Page 13 - AsianOil Week 08 2023

AsianOil POLICY AsianOil

The IEA found that oil subsidies grew by increases in price.
around 85%, while natural gas and electricity Exemptions from various taxes and levies
consumption subsidies more than doubled. As were common. The South African government
noted in the latest IEA’s World Energy Outlook, froze the general fuel levy on petrol and diesel
high fossil fuel prices were the main reason for from February 2022, and reduced it by ZAR1.50
upward pressure on global electricity prices, ($0.9) per litre from April to June 2022.
accounting for 90% of the rise in the average Guyana removed the excise tax on gasoline
costs of electricity generation worldwide. Natu- and diesel in March. The United Kingdom cut
ral gas alone accounted for more than 50%. fuel duty, and Belgium reduced the VAT on elec-
The IEA only looked at consumption subsi- tricity bills from 21% to 6%.
dies and did not account for production subsi- Easing payment terms or banning disconnec-
dies, such as tax breaks or direct payments that tions were also in evidence. Japan eased gas and
reduce the cost of producing fossil fuels. electricity payment terms for those struggling
As long ago as 2020, before the current rise to pay. In Spain, a “vital minimum supply” obli-
in consumption subsidies, the International gation for utilities was enacted from September
Monetary Fund (IMF) found that global fossil 2021, ensuring vulnerable households unable to
fuel subsidies were $5.9 trillion, or 6.8% of GDP, pay their electricity bills would still get supplied
and were expected to climb to 7.4% of GDP in for a period of 10 months.
2025 as the share of fuel consumption in emerg- In some countries, compensation mecha-
ing markets – where price gaps are generally nisms have been adopted for different affected
larger – continued to rise. Just 8% of the 2020 groups of consumers, including households,
subsidy reflected undercharging for supply costs businesses and industrial consumers. In India,
(explicit subsidies) and 9% for undercharging for the Pradhan Mantri Ujjwala Yojana subsidy
environmental costs and foregone consumption scheme, which supports access to liquefied
taxes (implicit subsidies). petroleum gas (LPG) for the poorest segments
The IEA has been monitoring fossil fuel of the population, saw its cost reach $820mn.
subsidies for many years, identifying situations In Germany, the government implemented
where consumers pay less than the market price several additional payments to help vulnerable
of fuel. Preliminary estimates for 2022 indicated communities pay their heating bills (households
that oil subsidies increased by around 85%, on housing benefits, apprentices and students
while subsidies for natural gas and electricity with student loans). In South Korea, vouchers
consumption more than doubled, said the new for energy expenses – including electricity, gas,
report. LPG and heating – were provided to around
Governments worldwide implemented var- 1.2mn vulnerable households in 2022, and the
ious measures to mitigate the worst effects of voucher amounts were raised twice during the
the energy crisis, such as fixing end-user tariffs, year.
capping fuel or electricity price increases, and Phasing out fossil fuel subsidies is crucial for
introducing price ceilings. However, many sub- a successful clean energy transition, as empha-
sidy reform programmes were interrupted, and sised in the Glasgow Climate Pact, stressed the
some countries extended existing subsidies. IEA. However, the current global energy crisis
Nearly all of the consumption subsidies highlights the political challenges involved in
identified were found in emerging and devel- doing so.
oping economies, with over half in fossil-fuel Although high and volatile fossil fuel prices
exporting countries. While most interventions emphasise the unsustainability of the current
in advanced economies did not meet the defi- energy system and underscore the benefits of
nition of fossil fuel consumption subsidies, they energy transitions, the volatility comes with sig-
were still a significant drain on fiscal resources, nificant economic and social costs. High fossil
with over $500bn in extra spending committed fuel prices hit the poor the hardest, but subsidies
to reducing energy bills in 2022. tend to benefit the better-off, making effective
The IEA logged various ways of fixing prices targeting essential.
or capping price increases. Well-designed policies should prevent fuel
The Peruvian government decided in April supply from getting too far out of step with
2022 to temporarily include a number of trans- demand, with resources deployed to provide
port fuels in the State Fuel Price Stabilisation lasting protection against volatile fuel prices.
Fund to reduce the rise in prices. Thailand intro- This means anchoring market-based prices in a
duced a diesel price cap of THB30 ($0.85) per broader suite of policies and measures that ena-
litre. ble households and industries to make cleaner
El Salvador introduced price caps for gasoline energy choices. High-efficiency and low-emis-
and diesel products. Egypt extended the period sions equipment and services must be readily
for subsidising electricity, while it had previously available, and poorer consumers need support
been planning to stop doing so by the end of the to manage their upfront costs.
fiscal year 2021-2022. Governments should focus on structural
France enacted a ‘tariff shield’ that ini- changes that reduce fossil fuel demand, rather
tially froze electricity and gas retail tariffs for than emergency relief when fuel prices rise, con-
households and then limited the possibility for cluded the IEA. ™

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