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Why Do Governments Subsidize Gasoline Consumption? An Empirical Analysis of Global Gasoline Prices, 2002–2009
Abstract
Governments spend hundreds of billions of dollars annually to subsidize the consumption of fossil fuels without understanding the environmental and economic problems this practice creates. To shed light on these problems, we examine the case of gasoline subsidies using data on gasoline prices in 137 countries for the years 2002–2009. It is useful to study gasoline pricing because gasoline is the most important transportation fuel, and there are data for many countries for the time period of investigation. We find that major oil producers subsidize gasoline consumption by artificially reducing prices; countries with weak institutional capacity also seem to subsidize gasoline, but the effects are weaker. These results suggest that policy interventions to improve institutional capacity could help developing countries in particular reduce their fossil fuel subsidies.
... This is because studies analyzing the pass-through to domestic fuel prices do not systematically look at pass-through across countries and time -typically because of a lack of (consistent crosssectional and long-term) data -and are instead selective in their analysis, focusing primarily on developed countries (see for instance Angelopoulou and Gibson, 2010;Bello and Contín-Pilart, 2012). Moreover, most studies tend to look at the level of fuel prices across countries rather than changes in prices over time, thereby missing important factors affecting the shortterm dynamic of fuel prices (see Cheon et al., 2013 andBlair et al., 2017). ...
... Consistent with Hammar et al. (2004), van Beers and Strand (2013) find that high gasoline consumption levels lead to more gasoline subsidies (hence lower pass-through), thereby supporting the theory of pressure groups. The complexity of the political economy is the most challenging barrier to reforming subsidies (Cheon et al., 2013 andRentschler and Bazilian, 2016;Fattouh, 2012 and. According to Fattouh and El-Katiri (2012), pass-through is low when there is a lack of institutions able to redistribute wealth (through other means) or achieve other social goals. ...
... According to Fattouh and El-Katiri (2012), pass-through is low when there is a lack of institutions able to redistribute wealth (through other means) or achieve other social goals. This view is echoed by Cheon et al. (2013) who stress that consumption subsidies are a common political tool for luring voters in countries with weak institutional capacity and poor governance (see also Ebeke and Lonkeng Ngouana (2015) who provide evidence of a crowding-out effect of fuel subsidies on social expenditure). Against this backdrop, policymakers have little incentive to pursue sound economic policies. ...
While many developing countries limit the international fuel price pass through to domestic fuel prices, others do not. Against this backdrop, we examine the factors that determine whether governments allow international fuel price changes to be passed through to domestic prices in developing countries using a dataset spanning 109 developing countries from 2000 to 2014. The paper finds that the pass-through is higher when changes in international prices are moderate and less volatile. In addition, the flexibility of the pricing mechanism allows for higher pass-through while exchange rate depreciation and lower retail fuel prices in neighboring countries inhibit it. The econometric results also underscore the fact that countries with inflation tend to experience lower pass-through, whereas those with high public debt exhibit larger pass-through. Finally, no evidence is found that political variables or environmental policies matter with regard to fuel price dynamics in the short-term. These findings, which are consistent across fuel products (gasoline, diesel and kerosene), allow us to draw important policy lessons for fuel subsidy reforms.
... Subsidies can become very difficult to reform and are politically sensitive. One of the most common barriers identified by literature is public opposition (Victor, 2009;Overland, 2010;Cheon, Urpelainen, & Lackner, 2013). Other barriers identified include vested interests and lack of institutional capacity (Victor, 2009;Cheon, Urpelainen, & Lackner, 2013). ...
... One of the most common barriers identified by literature is public opposition (Victor, 2009;Overland, 2010;Cheon, Urpelainen, & Lackner, 2013). Other barriers identified include vested interests and lack of institutional capacity (Victor, 2009;Cheon, Urpelainen, & Lackner, 2013). These barriers, as well as sharp international price increases, have forced countries to go back on subsidy reform. ...
... For countries like Nigeria with low institutional capacity, fossil fuel subsidies represent a more straightforward solution as they do not require a strong administrative capacity and are politically appealing. As the local institutional capacity increases, the ability to implement more efficient and sophisticated policy instruments increases (Victor, 2009;Cheon, Lackner, & Urpelainen, 2015;Cheon, Urpelainen, & Lackner, 2013). Olowu (2001) attributes the weak institutional capacity in Nigeria to the politicization and the undermining of the civil service. ...
One of the indicators of the Sustainable Development Goal 12 (“Ensure sustainable consumption and production patterns”) is the phasing out of fossil fuel subsidies “in a manner that protects the poor and the affected communities” (UN, 2019). Fossil fuel subsidies exacerbate a wide range of adverse economic, environmental, and social conditions such as fiscal imbalances, petroleum product smuggling, greenhouse gas emissions, and social inequities. These subsidies also reduce resources that governments could invest to meet sustainable development goals and other development objectives. Attempts to reform fossil fuel subsidies are often faced with strong resistance for a variety of reasons, including the associated inflationary impacts and price shocks, poor energy security, lack of viable alternatives, and negative welfare impacts on some of society’s most vulnerable. The resistance to fossil fuel subsidy reform in Nigeria accounts for the persistent underinvestment in critical infrastructure and social development. This dissertation analyses the reasons for fossil fuel subsidy reform inertia in Nigeria by studying the history of subsidy reform, and the factors that influence it. It asserts that the energy system’s diversification to include sustainable technology options would reduce dependence on fossil fuel sources, increase energy security, and potentially reduce the political barriers to fossil fuel subsidy reform. A scenario analysis of renewable energy penetration was done based on Nigeria’s sustainable energy for all action agenda (SE4ALL-AA) to validate this assertion. The study utilized the Long-range Energy Alternative Planning (LEAP) tool to project the sustainable development benefits of clean energy diffusion. The study examined the opportunities and challenges of renewable energy development and reviewed case studies to derive policy recommendations.
... A mix of domestic political, economic, and social factors underlies fossil fuel subsidies' persistence, as well as chances of their reform (Skovgaard & van Asselt, 2018a). Existing studies on the politics of fossil fuel subsidies and their reform have provided insights into how fossil fuel subsidies are tied up with the domestic political economy of fossil fuel production and consumption (Cheon, Lackner, & Urpelainen, 2015;Cheon, Urpelainen, & Lackner, 2013;Inchauste & Victor, 2017;Overland, 2010;Victor, 2009), but also international norms and institutions can promote subsidy reform (Skovgaard, 2017;Smith & Urpelainen, 2017;Van de Graaf & Blondeel, 2018; van Asselt, 2017). ...
... To better appreciate the opportunities and barriers for reform, it is key to understand the reasons why fossil fuel subsidies are maintained. An emerging body of scholarship on the domestic political economy of fossil fuel subsidy has shed light on the drivers for subsidies and barriers to reform (Benes, Cheon, Urpelainen, & Yang, 2015;Cheon et al., 2013Cheon et al., , 2015Inchauste & Victor, 2017;Kim & Urpelainen, 2015;Lockwood, 2015;Overland, 2010;Ross, Hazlett, & Mahdavi, 2017;Rentschler, 2018). These studies have tended to concentrate on consumption subsidies, particularly to petroleum products (e.g., petrol, kerosene) in developing countries. ...
... In terms of macroeconomic factors, scholars have pointed specifically to the role of fossil fuel reserves (Overland, 2010) and global fossil fuel prices (Benes et al., 2015;Rentschler & Bazilian, 2017b). Other structural factors include institutional or governance capacity (Cheon et al., 2013;Commander, 2012), the kind of state providing the subsidies (including how decentralized political power is; see Lockwood, 2015), whether it is democratic or authoritarian (Kim & Urpelainen, 2015;Overland, 2010) and path dependency, which can make it difficult to remove fossil fuel subsidies once in place (Lockwood, 2015;Victor, 2009). ...
The production and consumption of fossil fuels need to decrease significantly to meet the 2015 Paris Agreement's ambitious climate change goals. However, fossil fuels continue to receive significant amounts of government support. Although reforming fossil fuel subsidies can yield climate change mitigation benefits, the specific international and domestic political context and political economy of fossil fuel subsidies means that such reform is not straightforward and may not be aligned with traditional climate politics. Our objective in this review article is to examine the implications of the politics of fossil fuel subsidies and their reform for climate change mitigation. The first step of examining these implications is to review existing studies on the size and impacts of global fossil fuel subsidies. Subsequently, we discuss the international politics of fossil fuel subsidies, including the emerging norm of fossil fuel subsidy reform, and the respective roles played by the international climate regime and several international economic institutions. Finally, we examine why fossil fuel subsidies are introduced and maintained at the domestic level, how fossil fuel subsidy reform has functioned in practice, and whether and how such reform could be conceived as an instrument for climate policy.
This article is categorized under:
• The Carbon Economy and Climate Mitigation > Policies, Instruments, Lifestyles, Behavior
• Policy and Governance > Private Governance of Climate Change
Abstract
Fossil fuel subsidies support the production of as well as the consumption of fossil fuels.
... A second strand of research seeks to do just this by explaining the existence and level of fossil fuel subsidies through comparative and quantitative studies (Overland 2010;Cheon et al. 2013Cheon et al. , 2015Benes et al. 2015;Kim and Urpelainen 2015;Inchauste and Victor 2016;Ross et al. 2017). These existing studies tend to focus on consumption subsidiesparticularly to petroleum products (e.g. ...
... petrol, kerosene) in developing countriesand pay less attention to other kinds of subsidies. While the quantitative studies have focused on the level of fossil fuel subsidies as the dependent variable (Cheon et al. 2013Kim and Urpelainen 2015), the comparative case studies have focused on a limited set of country cases that differ on the dependent variable, namely successful reform (Overland 2010;Inchauste and Victor 2016). ...
... When it comes to more structural factors, scholars have focused on the role of fossil fuel reserves and global fossil fuel prices in influencing the level of fossil fuel subsidies and the possibilities for reform (Overland 2010;Benes et al. 2015;Kojima and Koplow 2015;Rentschler and Bazilian 2017b). Other structural factors include institutional or governance capacity (Commander 2012;Cheon et al. 2013), the kind of state providing the subsidies (including how decentralised political power is; see Lockwood 2015), whether the political system is democratic or authoritarian (Overland 2010;Kim and Urpelainen 2015) and path dependency, which can make it difficult to remove fossil fuel subsidies once they are in place (Victor 2009;Lockwood 2015). The findings from this body of literature indicate that countries with weak institutional capacity, authoritarian rule, and significant fossil fuel reserves are more likely to subsidise fossil fuels. ...
The Politics of Fossil Fuel Subsidies and their Reform - edited by Jakob Skovgaard August 2018
... Political economy analysis of fossil fuel subsidies drew our attention to the reasons why governments raise energy prices sharply, and to how governments respond to protests about energy price rises or scarcity. Governments often raise fuel prices sharply to cut subsidies as part of public spending reforms (Rentschler and Bazilian 2017b;Lockwood 2015 usual object of protests, partly because they are comparatively energy-rich (Cheon et al. 2013;Victor 2009). In energy-rich countries where state capacity to distribute resources is weak, consumer fuel subsidies tend to be common and resilient to reform efforts (Inchauste and Victor 2017). ...
... Authoritarian regimes are more likely than democracies to offer fuel subsidies (Kim and Urpelainen 2016: 552), which are believed to quell or pre-empt social unrest (Victor 2009). Energy-rich countries are particularly likely to have the kind of consumer price subsidies that fuel price protests target (Cheon et al. 2013;Victor 2009); weak state capacity to distribute resources ensures that consumer fuel subsidies are common and resilient to reform efforts (Inchauste and Victor 2017). Finally, authoritarian and weakly dominant political regimes are particularly likely to rely on such subsidy regimes as a source of popular legitimacy (Andresen 2008;Rosser 2006). ...
Energy protests are becoming increasingly common and significant around the world. While in the global North concerns tend to centre around climate issues, in the global South the concerns are more often with affordable energy. Both types of protests, however, have one issue in common: the undemocratic nature of energy policymaking. This paper draws together findings from research conducted in three countries, Mozambique, Nigeria, and Pakistan to ask how and under which conditions do struggles over energy access in fragile and conflict affected settings empower the powerless to hold public authorities to account? In exploring this theme, the study examines what factors support protests developing into significant episodes of contention within fragile settings, and whether these energy struggles promote citizen empowerment and
institutional accountability.
... In this same direction, other findings suggest that rising oil prices not only reduce traditional energy consumption but also increase investment in renewable energy R&D. This effect is because a higher oil price encourages technological innovation and, ultimately, improves environmental quality (Wong et al. 2013;Churchill et al. 2019;Cheon et al. 2013;Doğan et al. 2019;Padhan et al. 2020). ...
This paper aims to analyze the link between environmental degradation and institutional quality and the price of oil moderated by economic complexity and the underground economy. We use quantile regressions with annual panel data for 15 countries in the Middle East and North Africa during 1995–2021. The findings indicate that institutional quality, economic complexity, and output positively and heterogeneously impact environmental degradation. However, the square of production has a negative impact, confirming an inverted U relationship between production and environmental degradation. Likewise, we find that the price of oil and the underground economy have a negative and heterogeneous impact on environmental degradation. Based on our results, a potential recommendation for policymakers is that the institutional framework of Middle Eastern and North African countries should be accompanied by a more significant concern for the environment instead of prioritizing extractive growth that is detrimental to the environment’s environmental sustainability. Likewise, economic diversification will mitigate environmental degradation and improve formal employment. Our findings are relevant to policymakers and researchers interested in promoting ecological sustainability.
... Energy subsidies are government interventions that serve to, in general, keep prices below the market rates (IEA, 2006;Cheon et al., 2013). The primary goals of energy subsidies are to support industrial and rural development (Gangopadhyay et al., 2005;Petkova and Stanek, 2013), assist domestic producers against international competitors (Lin and Jiang, 2011), and improve the security of energy supply (IEA, 2011;Schwanitz et al., 2014). ...
Substantial energy subsidies are recognised as the leading cause of Iran's inefficient electricity generation and consumption. This paper investigates the impacts of subsidy removal on future electricity demand and the required generation mix. A hybrid modelling framework is developed to analyse supply and demand sides under harmonised assumptions. An autoregressive distributed lag (ARDL) model combined with an autoregressive integrated moving average (ARIMA) model forecast electricity demand under subsidy removal scenarios at different paces. A partial equilibrium energy systems model (MESSAGE) offers a cost-optimal configuration of power generation technologies to meet the forecasted demand during the period 2017–2050. The findings demonstrate that energy subsidy reforms can reduce total electricity demand by 16% and could ensure a 31% cut in cumulative CO2 emissions. The scenario analysis also shows that under an early and steady reform scenario and with gradual removal, the development of renewable energy technologies and energy efficiency plans become cost-competitive. In contrast, the late and rapid subsidy removal path should tackle the lock-in effect's risk. This reveals that the early action in energy subsidy reform should be considered a priority over the removal speed. Finally, this paper discusses the potential policy implications beyond Iran.
... Among scholars, there is some disagreement about the relative weight of economic and institutional factors in increasing the likelihood of reform. Cheon et al. (2013), for example, find that authoritarianism, poor institutional capacity, and Organization of the Petroleum Exporting Countries (OPEC) membership are significant correlates for higher gasoline subsidies in their longitudinal analysis. Such conclusions align with case studies that evaluate the likelihood of reform as a function of the size of petroleum rents, the degree of policy transparency, and the power of special interests within countries (Inchauste & Victor, 2017;Koplow, 2014;Lockwood, 2015). ...
Fossil fuel subsidies are a market distortion commonly identified as an obstacle to decar-bonization. Yet due to trenchant political economic risks, reform attempts can be fraught for governments. Despite these concerns, an institutionally and economically diverse group of states included references to fossil fuel subsidy reform (FFSR) in their Intended Nationally Determined Contributions (INDCs) under the Paris Agreement. What conditions might explain why some states reference politically risky reforms within treaty commitments , while most others would not? We argue that the Article 4 process under the Paris Agreement creates a "credibility dilemma" for states-articulating ambitious emissions reduction targets while also defining national climate plans engenders a need to seek out appropriate policy ideas that can justify overarching goals to international audiences. Inso-much as particular norms are institutionalized and made salient in international politics, a window of opportunity is opened: issue advocates can "activate" norms by demonstrating how related policies can make commitments credible. Using mixed methods, we find support for this argument. We identify contextual factors advancing FFSR in the lead-up to the Paris Agreement, including norm institutionalization in regimes and international organization programs as well as salience-boosting climate diplomacy. Further, we find correspondences between countries targeted by transnational policy advocates and FFSR references in INDCs, building on the momentum in international politics more generally. Though drafting INDCs and NDCs is a government-owned process, the results suggest that understanding their content requires examining international norms alongside domestic circumstances.
... The propensity to use fuel subsidies to protect domestic consumers is often linked to the structure of the economy. The literature suggests that fuel exporters are particularly likely to have the kind of consumer price subsidies that are the object of protests (Cheon, Urpelainen, & Lackner, 2013;Victor, 2009). In energy-rich countries where state capacity to distribute resources is weak, consumer fuel subsidies tend to be common and resilient to reform efforts (Inchauste & Victor, 2017). ...
Between 2005 and 2018, 41 countries had at least one riot directly associated with popular demand for fuel. We make use of a new international dataset on fuel riots to explore the effects of fuel prices and price regimes on fuel riots. In line with prior expectations, we find that large domestic fuel price shocks - often linked to international price shocks - are a key driver of riots. In addition, we report a novel result: fuel riots are closely associated with domestic price regimes. Countries that maintain fixed price regimes - notably net energy exporters - tend to have large fuel subsidies. When such subsidies become unsustainable, domestic price adjustments are large, often leading to riots.
... Many studies have examined the relationship between oil prices and macroeconomic variables, for instance those conducted by Barden et al. (2009), Cheon et al. (2013Cheon et al. ( , 2014 and Valadkhani and Mitchell (2002). These analyses focus on a single country's macroeconomic variables and highlight that it is imperative for oil-exporting countries to reshuffle government budgets due to declining oil prices. ...
ASEAN states have a long history of fuel subsidization policies and are now undertaking substantial reforms. The lower crude oil price helps a country’s low-income group to gain access to modern forms of energy, thereby enabling ASEAN governments to implement mandatory policy reforms. However, most fuel-subsidized ASEAN emerging economies are still struggling to find long-term solutions. This paper aims to contribute to the debate on fuel subsidization policy in the South-East Asian economies. Applying the autoregressive distributed lag (ARDL) model using quarterly data range from 1992Q1 to 2018Q4, we find that removing fuel subsidization can affect the overall household consumption, GDP and oil prices in ASEAN nations. This research emphasizes that this impact can be substantial and affects people at different income levels. Decisions of ASEAN governments to abolish fuel subsidies in this region can significantly affect and alter its citizens’ living standard as well as national income measures such as GDP in both the short and long run. These findings provide evidence that when developing the energy pricing in these countries, governments must ensure that the policy is equitable and sustainable.
... 46 Because of the cost of retrofitting pollution-control technology and the lack of rigorous enforcement, coal-fired power plants continue to violate the emission rules. Regarding RES-2, given that Indian cities currently burn 2%-24% of their Benes et al., 28 Cheon et al., 29 Overland 30 ...
Political-feasibility concerns are at the center of real-world air-pollution policymaking. Yet, these concerns are often not represented in leading decision-support tools that have been used for assessing policies' environmental impacts. Focusing on a wide range of clean-air policies in India, we assess their political-feasibility scores on the basis of public opinion, market, and institutional considerations and then incorporate these scores into the evaluation of environmental impacts by using an integrated assessment model (GAINS-South Asia). We demonstrate that although some policies with substantial potential to mitigate air pollution are also highly politically feasible (e.g., replacing solid fuels with cleaner fuels in households), others can be less politically feasible (e.g., banning agricultural waste burning). Because some clean-air policies co-reduce CO2 emissions and aerosols, considering varying degrees of political feasibility is particularly important in achieving air-pollution and climate objectives simultaneously because of its implications on the implementation scale and policy sequence.
... Often this is aggravated by the fact that policy designs tend to be focused on being technically sound and administratively feasible -rather than politically supportable (Pritchett, 2005;Strand, 2013). Consumption subsidies in particular tend to be paid in countries with weak institutional capacity and poor governance, and are a common political tool for luring voters or influential interest groups, rather than being sound economic policy (Cheon, Urpelainen, & Lackner, 2013;Commander, 2012). In addition, Lockwood (2014) notes that FFSs play a key role in manifesting and centralizing a state's political power. ...
... The propensity to use fuel subsidies to protect domestic consumers is often linked to the structure of the economy. Fuel exporters are particularly likely to have the kind of consumer price subsidies that are the object of protests (Cheon, Urpelainen, & Lackner, 2013;Victor, 2009). In energy-rich countries where state capacity to distribute resources is weak, consumer fuel subsidies tend to be common and resilient to reform efforts (Inchauste & Victor, 2017a). ...
Fuel riots are common around the world. Between 2005 and 2018, 41 countries had at least one riot directly associated with popular demand for fuel. We make use of a new international dataset on fuel riots to explore the effects of fuel prices and price regimes on fuel riots. In line with prior expectations, we find that large domestic fuel price shocks are a key driver of riots - as these are often linked to international price shocks. In addition, we report a novel result: fuel riots are closely associated with domestic price regimes. Countries that maintain fixed price regimes - notably net energy exporters - tend to have large fuel subsidies. When such subsidies become unsustainable, domestic price adjustments are large, often leading to riots.
... This trend is reflected in the observed correlation between fossil fuel subsidies and resource endowment. This correlation is particularly strong for oil-producing developing countries as a group, and especially for the MENA region (Cheon et al., 2013;El-Katiri and Fattouh, 2017;Moghaddam and Wirl, 2018). Similarly, democratic regimes facing credibility problems, such as younger democracies, can be encouraged to manipulate the electorate through clearly visible subsidies to fossil fuel energy consumption (Drazen and Eslava, 2010). ...
The past two decades have witnessed widespread attempts to reform fossil fuel subsidies in developing countries. If the reforms are likely to improve economic efficiency, the expected effects on income distribution and poverty are more controversial. This paper reviews the recent literature that examines the impacts of fossil fuel subsidies and their reforms on income inequality and poverty in developing countries. It identifies the different channels that have been explored in the literature and surveys the empirical evidence on the importance of these channels in practice. Drawing on diverse country experiences, it also discusses why fossil fuel subsidies are particularly challenging to reform and highlights several ways in which efforts to reform may be feasible and successful.
... However, the causality here can be difficult to establish: is it resource endowment that leads to higher energy subsidies, or is it the energy subsidies that create the feeling of entitlement? (Cheon et al., 2013). Anecdotally, one factor that appears to be influential in Indonesia's decision to finally drop gasoline subsidies at the turn of 2015 is the increasing awareness of the depletion of the countries' resource base. ...
This article critically evaluates the 2015 Paris Agreement, highlighting the almost dichotomous responses it received from the mainstream press as compared to the climate justice movement. This article foregrounds that divide in order to ask further questions of the Agreement and the international climate regime, including questions about what voices and perspectives are heard in scholarship on international climate law. The article suggests the need to engage with international climate law in ways that are attentive to the productive effects of international agreements, as well as the need to examine their distributional effects, to interrogate what new social relations they establish and stabilize as well as how power and authority might be reorganized or rearranged by practices authorized by international environmental law.
... An extended period of low oil prices raises an intriguing question: should governments of oil-exporting countries continue to subsidise costly energy subsidies? While the issue remains debatable, several studies argue that energy subsidies lead to numerous adverse economic, social and environmental impacts (see, for example, Birol et al., 1995;Cheon et al., 2013;Arzaghi and Squalli, 2015;Coady et al., 2015). Hence, considerable global efforts have been built to phase out energy subsidies (Vagliasindi, 2012). ...
As part of 'Vision 2030', Saudi Arabia has initiated a broad-based energy reform programme aimed at gradually reducing its dependence on oil. This paper assesses the impacts of energy price reforms on living expenses of various household groups in Saudi Arabia. For this purpose, the input-output table combined with household expenditure data are used to model the impacts. Results show that the distributional impacts of energy price reforms are regressive, with low-income households experiencing a higher increase in living expenses compared to high-income households. The impacts are primarily instigated by rising prices of energy-intensive products. After decomposing the impacts into direct and indirect effects, it was found that indirect effect is not only responsible for a considerable rise in household expenditure on energy-intensive products, but it is also dis-tributionally regressive. It is therefore vital for policymakers to review and fine-tune the social protection system to protect poor households against reforms.
... An alternative way to measure the amount of energy subsidies is by using the price gap approach. Using this methodology, the amount of subsidies is calculated by multiplying the total amount of fossil fuel consumed in a particular country and year by the difference between the world market price and the actual price paid by end users in a country (Cheon, Urpelainen, & Lackner, 2013;Clements et al., 2013;Coady, Parry, Sears, & Shang, 2015;Gerasimchuk, 2014;Koplow, 2009;Steenblik, 2003;van Beers and Strand, 2013). However, there are also a number of important limitations to the latter approach (Koplow, 2009 best a "lower bound" estimate of the complete effects of subsidies as it only captures those that change the price of fossil fuel. ...
This study explores whether the amount of fossil fuel subsidies paid by the government is subject to an election cycle. Theoretically, it is not a priori directly clear whether the provision of fossil fuel subsidies should go up or down when elections are upcoming. On the one hand, governments may reap electoral benefits from offering additional support in an election year since voters generally prefer candidates from whom they expect to receive greater material well‐being by reducing the prices of basic goods. On the other hand, if the number of recipients is only small or when they are politically not well organized, reducing fossil fuel subsidies to finance a tax cut or an increase in other public spending areas that benefit and attract more voters might be a more successful re‐election strategy. My main empirical findings clearly show a U‐shaped election effect. It turns out that election cycles encourage fossil fuel support only in countries that have either a large or small fossil fuel demand. In these countries, governments are more inclined to provide additional fossil fuel support in an election year. In turn, I do not find any significant evidence for the notion that upcoming elections create a window of opportunity to reduce fossil fuel subsidies. Finally, the significant election effects are in particular visible during presidential elections.
... Support does not have to be limited to financial flows but could also be aimed at enhancing the technical capacity to understand the extent of subsidies or at generally building institutional capacity (cf. Cheon et al. 2013). Already countries such as Denmark are offering funding to support fossil fuel subsidy reform, for instance, through the World Bank's Energy Sector Management Assistance Programme. ...
The Politics of Fossil Fuel Subsidies and their Reform - edited by Jakob Skovgaard August 2018
... A growing body of literature is seeking to identify the role of different political, economic and social factors in fossil fuel subsidies and their reform (Victor 2009;Cheon et al. 2013;Lockwood 2015). Although studies of individual fossil fuel subsidy reforms point to the role of international economic institutions as one factor among many (Beaton and Lontoh 2010;Lockwood 2015), there is no cross-country study of the influence of these institutions. ...
The Politics of Fossil Fuel Subsidies and their Reform - edited by Jakob Skovgaard August 2018
... Although comparative and large-n studies exist (e.g. Cheon et al. 2013;Ross et al. 2017), these analyses rarely compare the influence of a set of political factors across cases (but see Inchauste and Victor 2016). The focused comparison of different cases could uncover whether there are political factors that either promote or hinder reform that could apply across (a subset of) countries and therefore form a basis for more informed recommendations on how to carry out such reforms. ...
The Politics of Fossil Fuel Subsidies and their Reform - edited by Jakob Skovgaard August 2018
... Fossil fuel subsidies are typically adopted in countries where their implementation is relatively cheap compared with other means of influencing household consumption. For example, major oil producers are frequent subsidizers of domestic consumption (Cheon, Urpelainen, & Lackner, 2013). In these countries, the public often expects to benefit from their country's oil wealth, and the state has a strong incentive to provide goods and services that make it appear that everyone is benefitting-even if some are actually benefitting more-either because they are made available to all citizens or because they have a high degree of visibility. ...
This article examines the role played by local governments in shaping resistance to reforming fiscally and environmentally disastrous fuel subsidies. Shifting from universal-access social programs, like fuel subsidies, to targeted programs requires vesting authority with local politicians and bureaucrats, whom the state relies on to identify poor households and to deliver benefits. Where local governments are corrupt, citizens find promises to replace fuel subsidies with targeted spending less credible and resistance to reform is higher. Using household survey data from Indonesia, this article finds that corruption in the implementation of targeted transfer programs increases resistance to fuel subsidy reform among the poor citizens who consume the least fuel and who stand to benefit the most from targeted programs. Findings suggest that improving capacity within subnational governments to deliver social programs is important in developing public support for reform.
... These findings are aligned with the hypothesis of Eller et al. (2011) and Hartley et al. (2012) that governments, who are the principals in their relation with an NOC management, are more likely to redistribute income through subsidized domestic fuel prices. Cheon et al. (2013) note that major oil producing countries with weak institutional capacities tend to subsidize domestic fuel prices. ...
National oil companies (NOCs) control international oil markets. Nevertheless, by the end of the 2000s, their share of the industry's total revenues was only 35% while controlling more than 70% of the oil reserves and 65% of the gas reserves. Conventional financial theory prescribes that the proper management of an enterprise should seek the maximization of the NOCs' profits. However, maximization of profits is not their only objective. Their targets often include non-commercial objectives, such as domestic fuel subsidies and employment. This paper develops a model to assess the impact of domestic fuel subsidies and employment on NOCs’ performance, which clarifies the trade-offs among non-commercial objectives and NOCs' market value, production, and reinvestment. The model is applied and calibrated to the Colombian NOC to find the financial and operative effects of these non-commercial objectives for different scenarios.
... In the developing countries, PSC is controlled by governments, which spend millions of dollars on refined petroleum products such as gasoline, diesel, etc. In these countries, large volume of subsidies causes artificial low prices and the economic and financial problems, this in turn causes fading out of optimization of economic consumption and market competitions (Cheon et al., 2013). Considering the economic and financial problems, countries take corrective measures such as gradual reduction of subsidies to ultimately complete elimination and inclusion of private sector in the petroleum supply chain. ...
Petroleum Supply Chain is one of the most important and sophisticated managing missions in both developing and developed countries. Nowadays, environmental pollution is another critical factor in designing the petroleum supply chain. This importance encourages the governments to minimize the amount of environmental pollution and maximize their obtained profit simultaneously, by enacting required legislations on the transportation modes and the refineries. Considering maximizing the job creation and each stakeholder's profit, and minimizing the emission of CO 2 and other greenhouse gases at the same time is called Sustainable Petroleum Supply Chain which has been paid little attention despite its significance. Therefore, the modelling of petroleum supply chain considering sustainability and pricing issues is investigated for the first time in this work and a sustainable competitive petroleum supply chain (SCPSC) model is developed to minimize pollution while maximizing the profits and job creation. This problem is a two level model. The first level in SCPSC is the competition between the supply chains of the government and the private sectors, which is modelled by the game theory approach including Nash and Stackelberg equilibria. The optimal price and demand for each supply chain determined in the first level are considered as the second level parameters. In the second level, the optimal values of the decisions in designing the petroleum supply chain will be obtained by solving Mixed Integer Linear Programming (MILP) under the mentioned three objective functions. Finally, the proposed model is applied to a real world case in the national Iranian oil company (NIOC). Based on the results of the Stackelberg equilibrium, the government profits increase by 11.12% while that of the private sector decreases by 25.4 and 28.11%. Increasing in the government profit is due to increased demand provided by government. The results show that the whole profit of the petroleum supply chain in Nash equilibrium is 9.8% more than that in the Stackelberg equilibrium.
... In reality, however, lump-sum compensation mechanisms may be unavailable to policy makers, such that they resort to less efficient policies to provide benefits to special interest groups (Dixit et al., 1997). Indeed, oil rich countries are found to provide higher fossil fuel subsidies (Cheon et al., 2013), and it has been argued that these subsidies might be an attractive device to distribute natural resource rents, as they are "easier to observe, easier to commit to, easier to deliver, or better targeted at core groups, than other public goods or favors offered by rulers" (Strand, 2013). This perspective is corroborated by several interview partners, who emphasized that citizens feel a strong sense of entitlement to receive a share of their country's resource wealth (see Segal, 2012;Friedrichs and Inderwildi, 2013). ...
Long-term credibility is a central pillar of climate policy. This paper assesses whether Ecuador's recently adopted climate targets, policies to decarbonize the power sector, and measures to reduce deforestation constitute a credible basis for a transformation towards a low-carbon economy. Based on the literature on the design of credible climate policy and expert interviews, we argue that even though Ecuador's existing policies may reduce emissions in the short term, they do not yet constitute an entry point for a long-term strategy of economic transformation. We then outline politically and institutionally feasible mitigation measures, which we evaluate from a dynamic policy sequencing perspective according to their potential to prepare the ground for more stringent measures to reduce emission in the future. These measures include inter alia reform of driving restrictions, public transport, vehicle efficiency standards, support for electric cars, and results-based payments to reduce land use emission. Such reforms will need to be phased in gradually and embedded in a broad fiscal reform package. To counter potential adverse distributional effects of higher energy prices, low-income groups could be protected by lowering other taxes, scaling up investment in education, and block-pricing schemes. Furthermore, increased participation of key stakeholders would likely reduce public opposition against energy- and climate-related policies, such as fossil fuel subsidy reform.
... The growing body of the literature on fossil fuel subsidies and their reform has predominantly focused on domestic factors (Victor 2009;Bazilian and Onyeji 2012;Cheon et al. 2013). The issue of international economic institutions in fossil fuel subsidy reform has been overlooked-except for treating them as one factor among many causing domestic fossil fuel subsidy reform (Beaton and Lontoh 2010). ...
Fossil fuel subsidy reform has in recent years been addressed by international economic organizations including the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD). The two organizations have differed significantly in how they define fossil fuel subsidies. The IMF’s definition constitutes a radical break with previous definitions by including environmental externalities, while the OECD’s is more conventional. The article explores the factors that explain why these international economic organizations have approached fossil fuel subsidies so differently. The exact definition of fossil fuel subsidies is contested. Furthermore, fossil fuels subsidies can be framed in ways that emphasize, respectively, their macroeconomic, fiscal, environmental, and distributive consequences. The article finds that institutional interaction lifted OECD involvement in fossil fuel subsidies to a new level, whereas the impetus to address fossil fuel subsidies within the IMF came largely from the IMF staff. In both cases, the organization’s bureaucracy constituted the most important factor shaping how the organizations addressed such subsidies and hence the main reason why they differ in how they approach fossil fuel subsidies.
The world price of oil is in constant flux, but countries respond to this reality in very different ways. Some heavily regulate the degree to which world prices “pass-through” to the price of gasoline at the pump, while others let domestic gasoline prices track world markets. We develop a novel, weekly dataset—to our knowledge the most comprehensive in existence—to explore the political economy of pass-through policies in over 100 countries. We find that autocracies are more likely than democracies to limit pass-through, especially those that are weakly institutionalized, ineffective providers of public services, and neo-patrimonial. Our project sheds light on the domestic policy choices that affect climate change and has significant implications for understanding price regulation more broadly.
Fossil fuel subsidy reforms (FFSRs) are critical to sustainable development goals. Fuel subsidies sap governments of funds and contribute to environmental degradation. However, progress on their reduction has been mixed due to weak political and social support for higher prices. Energy affordability has recently shot up the agenda, following a period of sustained energy and broader price inflation, contributing to a resurgence of strikes and other expressions of social grievance. Drawing on empirical experiences across a diverse set of countries – including Chile, France, Indonesia, Iran and Ghana – this paper explores factors shaping the societal and political acceptability of FFSRs. It shows that such measures should be better adapted to the unique political, social and economic fabric of each reforming country or locality. It builds on insights from a small literature on political and social factors shaping FFSR outcome, which emphasize greater risks of social resistance in countries with weak institutions, lower income levels and a history of political instability. It finds that a key element for the success of policy reforms in this area is the ability of policy makers to maintain a broader balance among social, political and industrial interests, regardless of the stage of economic and institutional development.
The global phase-out of coal by mid-century is considered vital to the Paris Agreement to limit warming well-below 2 °C above pre-industrial levels. Since the inception of the Powering Past Coal Alliance (PPCA) at COP23, political ambitions to accelerate the decline of coal have mounted to become the foremost priority at COP26. However, mitigation research lacks the tools to assess whether this bottom-up momentum can self-propagate toward Paris alignment. Here, we introduce dynamic policy evaluation (DPE), an evidence-based approach for emulating real-world policy-making. Given empirical relationships established between energy-economic developments and policy adoption, we endogenize national political decision-making into the integrated assessment model REMIND via multistage feedback loops with a probabilistic coalition accession model. DPE finds global PPCA participation <5% likely against a current policies backdrop and, counterintuitively, foresees that intracoalition leakage risks may severely compromise sector-specific, demand-side action. DPE further enables policies to interact endogenously, demonstrated here by the PPCA’s path-dependence to COVID-19 recovery investments.
The paper studies the current market of motor fuels in Russia after the introduction of the damper mechanism. It is shown how the system worked on the Russian market of motor fuels before the introduction of the damper mechanism. The consequences in the pricing system for motor fuels, taking into account the damper mechanism, are shown on the example of the Omsk Oil Refinery in 2019. The article presents the advantages and disadvantages of this damper mechanism, and possible ways to solve them in the long term.
This paper focuses on analyzing energy prices subsidies distribution in the MENA region among its seven components, according to the products that benefit from subsidized prices, and by per capita. As a nominal average of the years 2013, 2015, and 2017, both Iran and KSA had the higher nominal pre-tax subsidy averages estimated to $52.11 and $45.54 billion respectively, and also had higher post-tax subsidy averages estimated to $118.55 and $114.81 respectively. Global warming and local air pollution were the most important components after the pre-tax subsidies component in all MENA region countries. The "Congestion" component came after the level of the two environmental components averages in oil-exporting countries, while the "accidents" component in almost all the oil-importing countries came after the level of the two environmental components averages. By products, petroleum products were the main products that benefited from energy prices subsidies in almost all MENA countries. The reform process must take into account the specifics of each country with regard to the details of energy subsidies at its level, as energy subsidies vary from one country to another, whether in terms of its value, the weight of its components, and the subsidy share of each energy products.
Gasoline subsidies distort the gasoline market resulting in inefficiencies and a costly burden in government budget. In Indonesia, they have taken up to 15 % of the government expenditures that arguably could be better spent elsewhere. Governments are aware of these costs, yet face difficulties in removing the policy. Governments would like to release the subsidy fund for other programs while still maintaining political power. Simultaneously, a reform will reduce the purchasing of the population and thus, it is commonly met with strong public resistance. The general population can influence the government's decision to carry out a reform by exerting pressure that may affect the country's political stability. There is a vast economics literature analysing the economic impact from a subsidy reform. Meanwhile, the government's hesitancy is analysed in the political science literature. We combined these two fields by developing a quantitative game theory model to show the interaction between the government and the general population. The model is based on Indonesian data but provides a framework that can be applied elsewhere. Different policy removal schemes are simulated including completely or partially phasing-out the subsidy with and without compensation. An important take-away from our analysis is that it provides a framework showing governments what they have to quantify in order to make an informed policy decision. Another important implication is that the success of the policy reform is highly dependent on the selectorates trust to the government. It strongly supports the political science recommendations of building trust through transparency and inclusion.
Purpose
The aim of this empirical study is to examine the determinants of income inequality with particular concentration on the impact of fossil fuel subsidies, while controlling for corruption, economic uncertainty and democratisation in developing nations.
Design/methodology/approach
Generalised method of moments (GMM) is the principal method used in this study due to time and cross-sectional dimensions of the series under observation. Augmented mean group (AMG) method has been used as an alternative estimator.
Findings
The results revealed that increase in fossil fuel subsidies causes greater income inequality. The results indicate that corruption and uncertainty aggravate the impact of fossil fuel subsidies on inequality. The results are not materially different when an alternative estimation technique is used to estimate the regressions.
Research limitations/implications
This study uses data for 31 developing countries. So, with availability of more datasets in the future, further studies can include more countries in their analyses.
Practical implications
Price reforms resulting in a major decrease in the fossil fuel subsidies is needed in these developing countries. The authorities must ensure that fiscal savings, structural adjustment and enhanced efficiency in production resulting from energy price reforms serve as catalyst to promote income distribution in these countries.
Originality/value
The author’s first addition to the literature is that the study has concentrated on the fossil fuel subsidies and income inequality relationship, which has not been sufficiently treated in the existing literature. Without adequately knowing the key factors determining income inequality, it may be difficult to use appropriate programmes that will safeguard appropriate income distribution.
Peer review
The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-11-2021-0675
Recent studies suggest that political institutions have little impact on the size of consumer fossil fuel subsidies, concluding instead that subsidies reflect country-specific and slowly changing economic factors. Such findings bode poorly for reforming these costly policies. I argue that this conclusion stems from an overly narrow view of the kinds of non-democratic regimes that exist. I introduce a large literature from political science that distinguishes “electoral authoritarian” regimes from other non-democracies and develop a theoretical argument connecting the former's reliance on broad-based public support to higher levels of fossil fuel subsidies. I test the argument using a price-gap measure of domestic consumer gasoline subsides for more than 160 countries for most years between 1990 and 2014. The results demonstrate that the emergence of electoral authoritarianism is associated with larger fuel subsidies, and that an increase in hydrocarbon production revenue has a larger impact on the size of subsidies within electoral authoritarian systems than in other regime types. Reform efforts must acknowledge this political logic while focusing on how to offset subsidies with less environmentally harmful measures.
China's natural gas consumption has grown rapidly over the years, but the price mechanism was distorted by cross-subsidy and price inversion for a long time. In June 2013, nationwide pricing reform was implemented in the non-residential sector. To explore the effect of the reform on price distortion, this paper uses monthly data from 27 key cities to estimate the scale and rate of natural gas price subsidy from 2008 to 2017. The results show that the natural gas subsidy remains a large scale, but varies across sectors. The time interval in the implementation of the policy provides a quasi-natural experiment for studying the reform. The difference-in-difference-in-difference estimations prove that the natural gas pricing reform has significantly eliminated the subsidy rate in the non-residential sector, and an effective terminal pricing mechanism has been conducted. Considering that energy subsidy is a global issue, the experience of the pricing reform in China may be extended to emerging and developing countries.
La investigación sobre la liberalización o focalización de los combustibles sobre experiencia ecuatoriana, se centra en analizar la conveniencia o no de aplicar subsidios o su eliminación total o gradual, en la economía, y cómo juega un papel clave la apreciación política de los gobernantes. Se trata de una investigación descriptiva y correlacional, debido a que se busca de forma adecuada especificar características del fenómeno a investigar para poder describir tendencias del grupo de datos que forman las variables y correlacional porque se analiza la relación del subsidio de la gasolina con la demanda y precio del mismo. Este trabajo, busca en primera parte revisar como la medida de eliminar el subsidio a la gasolina súper y reducir la ayuda monetaria a la eco y extra tuvo sus resultados deseados en el corto, mediano y largo plazo. Y si bien en los primeros meses, los gastos en subsidios se redujeron luego tomó una tendencia creciente que es muy probable que en los próximos meses vuelva los niveles anteriores. Lo que evidencia que fue una medida parche y que no solucionó en nada la caja fiscal del Estado.
This paper attempts to shed light on the drivers causing international fuel prices to be passed through to domestic retail fuel prices. While many developing countries limit the international fuel price pass through to domestic fuel prices, others do not. In the former, large fuel subsidies can emerge, thereby threatening fiscal sustainability, worsening income distribution and setting back efforts to fight climate change. Against this backdrop, we examine the factors that determine whether governments allow international fuel price changes to be passed through to domestic prices in developing countries using a dataset spanning 109 developing countries from 2000 to 2014. The paper finds that the pass-through is higher when changes in international prices are moderate and less volatile. In addition, the flexibility of the pricing mechanism allows for higher pass-through while exchange rate depreciation and lower retail fuel prices in neighboring countries inhibit it. The econometric results also underscore the fact that countries with inflation tend to experience lower pass-through, whereas those with high public debt exhibit larger pass-through. Finally, no evidence is found that political variables or environmental policies matter with regard to fuel price dynamics in the short-term. These findings, which are consistent across fuel products (gasoline, diesel and kerosene), allow us to draw important policy lessons for fuel subsidy reforms.
La investigación sobre la liberalización o focalización de los combustibles sobre experiencia ecuatoriana, se centra en analizar la conveniencia o no de aplicar subsidios o su eliminación total o gradual, en la economía, y cómo juega un papel clave la apreciación política de los gobernantes. Se trata de una investigación descriptiva y correlacional, debido a que se busca de forma adecuada especificar características del fenómeno a investigar para poder describir tendencias del grupo de datos que forman las variables y correlacional porque se analiza la relación del subsidio de la gasolina con la demanda y precio del mismo. Este trabajo, busca en primera parte revisar como la medida de eliminar el subsidio a la gasolina súper y reducir la ayuda monetaria a la eco y extra tuvo sus resultados deseados en el corto, mediano y largo plazo. Y si bien en los primeros meses, los gastos en subsidios se redujeron luego tomó una tendencia creciente que es muy probable que en los próximos meses vuelva los niveles anteriores. Lo que evidencia que fue una medida parche y que no solucionó en nada la caja fiscal del Estado.
‘Fuel riots’ are a distinct type of energy-related conflict. We provide the first fuel riots database and explore their social, economic and environmental drivers. The analysis demonstrates links between fuel riots and high international crude oil prices in countries characterised by weak state capacity, deficient governance, fuel scarcity and poor economic performance. We suggest a potential causal pathway for fuel riots: when international fuel prices spike, net fuel-importing countries bear higher costs. If these countries are politically unstable and their government inefficient, the likelihood of fuel riots is high. Wealthier countries can absorb price increases and maintain subsidies, as opposed to poorer societies where fuel riots are more likely. Our findings demonstrate the role of state capacity and socio-economic conditions in enabling conflict, and will inform policy by identifying fertile ground for fuel riots, i.e. societies likely to be affected by increases in fuel prices due to scarcity and climate action (such as carbon taxes). We propose that policies which better control international prices and action designed to reduce political instability in vulnerable countries are key to preventing fuel riots. Fuel subsidy reform must anticipate popular opposition and mitigate the impact upon vulnerable populations in order to reduce the likelihood of instability and minimise hardship.
This paper defines ‘fuel riots’ as a distinct type of energy-related conflict. The paper provides the first database for fuel riots and explores their social, economic and environmental drivers. Focussing upon refined fuel commodities, the analysis demonstrates a link between fuel riots and rising international fuel prices in countries characterised by weak state capacity and deficient governance, fuel scarcity and poor economic performance. We suggest a potential causal pathway for fuel riots: when international fuel prices spike, net fuel-importing countries bear higher costs and if these societies are politically fragile, the likelihood of fuel riots is high. Countries with high GDP per capita can absorb the increase and maintain subsidies, therefore avoiding upheavals, as opposed to poorer societies where fuel riots are more likely. Our findings demonstrate the role of state fragility and socio-economic conditions in enabling conflict, and will inform policy in identifying fertile ground for fuel riots, i.e. those societies most likely to be affected by increases in fossil fuel prices due to fuel scarcity and climate action (e.g. carbon taxes). We propose that policies aimed at controlling international prices are key to prevent fuel riots. Long-term strategies require phasing out fuel subsidies with inclusive and equitable processes.
Quality of electricity service remains poor in many developing countries. Here we examine factors that influence stated willingness to pay for better service (i.e., more hours of power per day) among rural and urban households in Uttar Pradesh, India. Besides suggesting that low willingness to pay is a major obstacle to pricing reform, we find that respondents with more social trust are willing to pay more. In a randomized survey experiment, we also find that delays in service improvements and a lack of community support for pricing reform reduce willingness to pay. These results confirm the importance of non-financial considerations in popular support for policies that impose higher prices in exchange for better service. However, we do not find evidence for sense of entitlement – the belief that government should offer basic goods and services for free – as a predictor of low willingness to pay. These results offer useful input for effective strategies to reform electricity pricing for better service and, ultimately, economic growth, particularly in areas where electricity is heavily underpriced and where governance is weak.
Oil wealth tends to impede democracy, but scholars disagree about both why and under what conditions. This note helps answer these questions by evaluating the field's foundational theory of the rentier state, which claims that oil wealth finances generous societal benefits that reduce citizens’ demands for representation and hinder the emergence of democratic regimes. I create a new measure of such benefits, focusing specifically on the size of domestic gasoline subsidies in dollars per capita. I then use a global sample from 1990 through 2014 to demonstrate that greater spending on these subsidies significantly reduces the likelihood of a transition toward democracy. The impact on democratization is as consequential in practical terms as are large increases in the rate of economic growth. Moreover, including the measure of fuel subsidies helps account for the autocratic effect of oil income. I conclude by highlighting how this fuel subsidy data can shed light on a number of other political economy questions.
Renewable energy targets announced in 2014 present an opportunity to reform Indonesia's electricity sector which is dominated by fossil fuels. In this paper we discuss Indonesia's current renewable energy policies and future outlook for achieving the targets. This paper serves as a literature review of Indonesia's changing energy policy landscape, as part of a broader research investigating renewable energy targets and the role of the private sector. Despite Indonesia's wealth of renewable energy resources, numerous studies have identified multiple constraints to the development of renewable energy, including geographical, institutional and investment factors. Influential groups are calling for the Indonesian Government to put in place a clear policy framework that facilitates private sector investment. Therefore, interventions to facilitate investment in energy infrastructure in Indonesia must address the monopolised power market system that oversees a changing, complex malaise of electricity pricing regulations which make investment risky and uncertain. This study will enrich the existing literature on renewable energy policy which emphasises the importance of engaging the private sector. It is based on a rigorous qualitative assessment of Indonesia's changing policy that affects the progress of the renewable energy targets. The lessons from Indonesia's experience may provide insights for policymakers notably in developing countries.Keywords: energy in Indonesia, private sector investment, renewable energy
Fossil fuel subsidies strain public budgets, and contribute to climate change and local air pollution. Despite widespread agreement among experts about the benefits of reforming fossil fuel subsidies, repeated international commitments to eliminate them, and valiant efforts by some countries to reform them, they continue to persist. This book helps explain this conundrum, by exploring the politics of fossil fuel subsidies and their reform. Bringing together scholars and practitioners, the book offers new case studies both from countries that have undertaken subsidy reform, and those that have yet to do so. It explores the roles of various intergovernmental and non-governmental institutions in promoting fossil fuel subsidy reform at the international level, as well as conceptual aspects of fossil fuel subsidies. This is essential reading for researchers and practitioners, and students of political science, international relations, law, public policy, and environmental studies.
Available in Open Access via this link: https://www.cambridge.org/core/books/politics-of-fossil-fuel-subsidies-and-their-reform/B8CB7D383F33AD9AF9CC82EB50A74DE5#fndtn-information
I den oljerike gulfstaten Kuwait har regjeringen holdt de innenlandske bensinprisene uendret siden 1999. Kuwaits styre ser ut til å ha gått i vranglås med en kostbar politikk. Regjeringens bensinprisfastsettelse betinges av den forventede motstanden fra det folkevalgte parlamentet, som igjen avhenger av den forventede motstanden hos parlamentets velgere.
Trinidad and Tobago is an oil exporting small island developing state (SIDS) with a 0.12% contribution to global emissions and with important socio-economic challenges. It has producer, electricity and transport fuel subsidies. It is at an interesting juncture in subsidy reform: the government faces the embeddedness of distributive justice norms that are contested by fiscal prudence and environmental stewardship norms. The value of the paper is twofold. First it develops a subsidy intractability framework to explain reform global narratives that highlights: the power of agents, the nature of contested economic, justice and environmental norms and the availability of mechanisms for reform. Second, this framework is used to explain reform narratives and trajectories in Trinidad and Tobago using data from public documents and from a unique elite survey of former and present heads of state, politicians, policy makers and stakeholders. Even in conditions of falling oil prices and national revenue and pressures to reduce emissions, where redistributive justice arguments are heavily embedded in public discourses, those aspects of the subsidy that have developmental or distributive justice goals are more intractable. The results of the study have implications for carbon emission reduction strategies in developing states with fossil fuel reserves.
Democratization might be instrumental in addressing climate change on a global scale but the effect of democracy on carbon dioxide emissions is unclear. Treadmill of production (TOP) theory implies that democracy may increase emissions as publics pressure governments for increased economic growth. On the other hand, theories aligned with a rational choice perspective and ecological modernization perspectives suggest that democracy will reduce emissions as autocratic leaders have little incentive to address environmental policy. In this article, we clarify the role of democracy in emissions by using data that disaggregate different characteristics of democracies. Using novel causal inference techniques and generalized linear models, we allow the effect of democratic characteristics to vary across countries. Results indicate that democracy tends to reduce emissions, but the effect is modest, and its intensity varies significantly across countries.
This article explores the influence of socio-economic discontent on the determination of decision makers to cut subsidies on natural gas for Russian households. The authors outline first the organisation of gas supplies and subsidies, and secondly the relationship between policymaking signals and public opinion concerning the minor price adjustments implemented so far. They then examine previous cases of discontent in other sectors, extrapolating implications for a major increase in gas prices. The conclusion is that Russian policymaking is characterised by a pattern of ‘two steps forward, one step back’: decision makers are concerned about discontent, but nonetheless they ultimately press on with reform.
This paper argues that the most obvious measure to combat greenhouse gas emissions is to remove the vast subsidies that promote higher energy consumption in more than half of the countries in the world, and that this measure should take precedence over many others. The article discusses also why removing energy subsidies is so difficult, and which type of state may succeed. This question is examined with reference to China, India and Russia, all major contributors to global warming. Non‐democratic governments and energy importers might be expected to be more likely to halt subsidies. In fact, energy trade imbalances do not seem to significantly affect the capacity to reduce subsidies. The risk of social unrest is a political restraint in all three countries. Perhaps surprisingly, democratic states may be better positioned to remove subsidies than non‐democratic ones.
We examine some issues in the estimation of time-series cross-section models, calling into question the conclusions of many published studies, particularly in the field of comparative political economy. We show that the generalized least squares approach of Parks produces standard errors that lead to extreme overconfidence, often underestimating variability by 50% or more. We also provide an alternative estimator of the standard errors that is correct when the error structures show complications found in this type of model. Monte Carlo analysis shows that these “panel-corrected standard errors” perform well. The utility of our approach is demonstrated via a reanalysis of one “social democratic corporatist” model.
We present a model of the exploration and development activities of a National Oil Company (NOC), which uses similar technology to a private firm to extract a depletable resource. However, unlike the private firm, the NOC may have a wider range of objectives than maximizing the present value of profits. Specifically, we assume an objective function that balances firm profitability against a political desire to favor domestic consumer surplus and domestic employment. We find that the non-commercial objectives faced by a NOC tend to reinforce each other in their effects on profitability, the timing of cash flows and employment.
This book makes two central claims: first, that mineral-rich states are cursed not by their wealth but, rather, by the ownership structure they chose to manage their mineral wealth and second, that weak institutions are not inevitable in mineral-rich states. Each represents a significant departure from the conventional resource curse literature, which has treated ownership structure as a constant across time and space and has presumed that mineral-rich countries are incapable of either building or sustaining strong institutions – particularly fiscal regimes. The experience of the five petroleum-rich Soviet successor states (Azerbaijan, Kazakhstan, the Russian Federation, Turkmenistan, and Uzbekistan) provides a clear challenge to both of these assumptions. Their respective developmental trajectories since independence demonstrate not only that ownership structure can vary even across countries that share the same institutional legacy but also that this variation helps to explain the divergence in their subsequent fiscal regimes.
National Oil Companies (NOCs) play an important role in the world economy. They produce most of the world’s oil and bankroll governments across the globe. Although NOCs superficially resemble private-sector companies, they often behave in very different ways. Oil and Governance explains the variation in performance and strategy for NOCs and provides fresh insights into the future of the oil industry as well as the politics of the oil-rich countries where NOCs dominate. It comprises fifteen case studies, each following a common research design, of NOCs based in the Middle East, Africa, Asia, Latin America and Europe. The book also includes cross-cutting pieces on the industrial structure of the oil industry and the politics and administration of NOCs. This book is the largest and most systematic analysis of NOCs to date and is suitable for audiences from industry and academia, as well as policy makers.
Employing analytical tools borrowed from game theory, Carles Boix offers a complete theory of political transitions. It is one in which political regimes ultimately depend on the nature of economic assets, their distribution among individuals, and the balance of power among different social groups. Backed by detailed historical research and extensive statistical analysis from the mid-nineteenth century, the study reveals why democracy emerged in classical Athens. It also covers the early triumph of democracy in nineteenth-century agrarian Norway, Switzerland and northeastern America as well as its failure in countries with a powerful landowning class.
We examine some issues in the estimation of time-series cross-section models, calling into
question the conclusions of many published studies, particularly in the field of comparative
political economy. We show that the generalized least squares approach of Parks produces
standard errors that lead to extreme overconfidence, often underestimating variability by 50% or
more. We also provide an alternative estimator of the standard errors that is correct when the error
structures show complications found in this type of model. Monte Carlo analysis shows that these
"panel-corrected standard errors" perform well. The utility of our approach is demonstrated via a
reanalysis of one "social democratic corporatist" model.
governments spend staggering sums of money subsidizing fossil fuels, with many harmful consequences for public budgets, energy markets, and pollution. While there is widespread agreement among analysts that most of these subsidies serve no legitimate purpose, cutting subsidies has proved extremely difficult. This paper explores the politics of subsidy creation and reform and suggests some strategies for improving the odds that reformers will be politically successful. Subsidies exist often because they are the only reliable mechanism available to governments that are under pressure to provide benefits to politically well-organized groups. Not understanding the political economy of subsidy policies can prevent successful reform, and the report argues that successful subsidy reforms often require broader reforms and improvement in public administration to create mechanisms that can compensate political losers. It is available at: http://www.globalsubsidies.org/en/research/political-economy
To a large extent, subsidies to fossil fuels amount to a waste of precious government resources. In the case of consumer subsidies provided mostly in developing countries, these subsidies are often intended as measures to alleviate poverty. In practice, however, they frequently miss that objective, with benefits largely reaped by higher income groups who can afford motor vehicles and electrical goods. Better-designed and targeted policies can achieve poverty reduction far more cost-effectively.Moreover, reducing the burden of subsidies from the public purse would help relieve fiscal debt during a time of economic recession; free up government resources for other priorities such as education and healthcare; and contribute towards addressing climate change by reducing greenhouse gas emissions and reducing investment barriers for clean and renewable energy technologies and resources.This report looks at three cases where governments - Ghana, France and Senegal - have undertaken fossil-fuel subsidy reform with varying degrees of success. While the specific circumstances of each country is unique, there appear to be elements of successful reform strategies that are consistent across different types of subsidies, fuels and countries. Drawing from these three case studies, this report describes how effective strategies are based on:• a deep understanding of the subsidy, its original objectives, the rationale for reform and the likely impacts;• establishing clear objectives and parameters for reform;• building support by communicating the benefits of reform and consulting stakeholders;• policy measures to reduce negative impacts on affected groups; • ongoing monitoring, and evaluation of reform and the flexibility to adjust policies in changing circumstances; and,• independent pricing mechanisms to prevent the government being drawn back in to subsidization.This paper is published as part of the series "Untold Billions: Fossil-fuel subsidies, their impacts and the path to reform."
In "Measuring Price Subsidies Using the Price-Gap Approach: What Does it Leave Out?" prepared under the International Institute for Sustainable Development’s (IISD) Bali to Copenhagen project, Doug Koplow looks at the most commonly employed methodology for estimating fossil-fuel subsidies, the ‘price-gap’ method. The report explains how the price-gap method works, reviews its benefits and limitations, and explores potential systematic bias in estimates, drawing conclusions and implications for their interpretation. Among its key findings are: Price-gap data are basic information needed to estimate support to producers and consumers, and should be collected annually for all major fossil-fuel energy producing and consuming nations. Measuring the price-gap does not capture everything. Reliance on only price-gap data will dramatically understate the magnitude of fossil-fuel subsidies globally, as it fails to capture subsidy flows that do not change fuel prices. The ‘transfer method’, which quantifies all subsidy flows conferred by a country’s fossil fuel policy interventions, is more difficult to complete but can help ‘fill in’ some of these gaps. Transfer studies should be conducted every five years in the top ten fossil-energy producing and consuming nations, as well as countries who derive large portions of their GDP from extractive industries.
This paper examines the policy alternatives faced by developing countries in their endeavor to preserve and develop their electricity and gas systems, two service-oriented industries which—along with oil—provide the bulk of energy supply both in developed and in developing countries. Even in very poor countries, industrially generated energy is indispensable for carrying out most economic activities. Therefore, governments traditionally recognize that the supply of gas and electricity entails a fundamental public service dimension. The Introduction presents the case for reforming of energy utilities, discusses in general terms the pros and cons of privatization, and attempts to locate the reforms in a broader historical framework in which developing countries’ governments faced characterized by increasing financial hardship. Section 2 constitutes the core of the paper. It reviews the main features of gas and power sector reforms in the developing world and analyzes specifically the cases of five semi-industrialized countries in Latin America and Asia. Section 3 (Concluding remarks) briefly evaluates the country experiences reviewed above and indicates a few policy lessons which can be learnt from them. The main conclusion is that, in a long-run development perspective, full-scale privatization of gas and power sectors in developing countries entails significant risks, and therefore a flexible policy approach is preferable to a rigid commitment to extensive liberalization.
We develop a theory of political transitions inspired by the experiences of Western Europe and Latin America. Nondemocratic societies are controlled by a rich elite. The initially disenfranchised poor can contest power by threatening revolution, especially when the opportunity cost is low, for example, during recessions. The threat of revolution may force the elite to democratize. Democracy may not consolidate because it is redistributive, and so gives the elite an incentive to mount a coup. Highly unequal societies are less likely to consolidate democracy, and may end up oscillating between regimes and suffer substantial fiscal volatility.
The panel data unit root test suggested by Levin and Lin (LL) has been widely used in several applications, notably in papers on tests of the purchasing power parity hypothesis. This test is based on a very restrictive hypothesis which is rarely ever of interest in practice. The Im-Pesaran-Shin (IPS) test relaxes the restrictive assumption of the LL test. This paper argues that although the IPS test has been offered as a generalization of the LL test, it is best viewed as a test for summarizing the evidence from a number of independent tests of the sample hypothesis. This problem has a long statistical history going back to R. A. Fisher. This paper suggests the Fisher test as a panel data unit root test, compares it with the LL and IPS tests, and the Bonferroni bounds test which is valid for correlated tests. Overall, the evidence points to the Fisher test with bootstrap-based critical values as the preferred choice. We also suggest the use of the Fisher test for testing stationarity as the null and also in testing for cointegration in panel data. Copyright 1999 by Blackwell Publishing Ltd
Future Challenges for the Arab World: The Implications of Demographic and Economic Trends. Project Air Force. Rand Corporation
- Rand Corporation
RAND Corporation, 2011. Future Challenges for the Arab World: The Implications
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Democracy and Redistribution Petroleum Subsidies in Yemen: Leveraging Reform for Development
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Boix, C., 2003. Democracy and Redistribution. Cambridge University Press, New York. Breisinger, C., Engelke, W., Ecker, O., 2011. Petroleum Subsidies in Yemen: Leveraging Reform for Development. International Food Policy Research Institute, Discussion Paper 01071.
United Nations Development Programme
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Fattouh, B., El-Katiri, L., 2012. Energy Subsidies in the Arab World. United Nations
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Petroleum Product Subsidies: Costly, Inequitable, and Rising. IMF Staff Position Note International Fuel Prices
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