Consumer Fossil Fuel Subsidies

Kerosene is used by millions of households in rural India to meet basic lighting needs, and subsidies have long been used to make the fuel more affordable. But for health, safety and environmental reasons, a switch to solar power is better—and more affordable in the absence of kerosene subsidies.

For a long time, the international community has talked about the benefits that can be created by removing wasteful fossil-fuel subsidies and freeing up expenditure for more worthwhile things—but little analysis has looked at how this works out in practice.  In large part, this is because so few countries, including among the G-20, have implemented ambitious and successful reforms.

The Government of India launched the Direct Benefit Transfer for LPG (DBTL) scheme to provide LPG subsidies directly into consumers’ bank accounts with the aim of curbing diversion and weeding out duplicate connections. This study conducted an independent performance evaluation of the modified DBTL scheme, with a focus on assessing the efficacy of the scheme against its stated objectives and its implementation process, as well as the experiences of key stakeholders with the scheme’s implementation and impact. The report unravels the difficulties faced by different stakeholders and puts forward suggestions for reforms. Finally, it provides insights into the lessons learned from the scheme’s implementation. The study surveyed 1,270 households and 92 LPG distributors, interviewed field officers and bank managers, officials at the oil marketing companies and the Ministry of Petroleum and Natural Gas (MoPNG).

At the very end of December 2014, Indonesia introduced major reforms to its fossil fuel subsidies, removing subsidies to gasoline (except for distribution costs outside of the central islands of Java, Bali and Madura) and introducing a “fixed” subsidy of IDR 1,000 per litre for diesel. This study investigates two central questions: Where were these savings reallocated?

With diesel and gasoline reforms implemented in early 2015, the Government of Indonesia is now turning its focus toward liquefied petroleum gas (LPG) subsidies. This report investigates international experience and best practices on how to reform LPG subsidies, with a focus on countries’ efforts to ensure that energy access is not compromised by higher LPG prices.

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?

Despite significant social and economic progress in recent years, the development challenges facing the Indian state of Bihar remain profound. The state, one of the poorest and most populous in the Indian Union, goes to the polls for State Assembly elections in October 2015.