Nairobi―28-29th April―A two day workshop took place on ‘Reforming Fossil Fuel Subsidies for an Inclusive Green Economy,’ hosted by the United Nations Environment Programme (UNEP) and supported by the Global Subsidies Initiative (GSI), the German development agency GIZ and the International Monetary Fund (IMF).

Achim Steiner, the United Nations Under-Secretary-General and Executive Director of UNEP, opened the event, describing the ways that fossil-fuel subsidies keep economies locked in to carbon-intense development. In particular, he emphasized the fiscal importance of fossil-fuel subsidies, both as a risk and an opportunity, noting that “fossil-fuel subsidies cost countries precious funds. For example, they divert government resources from pro-poor spending in Africa where governments spend an estimated average of 3 per cent of GDP―equivalent to their total health care allocation―on fossil-fuel subsidies."

The workshop brought together around 80 participants from 25 countries to talk about reforming fossil-fuel subsidies, from a wide range of regions and states of development. Presentations included country experiences from China, Ethiopia, Ghana, India, Indonesia, Iran, Kenya, Mexico, South Africa and Vietnam. The GSI provided inputs from a global perspective, including its synthesis of country experiences on how to change pricing mechanisms, manage negative impacts on households and the economy and build political support for reform; as well as introducing participants to its new interactive online map that brings together different estimates of the scale of energy subsidies.

The discussion was rich, including valuable lessons to be learned about Iran’s ambitious subsidy reform of 2009 that was linked to almost universal cash transfers, halving poverty levels by 2012 but at high expense; and from Ghana, where the social security cash transfer program LEAP was expanded by 50 per cent to cover 150,000 households in 2014. While participants agreed that subsidy reform was not easy, the potential benefits and opportunities stemming from reform were recognized to be wide ranging, from reduced fiscal deficits, improved social safety nets and increased investment in sustainable energy.

According to the International Energy Agency, subsidies were estimated to cost governments US$ 544 billion annually in 2012 (OECD/IEA, 2013). If the definition of “subsidy” is expanded, to include prices that do not reflect the full social and environmental costs of fossil-fuel use (such as congestion, air pollution, accidents and carbon emissions), then the total value of subsidies is even higher, estimated by the IMFto total US$ 2 trillion annually. This is equivalent to about 2.9 per cent of global GDP, or 8.5 per cent of government revenues. The IMF finds that the removal of such subsidies could lead to a 13 per cent decline in CO2 emissions.

Subsidies, designed to lessen the shocks from international oil markets and keep fossil-fuels cheap, have become increasingly unsustainable as governments can no longer afford to continue direct payments to keep prices low. Cheap fossil-fuels also mean that investment in other forms of renewable energy, energy savings, eco-efficiency and public transport systems appear more expensive. However, as participants described, dismantling and redirecting government subsidies away from fossil-fuels is not easy and requires time, persistence, political will, public support, trust in government institutions and a good plan.

For further information, see UNEP's official event page, press release and associated video.