The biggest subsidies are concentrated in the
Moreover energy-exporting countries accounted for three quarters of all consumption subsidies in 2012, according to the IEA and Opec members account for more than half the world's subsidies.
Subsidies account for 82 per cent of the cost of electricity and fuel in
In cash terms the world's biggest subsidies are in
According to the IEA, phasing out subsidies for oil, gas and electricity and aligning prices with international benchmarks would cut growth in energy demand by five per cent and carbon dioxide emissions by two billion tonnes a year by 2020 — equivalent to the current combined emissions of
Raising gasoline, diesel and kerosene tariffs to market levels would save 4.7 million barrels of oil a day by the end of the decade ("World Energy Outlook 2011").
Cutting subsidies would also dramatically improve government budgets. Of 58 countries which subsidised gasoline, diesel or kerosene in 2010, 46 were running budget deficits, and in 27 cases the deficit amounted to more than 3 percent of GDP, the IMF explained in a staff note highly critical of the burden on taxpayers. Halving subsidies would have reduced the average deficit from 2.1 per cent of GDP to just 0.8 per cent ("Petroleum product subsidies: cost, inequitable and rising" Feb 2010). Subsidies often crowd out spending on infrastructure, development and social welfare.
Waste and harm
Governments justify subsidies on the grounds that they alleviate poverty and promote economic development, but neither claim is really true.
Most of the benefits accrue to the middle class rather than poor because middle class families have more electrical appliances and their own cars.
Subsidies also promote wasteful consumption. Saudi Arabia's artificially cheap gasoline and electricity have made the country one of the highest per-capita energy users in the world and threaten to restrict the amount of oil left for export. Another problem is fuel adulteration. Most countries subsidise kerosene used in cooking and lighting more heavily than gasoline and diesel used to fuel vehicles. But the resulting price gap encourages the illegal blending of kerosene into the diesel supply. Policies aimed at providing cheap cooking fuel for the poor end up helping middle class families drive motor cars.
And subsidies promote smuggling. Diesel sells for as little as 12 US cents per litre in
The theoretical case for reducing or eliminating subsidies is overwhelming, but in practice progress has been slow.
The fact that subsidies are concentrated in exporting countries and typically benefit middle-income and lower middle-income groups is no accident. Subsidies have a political dimension that makes them especially hard to reform.
Cheap electricity and fuel is often an important part of the social compact between governments and the population. "In major energy-producing countries consumption subsidies that artificially lower energy prices are seen as a means of sharing the value of indigenous natural resources," the IEA explains.
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