Full Title: Low Oil Prices: An Opportunity for Fuel Subsidy Reform
Author(s): Keith Benes, Andrew Cheon, Johannes Urpelainen, and Joonseok Yang
Publisher(s): Columbia SIPA Center on Global Energy Policy
Publication Date: October 1, 2015
Full Text: Download Resource
Description (excerpt):
The decline in oil prices that began in the middle of 2014 presents an opportunity for governments to reform their fuel subsidies. Fossil fuel subsidies that artificially lower consumer prices are estimated to cost governments around the globe approximately $500 billion per year. These subsidies have a host of negative effects on an economy—encouraging wasteful consumption, creating a large fiscal burden on developing country budgets, disproportionately benefiting wealthier households, and increasing the health and environmental costs associated with fossil fuel use. Therefore, reforms to these subsidies can be good for the economy and the environment. Recent reforms by Indonesia and Malaysia illustrate that governments can capitalize on lower prices and act swiftly to remove fuel subsidies. While these governments have changed the regulated prices of fuels before, some of their recent reforms have removed fuel subsidy mechanisms altogether.
In a new paper for the Center on Global Energy Policy, Dr. Johannes Urpelainen, Associate Professor of Political Science at Columbia University and a Faculty Affiliate at the Center, and his co-authors examine the impact of low oil prices on global fuel subsidies across a number of dimensions. First, the paper explains the benefits of fuel subsidy removal and how low oil prices can enable action. Second, it summarizes key lessons about political obstacles to reform based on original research and the existing literature. Finally, it offers action-oriented recommendations for national and international policymakers, as well as social scientists.