Kerosene subsidies are expensive: estimated to be more than US$ 4 billion in West Africa and more than US$ 5 billion in India. What are governments—often with highly limited resources—achieving by spending all this money? And with an increasing number of countries committing to reform subsidies, what will it mean for energy access if these policies are removed?

In order to answer these questions, it’s helpful to begin by understanding what kerosene is and who uses it. In most countries, low-income households use kerosene for lighting, though in some countries—particularly countries where kerosene has been subsidized for a very long time—it may also be used as a cooking fuel. As households get richer, they don’t tend to increase kerosene consumption accordingly. For lighting, better off people are more likely to have access to electricity. For cooking, a range of cleaner and more convenient energy sources may be available, like liquefied petroleum gas (LPG), piped natural gas or, again, electricity.

This sets kerosene subsidies a little apart from most other fossil-fuel subsidies. Usually, the large majority of fossil-fuel subsidy benefits are captured by better off people, who want to keep consuming larger quantities of things like gasoline, diesel, LPG and electricity as they get richer—and who then use the energy wastefully because it is under-priced. With kerosene subsidies—in relative terms, at least—the poor receive a larger share of the benefits of kerosene subsidies than with other kinds of fossil energy sources.

But does this mean that kerosene subsidies are doing a good job? In fact, the targeting of benefits is still fairly poor: an IMF review of evidence from over 19 countries finds that on average kerosene subsidies are fairly evenly distributed across the population. While this means that 19% of benefits reach the bottom 20%, it means that almost exactly the same share—21%—reaches the richest 20% of the population. This is essentially the same accuracy that would be achieved by distributing the subsidy to people at random.

Moreover, statistics such as this miss one very important part of the picture. In many countries, the poorest in rural areas have little or no access to kerosene at all, leaving them reliant on the traditional use of biomass—in other words, burning fuels like wood or dung. This is linked to subsidies because cheap kerosene can be used to make money: either blended with gasoline and diesel to reduce the cost of running vehicles or smuggled across borders to be sold at higher prices in neighbouring countries. As a result, subsidized kerosene is bought by illegal marketeers, disrupting supply and causing shortages for those who need it most. For low-income households, the only way to buy kerosene may be from an unofficial retailer—and this means paying black market prices. In Nigeria, for example, illegal diversion has created shortages that lead kerosene to be  sold at rates over two times the official subsidized price.

Even in the cases where kerosene subsidies do efficiently improve energy access for the poor, there are other costs associated with its use. Notably, burning kerosene is cleaner than traditional biomass fuel, but it still has significant negative health impacts, including respiratory illnesses from indoor air pollution, impaired visual health, burns and poisoning from accidental ingestion. These impacts tend to be felt more acutely among women and children, who typically spend more time indoors than men. The adulteration of kerosene with gasoline and diesel is also dangerous. It can lead to explosions and it increases the tailpipe emissions of pollutants from vehicles, worsening local air pollution, as documented in Nigeria and India.

No one would argue that the poorest in society should not have access to light or cooked food—but in most cases, kerosene subsidies are just not doing a good job. The aim of reforming such subsidies is not only to save money and cut wasteful consumption. It is to use government funds more effectively to promote cleaner and sustainable energy alternatives.

For lighting, it is often not possible to encourage a transition to the use of grid-connected electricity. The electricity grid may not cover parts of a country or it may simply be highly unreliable and improving supply can take many years. In the short- to medium term, policy-makers can reallocate kerosene subsidy expenditure to new, renewable lighting technologies that are just becoming competitive. Solar lighting systems can fulfill this role, with the cost of solar systems lower than ever and falling consistently for the latest generations of PV panels and LEDs.

For cooking, the leading solution currently is to encourage a shift from subsidizing kerosene to promoting LPG. This might consist of providing free or low cost equipment required to begin using LPG (a stove, the initial cylinder) or subsidizing LPG fuel itself. In this latter case, as indicated above, LPG consumption subsidies often perform poorly at focusing benefits on targeted households. If pursuing this option, governments may need to invest in better systems for targeting LPG subsidies to ensure that benefits are not captured by rich households. Like kerosene, subsidizing LPG can also cause supply problems and shortages, so strong regulation and enforcement is necessary.

India provides a good example of a country engaged in the above transition. Its kerosene subsidies are estimated to have cost more than US$ 5 billion in the 2013/14 financial year. To address this, pilot schemes—like the Scheme for Kerosene Free Delhi—have provided starter kits and registration for access to subsidized LPG to households that had previously used kerosene as the main cooking fuel. An evaluation study undertaken by research institute Integrated Research for Action and Development (IRADe) revealed that the scheme had successfully improved the lives of the beneficiaries of Delhi in terms of social and environmental benefits and cost less than existing kerosene subsidies. Time saved in cooking was the most frequently reported non-monetary benefit by the respondents. On an average, 2 hours per week were found to be saved with a switch from kerosene to LPG, reflecting the higher efficiency of LPG as a cooking fuel and time saved in collecting kerosene from approved outlets. Moreover, this effect can be expected to improve economic opportunities and health for women, contributing to improved gender equality. At the same time, India’s LPG subsidies are not without their problems. In separate research, the Global Subsidies Initiative has found the current policy—the Direct Benefits Transfer for LPG (DBTL)—could be significantly improved in a number of ways. The most important of these is some kind of eligibility criteria so that only low-income households can benefit from the policy, making it more efficient and targeted.

A gradual transition from kerosene to solar lighting systems and LPG could reduce spending on kerosene subsidies, improve public health and provide convenient energy sources to millions. The Global Subsidies Initiative (GSI) of the International Institute of Sustainable Development (IISD) is now beginning a program looking at how to address the political and economic challenges of this and make it a reality.

This article draws on a presentation originally delivered by Richard Bridle at the 4th International Off-Grid Lighting Conference and Exhibition.