agnes, 2017. "LPG fuel subsidies in Latin America and the use of solid fuels to cook," Energy Policy, Elsevier, vol. 107(C), pages 188-196.
    10. Henok Birhanu Asmelash, 2016. "Falling oil prices and sustainable energy transition: Towards a multilateral agreement on fossil-fuel subsidies," WIDER Working Paper Series wp-2016-13, World Institute for Development Economic Research (UNU-WIDER).
    11. Henok Asmelash, 2016. "Falling oil prices and sustainable energy transition: Towards a multilateral agreement on fossil-fuel subsidies," WIDER Working Paper Series 013, World Institute for Development Economic Research (UNU-WIDER).
    12. Michelle Harding & Chiara Martini & Alastair Thomas, 2014. "Taxing Energy Use in the OECD," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    13. Cecile Couharde & Sara Mouhoud, 2020. "Fossil Fuel Subsidies, Income Inequality, And Poverty: Evidence From Developing Countries," Journal of Economic Surveys, Wiley Blackwell, vol. 34(5), pages 981-1006, December.
    14. Scobie, Michelle, 2017. "Fossil fuel reform in developing states: The case of Trinidad and Tobago, a petroleum producing small Island developing State," Energy Policy, Elsevier, vol. 104(C), pages 265-273.
    15. Oscar Calvo-Gonzalez & Barbara Cunha & Riccardo Trezzi, 2017. "When Winners Feel Like Losers: Evidence from an Energy Subsidy Reform," The World Bank Economic Review, World Bank Group, vol. 31(2), pages 329-350.
    16. Matthew Lockwood, 2015. "Fossil Fuel Subsidy Reform, Rent Management and Political Fragmentation in Developing Countries," New Political Economy, Taylor & Francis Journals, vol. 20(4), pages 475-494, August.
    17. Joel E. Smith & Johannes Urpelainen, 2017. "Removing fuel subsidies: How can international organizations support national policy reforms?," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 17(3), pages 327-340, June.
    18. David Coady & Ian W H Parry & Baoping Shang, 2018. "Energy Price Reform: Lessons for Policymakers," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 12(2), pages 197-219.
    19. Ahmadi Murjani, 2020. "Assessing the Energy Subsidy Reform in Indonesia through Different Scenarios," International Journal of Energy Economics and Policy, Econjournals, vol. 10(4), pages 122-134.

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