Lessons Drawn from Reforms of Energy Subsidies

Energy subsidies are costly for national budgets and lead to unintended adverse consequences by impeding market functions, limiting investment and undermining climate change efforts. Once in place, energy subsidies are extremely difficult to remove. Despite interest to reform distortions continue and globally value of energy subsidies grow. This report demonstrates examples of government actions that have worked and others that have failed.There is no single formula for success, and both country circumstances and changing global conditions must be taken into account. Governments need to place special attention to the systems and processes with which they decide, explain to the general public and monitor the process to de-subsidize the supply of energy. Besides deregulation efforts may also include independent regulation of fuel prices and automatic price-setting mechanisms. Moreover education of decision-makers and the public about the problems with government intervention in fuel pricing is of key importance.