Fossil fuel subsidies are bad economic policy, bad social policy and bad for the environment. Yet, many countries have some type of fossil fuel subsidy. In 2013, those subsidies added up to nearly $550 billion.
Why are so many countries spending so much on what is simply bad policy? And how can they reform these subsidies? This is what a panel of government ministers who have implemented reforms debated during the IMF/World Bank Group Spring Meetings in an event organized by ESMAP and co-hosted by the World Bank Group, the United States, and Friends of Fossil Fuel Subsidy Reform.
The panelists – representing countries as different as Angola, Egypt, Honduras, and Ukraine – described the countries’ varied experiences, but out of these varied experiences, four common messages emerged:
For Africa’s poorest families, lighting is often the most expensive item in their budget, typically accounting for 10–15 percent of total household income. The energy poor in Africa spend about US$17 billion a year on fuel-based lighting sources. To put the full energy sector in perspective, independent estimates place worldwide spending on fuel-based lighting in developing countries at $38 billion.
Beyond household use, commercial use of fuel-based lighting can have even more acute economic impacts. Fishermen on Lake Victoria in Kenya, for example, often spend half their income for the kerosene they use to fish at night. Yet, while consuming a large share of scarce income, fuel-based lighting provides little in return. Fuel-based lamps, such as kerosene lamps, are costly, inefficient, and provide poor lighting. The smoke they emit causes respiratory and eye problems, while the flames from kerosene lamps are responsible for thousands of severe burns among children every year, along with untold numbers of devastating house fires.
But many African countries are making strides to put fuel-based power behind them. Kenya, for example, as I discuss in an article this week posted on InterPVNet, has one of the largest and most dynamic per capita solar PV markets among developing countries, with over 300,000 households having installed solar PV systems since the mid-1980s. Since 2000, annual sales for these systems have regularly topped 15 percent, and they account for roughly 75 percent of all solar equipment sales in the country. In addition, exciting and rapid developments in off-grid lighting with highly efficient long-lasting light emitting diodes (LED) lamps are also changing the set of options in formerly neglected markets.