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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:

Updating the renewable energy lexicon

Oliver Knight's picture
Photo by ffennema via iStock
A just-published report by the World Bank’s Energy Sector Management Assistance Program (ESMAP) on the integration of variable renewable energy (VRE) into national grid systems shows once again that adding solar, wind and other forms of VRE does not represent the calamity for grid operators or the high costs that are frequently claimed, particularly in mainstream media. In fact, with proper planning, integrating relatively high levels of renewable energy generation into a large, interconnected grid is feasible at modest incremental cost.

This is important because with the cost of renewable energy continuing to fall, VRE is looking increasingly attractive. Just consider the recent results from South Africa’s renewable energy auctions.

Why then does the discourse around renewable energy continue to view it as a pesky annoyance at best, and a costly gamble at worst? Terms such as “intermittent” and “backup” are often used to pour cold water on the contribution that renewable energy might provide or to question the reliability of solar or wind generation. In addition to the damage they inflict on efforts to promote clean energy, they hint at a very conventional view of electricity systems that is rapidly becoming outdated.

Taking these two particular terms in turn, let us explore them in more detail.

The energy future, as seen from Denmark

Nicholas Keyes's picture
Photo by Blue Square Thing via FlickrDriving across the Danish countryside, they cannot be missed: towering white wind turbines as far as the eye can see, their slow-turning blades providing a 21st century counterpoint against the flat landscape of fields and farmhouses.
 
Denmark has committed to renewable energy further and faster than any country in Europe.  The Scandinavian nation generates a third of its annual electricity demand from wind, and solar capacity is growing as well. For countries that want to green their energy mix, there is no better place to get a glimpse of the future than Denmark. 
 
Its pioneering spirit has brought great benefits, and international acclaim, but like all first movers, Denmark is also learning as it goes. 
 
To tap into this learning, ESMAP—the World Bank’s Energy Sector Management Assistance Program—organized a study tour to Energinet.dk, Denmark’s transmission system operator, as part of its work to help client countries integrate variable renewable energy into their electricity grids. Joining the study tour were 26 participants—representatives from regulators, system operators and utilities from 13 countries, including South Africa, Chile, China, Pakistan, Zambia, and Morocco.

Cities act on climate change: Thoughts on the C40 Summit in Joburg

Stephen Hammer's picture

If you go to a conference on cities and climate change, you inevitably hear the statement that “countries talk…but cities act”. This message was loud and clear at the C40 Cities Climate Leadership Summit in Johannesburg last month, where a new report released by the C40 and ARUP detailed the 8000+ initiatives that C40 member cities are undertaking to either reduce GHG emissions or increase their climate resilience. Since the first such report came out in 2011, more cities are reporting on their efforts, and those reporting are doing ever more, expanding the array of initiatives they have launched.

Ashden Awards Shine Spotlight on Energy Innovations from Island States

S. Vijay Iyer's picture
D&E Green Enterprises: Saving Energy and the Forest in Haiti through Improved Cookstoves

If you live on an island in the ocean, energy and climate issues come together in a palpable way. Most small island developing states depend heavily on imported fossil fuels, especially diesel, for their power. For remote islands, in the Pacific for example, the fuel must be shipped over long distances. It’s expensive, the supply is limited and intermittent, and paying for it stretches government budgets. Because of this, low-income families and communities often rely instead on kerosene, and wood or other biomass for lighting and cooking.

Building Consensus for a Green Growth Pathway in Vietnam

Pedzi Makumbe's picture

Ho Chi Minh city at night, Vietnam

Vietnam has been one of the world’s fastest-growing economies over the past three decades.  Along with that growth has come the expansion of energy-intensive sectors such as manufacturing, transport and power generation.  Given the country’s dependence on fossil fuels, Vietnam’s total greenhouse gas emissions have more than doubled over the past decade, and are expected to triple by 2030.  Although per capita CO2 emissions are still low, Vietnam has the 20th highest carbon intensity in the world.

Belo Horizonte, no Brasil, busca melhorar a eficiência energética

Nicholas Keyes's picture

Belo Horizonte City Skyline

Belo Horizonte está decidida a ser conhecida por seu compromisso com a sustentabilidade. Nos últimos anos, a iluminação pública foi trocada por um sistema mais eficiente, conduziu-se um inventário de emissão de gases causadores de efeito estufa e foram criados programas de compras públicas e construções sustentáveis. A empresa responsável pelo serviço de limpeza pública e tratamento de resíduos gera eletricidade a partir do biogás gerado no aterro sanitário. A cidade se orgulha de seus parques públicos e de sua área verde – com tamanho duas vezes maior que o recomendado pela Organização Mundial de Saúde (OMS).

Brazil’s “Beautiful Horizon” Looks to City-Wide Improvements in Energy Efficiency

Nicholas Keyes's picture

Belo Horizonte City Skyline

The city of Belo Horizonte, Brazil, is determined to be known for its commitment to sustainability.  In recent years, the municipal government has switched public lighting to a more efficient system, conducted a greenhouse gas inventory, and created programs for sustainable public purchasing and building certification.   The utility responsible for public cleaning services and waste treatment generates electricity using biogas from landfills.  The city prides itself on its public parks and on having twice the green area inside the municipal boundaries than is recommended by WHO guidelines. The name of the city itself means “Beautiful Horizon”. Read this post in Portuguese (Leia este post em português.)

Innovative Approaches Urgently Needed to Deliver Energy to Urban Poor

Nicholas Keyes's picture

Back in 2004, the electrical utility in Brazil’s biggest city had a major problem. AES Eletropaulo was losing a large proportion of its revenue due to almost half-a-million illegal connections, most of them in São Paolo’s slums. Not only that, but they were causing often multiple-house fires on a monthly basis, along with frequent electrocutions.  But the utility’s efforts to fix the problem were stymied by its poor relations with slum-dwellers, which made it almost impossible to work in these communities.

Kenya steps ahead into solar future

Daniel Kammen's picture

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.