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Energy Subsidies Reforms - A Must For Reducing Carbon Emissions

Energy Subsidies Reforms - A Must For Reducing Carbon Emissions

The energy subsidies reforms by oil exporting nations are a must to have a long term positive impact on the environment in the form of reduced carbon emissions. The bellwethers in the energy supply side must contribute significantly to reduction in demand by increasing prices.

But, governments have their own political compulsions – they don’t want to face the ire of potential voters by increasing fuel prices or electricity bills. Again, centralized governments such as in most OPEC nations find it challenging for ushering in subsidies reforms, since the Head of State is directly accountable for any untoward incident including political unrest. However, if one goes by past experience, with proper ground work, governments can roll back subsidies without undermining their political legitimacy.

In fact, studies by experts have shown that subsidies have led to inefficient usage of energy – injudicious utilization of resources, revenue loss and excessive emissions of carbon dioxide. At present, increasing demand is challenging the economic viability of long term supply; governments have no other alternative but to increase the prices.

The pressure on governments can be applied by external stakeholders - conservationists, NGOs, media. This would help governments to cushion any criticism.

As per the IMF, only five out of 28 attempts globally to do away with subsidies in the last two decades as failed. In this context, Iran’s reform attempt in 2010 – replacing vital subsidies with a universal cash transfer program for households is a benchmark for rest of the energy exporters.

If implemented properly, phasing out subsidies could potentially add more years to oil supply while halting environmental degradation.

Increasingly, decision makers in oil exporting states have realised that allowing oil prices to stay would yield results in the short run, but in the long run it would prove counterproductive by undermining exports – export revenue is vital for these governments to maintain control.

Thereby, they are increasingly following a policy of subsidies reforms to fuel economic growth and maintain political stability.

- Jess Potts

Jess Potts
Published on:
July 25, 2014
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