January 30, 2014
Subsidies on petroleum products and fossil energy have become a deeply rooted vice in many countries across the globe, especially oil-rich ones.
They can be quite expensive, absorbing two to ten percent of GDP in a dozen countries resorting to this fallacious political favour.
They constitute a hidden economic and environmental burden to the respective countries.
When poor countries like Egypt or Yemen spend 20 to 30% of their budget on fossil fuel subsidies they lack the means for investing more in vital education and health services, while imploring the international donor community to fill the gap.
Gasoline subsidies favour car owners at the expense the poor who cannot afford a car and enhance social inequalities in developing countries. According to World Bank estimates they amounted to more than $ 100 billion in 2012 which governments should rather invest in education and health care.
They are also perverse from a climate perspective: low gasoline prices induce people to ride more. Thus countries with low gasoline prices like Venezuela, Saudi Arabia, United Arab Emirates and Kuwait register the highest per capita fuel consumption.
They do not offer any incentives for buying fuel-efficient vehicles. Venezuela is a good example. Its citizens enjoy the lowest gasoline price on earth: $ 0.015/liter, which is 10% of the Saudi price and 1% of EU prices! No wonder that the highways are also crowded with gas guzzlers.
Some countries like Iran and Indonesia have made efforts in phasing out their subsidies; in other others like Nigeria such efforts have temporarily aborted because they were too hasty provoking popular unrest.
To be successful countries have to proceed incrementally. The longer subsidies have been in place the more difficult it is to scrap them. With its decades-old and unsustainable grain and gasoline subsidies Egypt is a sad example.
Gasoline and diesel subsidies are only part of the wider story of fossil energy subsidies, which annually amount to more than $ 500 billion globally.
In the forthcoming climate conferences the EU should combine with UN, IEA and other countries to insist that all countries commit to phase their subsidies out before 2025 latest.
Eberhard Rhein, Brussels, 30/01/2014