Strategies for Reforming Fossil-Fuel Subsidies: Practical Lessons from Ghana, France and Senegal

Abstract

To a large extent, subsidies to fossil fuels amount to a waste of precious government resources. In the case of consumer subsidies provided mostly in developing countries, these subsidies are often intended as measures to alleviate poverty. In practice, however, they frequently miss that objective, with benefits largely reaped by higher income groups who can afford motor vehicles and electrical goods. Better-designed and targeted policies can achieve poverty reduction far more cost-effectively.Moreover, reducing the burden of subsidies from the public purse would help relieve fiscal debt during a time of economic recession; free up government resources for other priorities such as education and healthcare; and contribute towards addressing climate change by reducing greenhouse gas emissions and reducing investment barriers for clean and renewable energy technologies and resources.This report looks at three cases where governments - Ghana, France and Senegal - have undertaken fossil-fuel subsidy reform with varying degrees of success. While the specific circumstances of each country is unique, there appear to be elements of successful reform strategies that are consistent across different types of subsidies, fuels and countries. Drawing from these three case studies, this report describes how effective strategies are based on:• a deep understanding of the subsidy, its original objectives, the rationale for reform and the likely impacts;• establishing clear objectives and parameters for reform;• building support by communicating the benefits of reform and consulting stakeholders;• policy measures to reduce negative impacts on affected groups; • ongoing monitoring, and evaluation of reform and the flexibility to adjust policies in changing circumstances; and,• independent pricing mechanisms to prevent the government being drawn back in to subsidization.This paper is published as part of the series Untold Billions: Fossil-fuel subsidies, their impacts and the path to reform.