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Fossil Fuel Subsidy Reform

#2 from 2015: The things we do: Nudging people to give

Roxanne Bauer's picture
Our Top Ten blog posts by readership in 2015. This post was originally posted on April 7, 2015.
 

Man delivers gas cylinders in IndiaIn an appeal to civic duty, the Government of India is asking citizens to forgo a gas subsidy they receive so that gas cylinders can be transferred to the less fortunate. To encourage Indians to "Give It Up," the government called on business leaders to set an example and made the procedure extremely easy.

India recently launched an ambitious cash transfer program to help small businesses and households buy fuel.  Under the plan, consumers of liquefied petroleum gas (LPG), commonly referred to as propane or butane, receive a cash subsidy in their bank accounts to buy gas cylinders at market price.

Once joining the scheme, the subsidy, which is equal to the difference between the current subsidized rate and the market price, is transferred to the consumer’s bank account when he/she orders a cylinder.  Another transfer is then provided at the time of delivery of the cylinder. 

Last November, the Direct Benefit Transfer Scheme for LPG was rolled out across 54 districts, with the rest of the country participating by January 1 of this year. 

The scheme was launched by India’s previous UPA government in June 2013, but it was abruptly stopped earlier this year following court orders.  It has since been modified to exclude the requirement of providing a unique identification number (Aadhaar) to avail the cash subsidy.

The idea behind the direct benefit transfer is that it can ensure that the subsidy meant for the genuine domestic customer reaches them directly and is not diverted. The Government of India hoped to save millions each year by curbing diversions and leakages in the system but also to ensure efficient delivery of subsidies to the target beneficiaries— the consumers.

Fossil fuel subsidy reform: An idea whose time has come

Marianne Fay's picture
spring meetings 2015


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: