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Fossil fuel subsidy reform: 3 insights from a candid discussion

We understand the economics. We know some successful strategies. But mastering the politics – that’s the hardest part.

Marion Davis, Harro van Asselt / Published on 11 July 2016
Motorcyclists queue up at a petrol station

Motorcyclists queue up at a petrol station run by the state-owned Pertamina in Bali, Indonesia. Photo: Monica Müller / Flickr.

Governments in rich and poor countries alike have subsidized the production and consumption of fossil fuels for many years.

Although such subsidies may have some benefits, such as making fuels affordable to the poor, they come at a cost. Subsidies strain public budgets, leaving less money for social welfare, infrastructure and other policy priorities. Consumer subsidies benefit richer people more than the poor. And by supporting fossil fuel production and use, subsidies contribute to climate change and local air pollution.

So there’s a growing consensus, embraced by the G20 almost seven years ago, that (“inefficient”) fossil fuel subsidies should be phased out. Yet overwhelmingly, they remain in place. A few countries have successfully cut or ended their subsidies, but many more have tried and failed, or done nothing at all. The politics, it turns out, are daunting.

Last month, aiming to shed light on why fossil fuel subsidies are so entrenched, and what it takes to successfully reform them, we hosted a workshop in Stockholm that looked at both the global picture, and at case studies from around the world. Here are our three main takeaways.

Source: Huffington Post, US

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Harro van Asselt

SEI Affiliated Researcher

SEI US

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