A tax increase of just IDR 500 (~USD 3.5 cents) per litre for gasoline and diesel (less than 8% of retail prices) would provide IDR 31 trillion (USD 2.2 billion) per year in revenue for Covid-19 recovery
Indonesia has the lowest tax-to-GDP ratio of similar emerging economies: taxing polluting fossil fuels is an efficient and effective way to boost revenues
India’s experience shows that it is politically and economically possible to transition from high fuel subsidies to relatively high fuel taxes, delivering significant revenue for social and economic recovery
Over the past decade, India transitioned from high transport fuel subsidies to relatively high taxes, delivering significant revenue that most recently have funded the country’s COVID-19 response. Indonesia’s transport fuel taxes of 15% are offset by price subsidies that erode revenues. Drawing on India’s experience, this brief recommends Indonesia phase in higher fuel taxes simultaneously with subsidy reform efforts. A tax of IDR 500 (~USD 3.5 cents) per litre for gasoline and diesel (less than 8% of retail prices) would provide IDR 31 trillion (USD 2.2 billion) per year in revenue (2% of current government revenue). Revenues could be earmarked for highly visible programs to boost productivity and to alleviate the impact of the pandemic and higher energy prices on the poor, particularly in regional areas. In implementing the tax, Indonesia can build on its strong experience implementing social support and economic stimulus measures in the context of fuel subsidy reforms in 2005 and 2015. The tax increase could be publicized as an emergency budgetary measure, as done in India, which may improve public acceptance.
According to some experts, the success of the entire SDG agenda depends to a large extent on achieving Sustainable Development Goal #8. Responsible business conduct and ensuring respect for human rights will not only help to deliver the SDGs, but can also bring benefits for companies.
India’s stimulus for renewables is a ‘mixed bag’ for energy transition
While India has committed more public money than any other economy to date – at least $122 billion – to supporting the energy sector since the start of the Covid-19 crisis in early 2020, a new report shows the government’s stimulus is a ‘mixed bag’ for the country’s energy transition.
In the race against climate change, increasing ambition over time is necessary to avoid catastrophic warming. However, revised commitments from parties to the Paris Agreement lack two critical components of ambitious climate action: carbon pricing and fossil fuel subsidy reform.
March 16, 2021
Since the Paris Agreement was signed in 2016, countries have committed to act on climate change through their Nationally Determined Contributions (NDCs), plans that set country mitigation and adaptation targets every five years to keep global warming in check. Yet the United Nations Environment Programme’s recent Emissions Gap report on climate ambition shows that, under current government pledges, NDCs are largely insufficient and will lead to at least a 3°C warming by the end of the century. The ratcheting mechanism of NDCs—in other words, their increasing ambition over time—is critical to avoid a climate crisis.
How Can Countries Increase the Ambition of Their Climate Action?
Two particularly important tools that countries have at their disposal are carbon pricing and fossil fuel subsidy reform. Working as two sides of the same coin, these tools raise fossil fuel prices to be more in line with their true cost, which promotes more efficient consumption and therefore combats climate change while directing investments toward clean energy alternatives. Both can not only keep emissions in check and help countries meet their climate targets, but they also raise much-needed revenue for a green recovery from COVID-19. Every country should include ambitious carbon pricing and subsidy reform targets in its NDC. So far, however, this is not the case.
In a 2019 report, the International Institute for Sustainable Development (IISD) and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) showed that, out of almost 200 NDCs, only 8% of countries (14 NDCs) explicitly pledged to reform fossil fuel subsidies, and only 12% of countries pledged to put a price on carbon (50 NDCs). (The EU is treated as a block, as it has submitted a single NDC.)
Every country should include ambitious carbon pricing and subsidy reform targets in its NDC. So far, however, this is not the case.
While all countries committed to submitting revised NDCs in 2020, only 71 countries did so. It is possible that several countries may have interpreted the postponement of the 2021 United Nations Climate Change Conference (COP26) as a reason to postpone NDC updates as well, but this is problematic as it further complicates tracking progress on subsidy reform and carbon pricing. For example, Canada recently decided to significantly increase its carbon pricing to CAD 170 a tonne by 2030 but did not submit an updated NDC last year.
Analyzing the text of all NDCs—including those updated in 2020—reveals very few new or more ambitious green fiscal policy commitments. Only 57 explicitly commit to carbon pricing (including emissions trading schemes) and 12 to fossil fuel subsidy reform. Furthermore, several of these pledges are aspirational rather than firm action plans. Perhaps most disconcertingly, looking at the 2020 batch of NDCs, we found at best no improvement on fossil fuel subsidy reform and, at worst, two countries that might have backtracked on their proposals.
Solar panels in Nepal / Boyloso
Commitments to carbon pricing did increase, which is praiseworthy, but countries must openly acknowledge that fossil fuel subsidies are incompatible with climate action and begin to widely recognize and adopt fossil fuel subsidy reform as the powerful emissions reducing tool that it is.
Fossil Fuel Subsidy Reform and Carbon Pricing Are Still Underutilized in the 2020 Revised NDCs
Many countries make commitments to renewable energy subsidies as a means of meeting their mitigation targets, but fossil fuel taxation and subsidy reform remain underutilized. While renewable subsidies can incentivize deployment, their positive effects could be cancelled out if countries simultaneously continue underpricing fossil fuels.
Only a handful of countries link fossil fuel subsidy reform or carbon pricing to creating a fair playing field for renewables in their NDCs, including Burkina Faso, Colombia, Ethiopia, and Singapore. Ethiopia stands out for eliminating virtually all of its fossil fuel subsidies in 2008. Switzerland also acknowledges the importance of reviewing domestic fossil fuel subsidies while cooperating with other countries, including through the Friends of Fossil Fuel Subsidies Reform. However, these commitments are still exceptions rather than the norm.
What Is Missing From Most NDCs?
Some countries such as Armenia, Kiribati, and the Solomon Islands detail how revenues raised from carbon taxes or levies might or will be used. Armenia refers to the possibility of using carbon pricing revenues to fund climate change mitigation and adaptation projects. Despite these outlying positive examples, however, most NDCs remain vague on how the revenues from carbon pricing and subsidy reform will be used and on what compensation measures will be put in place to protect vulnerable groups. For instance, Nigeria pledges to reform subsidies to fossil fuel consumption and production, acknowledging that consumption subsidies benefit higher-income households most. Yet Nigeria falls short in detailing how these reforms might actually be accomplished or how vulnerable consumers might be protected in the process.
Most NDCs remain vague on how the revenues from carbon pricing and subsidy reform will be used and on what compensation measures will be put in place to protect vulnerable groups.
Several NDCs also send mixed signals by supporting fossil fuel subsidy reform but promoting natural gas as a bridge fuel, as in the case of Morocco. Surprisingly, still very few countries make a connection between green fiscal tools and green recovery despite the opportunities for large revenue gains and emissions reductions.
Where Are NDCs at Now, and Where Do Countries Need to Go From Here?
The biggest emitters, namely China, India, and the United States, have not yet submitted an updated NDC and have, particularly in the case of the United States and China, relied on a fossil fuel heavy recovery. But positively, we are seeing some of these trends start to change. India used low oil prices during the pandemic as an opportunity to raise excise duties on diesel and gasoline to help fund its COVID-19 recovery. China pledged to be carbon neutral by 2060 and recently launched an emissions trading scheme in the power sector. In the United States, the Biden administration has also shown an unprecedented willingness to tackle the fossil fuel industry head on, including by seeking to eliminate certain subsidies to fossil fuel producers.
Several NDCs revised in 2020 also make a case for a green recovery and building back better. But clearly, when it comes to fossil fuel subsidy reform and carbon pricing, there is a long way to go before countries’ promises match the level of ambition needed to limit climate change to 1.5°C.
India is a leader among large emerging economies for its innovative use of fossil fuel taxes, such as the coal cess and excise taxes, to raise revenues and foster a clean energy transition. This combination of fossil fuel taxes and support for renewable energy characterizes both the Nordic and Indian approaches to the energy transition.
Nordic countries are internationally recognized for delivering strong economic growth with robust social and environmental policies. Since 2000, the Nordic economies grew 28%, while their carbon dioxide emissions fell by 18%. One of the secrets of their success in balancing these priorities has been the innovative use of energy taxation to recover from an economic crisis, such as the world is facing today.
This webinar, co-organized by IISD, IEEFA, the Royal Norwegian Embassy, New Delhi, and the Embassy of Sweden, New Delhi is unique in bringing together diverse perspectives and specific examples of green fiscal reforms and recovery strategies to inform decision-making by governments and offers valuable insights for researchers and policy experts.
Establishing a Consortium for “Public Good” Data on the Politics of Energy Transition [ICP 2020]
Understanding energy politics is key in order to formulate strategies for feasible and effective energy transition pathways. Yet, reliable and accessible quantitative and qualitative data is often lacking in emerging economies.
This project is based on the belief that a combination of practitioner insights, academic rigor and methods is needed to encourage transparency, improve coordination and actively fill data gaps, to help civil society and governments more effectively promote green recovery in developing countries.
Background
For decades, transition to clean energy has been treated as mainly a technical challenge. But energy is also political: in supply, involving some of the world’s most powerful institutions and individuals; and in consumption, intimately affecting all businesses and households, and thereby attitudes to governments.
Understanding energy politics is key to formulate strategies for feasible and effective transition pathways. Yet, reliable and accessible quantitative and qualitative data is often lacking in emerging economies. Mostly, it is collected by development agencies under confidentiality agreements. The remainder is gathered by independent organizations—but efforts are scattered and relatively poorly resourced.
Promoting coordination and synergies between practitioners, scientists and policy actors to produce relevant “public good” datasets is key to support more informed and efficient transition policies.
Aim
This project aims to actively fill in data gaps and enable a more systematic understanding of energy politics. It will do so by establishing an international consortium on the politics of energy transition, combining practitioner’s insight and academic rigor to create “public good” datasets on the political forces influencing two thematic issues:
Energy in stimulus and recovery programs
Fossil fuel pricing and inequality
Geographically, the consortium is initially focused on India, Indonesia and South Africa, due to the importance of large emerging economies in determining global energy outcomes, and the relative paucity of robust, transparent data on energy politics.
Impact
The targeted, long-term impact is threefold:
Improved coordination in science-practice data co-production;
More informed and transparent energy transition policies at the national level (esp. in focus countries: India, Indonesia, South Africa);
Recognition of domestic political factors in international policy dynamics.
Key Activities
The project holders intend to cover the following activities:
A cycle of virtual roundtables leading to the production of background papers, the drafting of a joint statement and the publication of main findings and messages;
Alignment of existing work plans and projects by consortium members in India, Indonesia and South Africa, as well as internationally around climate change discussions;
Establishment of data production collaborations between consortium members, fundraising to upscale consortium activities and outreach to strategic stakeholders.
Electricity overcharging: Cross-subsidies cost businesses Rs 75k crore in FY19
Since the National Tariff Policy 2016 prescribed the tolerable extents of cross-subsidy among various segments of electricity consumers, the market-distorting system that jacks up the costs of industries and businesses, hasn’t seen even a smidgen of correction.
Electricity subsidies increased 32% since FY 2016: Report
New Delhi: Direct tariff electricity subsidies from the state governments have increased 32 per cent since FY 2016, amounting to Rs 1,10,391 crore ($14.96 billion) in FY 2019, an independent report by the Council on Energy, Environment and Water (CEEW) and the International Institute for Sustainable Development (IISD) said on Thursday.
The precarious state of India’s power distribution companies can be seen in the sharp rise in state government subsidies to such companies over the past few years, even as sales and profitability have dipped.
View: With India transitioning towards renewables, it's time for PSUs to catch up
PSUs can't just turn into Public Spending Units that try to buy their way out of this crisis. They must look at the bigger picture, and become Public Sustainability Units.
