Understanding who benefits from fuel price subsidies and the welfare impact of increasing fuel prices is key to designing, and gaining public support for, subsidy reform. This paper updates evidence for developing countries on the magnitude of the welfare impact of subsidy reform and its distribution across income groups, incorporating more recent studies and expanding the number of countries. These studies confirm that a very large share of benefits from price subsidies goes to high-income households, further reinforcing existing income inequalities.
Here's hoping that 21 will be the magic number, and there will be real progress on a global agreement to constrain greenhouse gas emissions at COP21 meetings now underway in Paris.
Another roundup of interesting tidbits from the world of government subsidies.
1) Nuclear: A new age of nuclear energy is about to dawn? Optimism is a good thing, and Michael Brush of the Fiscal Times certainly exudes it. But optimism probably shouldn't lead you to invest your 401(k) in a bunch of nuclear utility stocks.
Numbers ranging from half a trillion to two trillion dollars have been cited in recent years for global subsidies for fossil fuels. How are these figures calculated and why are they so different? The most commonly used methods for measuring subsidies are the price-gap approach-quantifying the gap between free-market reference prices and the prices charged to consumers-and the inventory approach, which constructs an inventory of government actions benefiting production and consumption of fossil fuels.
Government subsidies to energy producers, transporters, and consumers are widespread throughout the world and represent a large public investment in the energy sector. In theory, this investment could be funding a variety of social goals such as providing the poor with access to basic energy services and addressing common environmental problems linked to energy extraction and consumption.
Although some subsidies do address these types of concerns, most either do not, or do not do so effectively.
Presentation at a meeting sponsored by the Energy Research Institute of China's National Development and Reform Commission and the World Bank in Beijing, China. The presentation reviews existing estimates of global subsidies to energy, including their magnitude, differences in estimation methods and assumptions, reporting trends, and emerging issues.
We are grateful to the World Bank for making a Mandarin version of this presentation available as well.
The Inter-American Development Bank (IDB) is embarking on a major work program to identify and assess fossil fuel subsidies throughout Latin America and the Carribean. I had the privilege of presenting a number of ideas on how to leverage their effort during an expert meeting on the topic a few weeks back. The slides from my presentation can be viewed here.
Growing consensus that fossil fuel subsidies need to go
Keynote presentation at the Expert Workshop on Subsidies to Fossil Fuels and Climate Mitigation Policies in Latin America and the Caribbean (LAC), held at the Inter-American Development Bank in Washington, DC on January 14, 2014. Slides review recent global estimates of fossil fuel subsidies, highlighting both the tallies and the reasons the estimates differ widely from one another.
Bjorn Lomborg ran an op-ed in the Wall Street Journal a few days ago in which he concluded the real problem with energy markets is that there are too many subsidies to green energy. Lomborg argues that people who complain about subsidies to fossil fuels are in part misguided by the considerable "misinformation" on the subject, and he aims to "debunk" key "myths" around the numbers. While he agrees that fossil fuels shouldn't be subsidized either, his main focus is on government largesse to renewables.