Varun Sivaram

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Sustaining Fuel Subsidy Reform Should Be a Top U.S. Priority

by Varun Sivaram
October 25, 2016

People jostle for a pump nozzle at a petrol station during a fuel shortage in Cairo (Reuters/Abd El Ghany) People jostle for a pump nozzle at a petrol station during a fuel shortage in Cairo (Reuters/Abd El Ghany)

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Last week, I released a new CFR discussion paper entitled, “Sustaining Fuel Subsidy Reform,” with my colleague Jennifer Harris. Over the last two years, governments around the world have taken advantage of the plunge in global oil prices to reduce or eliminate consumer subsidies for fuels like gasoline or natural gas. However, these reforms are often unpopular and crumble under political pressure despite their economic, security, and environmental benefits.

In our paper, we identify strategies for governments to prevent backsliding on reforms, and we recommend ways for U.S. policymakers to help countries reinforce reforms. Check out the infographic below for a summary of our findings. For more, read our op-ed in Politico Magazine and the full discussion paper on CFR.org.

 

Post a Comment 3 Comments

  • Posted by George Chakko

    I am afraid the author seems to have got it wrong. While it can’t be denied that there is a strong potential for an increase in GHG’s all over Globe qua fuel subsidies, there is no unequivocal evidence to infer a causal connection always as thumb rule between subsidised fuel supply and increase in transport activities, nor a higher home consumption of natural gas. The demand side is that even the subsidised fuel price is still too high for the poorest of the poor. The middle class and the poor, who make up the majority of a country’s population, cannot simply eat more than 3 meals a day. Fuel subsidies also help personal savings which has high priority in Asia. Again, when an economy grows there is an automatic demand rise for fuel. Only stagnant economies consume lesser fuel. The second leg of the growth engine is population increase that automatically increases fossil fuel consumption. So the answer lies not in cutting out subsidies but increasing alternative energy-run vehicles like hydrogen and electric cars and the development of hybrid fuels with diminished percentage of fossils in the composition.

    The possibility of increased purchase power of consumers to buy hitherto unaffordable goods, including medicines and health treatment via fuel subsidies should not be overlooked. Fuel subsidies enable the poor man to buy less polluting natural gas cylinders instead of burning wood scavenged from diminishing green landscape. The U.S. has developed alternative energy supply paths and should sell them at low affordable price or donate them to least developed and developing countries instead of practising and preaching the opposite.

    George Chakko, former U.N. correspondent, now retiree in Vienna, Austria.
    Vienna, 25/ 10/ 2016 23:15 hrs CET

  • Posted by Tyler P. Harwell

    Charity begins at home. A good place to start would be for the US to get rid of its legally mandated corn-ethanol blending requirement for highway gasoline, and the remaining tax preferences associated with it.

    A fraud that results in more CO2 being put in to the air. In order to make some farmers and refiners rich, at the expense of everyone else.

  • Posted by Jeffrey Laurenti

    Varun Sivaram makes a signal contribution with this analysis of the progress that’s been made, at least in part thanks to President Obama’s doggedly keeping the subsidy issue on the international climate agenda. But I am puzzled by his couching the issue in terms of “serious consequences for U.S. strategic interests,” since political leaders in none of the countries Varun cites should be subordinating his own country’s strategic interests to Washington’s. (Moreover, if climate denialists regain power in Washington they could quickly alter the calculation of U.S. strategic interests.)

    The paper also smacks a bit of free-market fundamentalism. While subsidies may alter or “distort” people’s behavior, they may also promote social welfare (as they do in America’s own Affordable Care Act). So-called “lifeline” electricity rates that afford discounts at a low level of usage and increase the rate per kilowatt on high levels of consumption may well advance social welfare; so may energy coupons akin to our food stamps for environmentally less damaging cooking fuels.

    But, overall, a welcome work!

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