Petroleum Subsidy Research Articles

Technical, economic, and environmental feasibility assessment of solar-battery-generator hybrid energy systems: a case study in Nigeria

Supermarkets in Nigeria rely on diesel generators for electricity due to the unreliability of the national grid. The recent removal of petroleum subsidies in 2023 has increased fuel prices by 60%. This research examines the technical, economic, and environmental viability of employing solar PV/battery storage/generator systems to generate electricity for high-load supermarkets. The case study was conducted in the Market Square (MS) supermarket in Port Harcourt (PH) city, Nigeria. The MS supermarket had a load demand of 59.8 kW/day for an energy audit in 2022. The average solar radiation and temperature for PH city were 4.21 kWh/m2 and 25.3°C, respectively. The hybrid system was simulated with the HOMER Pro software. The simulation revealed that the optimum baseline (BL) system for the present price of a liter of diesel in Nigeria ($0.63 USD/L) was a solar PV/Battery/Generator. The optimal BL system produced 401,599 kWh/year, which was more than adequate to cover the yearly load requirement of 204,765 kWh/year and left a surplus of 173,195 kWh/year. The BL system had a levelized cost of electricity of $0.106 USD/kWh, a net present cost of $232,533, and Operation and Maintenance cost of $7,928. When the overall environmental impact of the optimal BL system was assessed, it contributed 10,935 kg CO2-eq/year of global warming potential, 1,611 kg O3-eq/year of smog formation, and 72.2 kg SO2-eq/year of acidification potential to the environment. Sensitivity analysis shows that the BL system could have a net present value of $710,364, a 38% internal rate of return, and a 2-year simple payback period over a 25-year life if the excess energy is sold to the grid. Also, LCOE increases with fuel price or discount rate increase, while CO2 falls as all renewable hybrid system configurations become more advantageous. The potential reduction in CO2 emission in the proposed system highlights the environmental benefits compared to traditional ones. This finding will guide decisions on adopting hybrid energy solutions for supermarkets in Nigeria. This analysis offers crucial insights for energy sector decision-makers seeking to balance reliability, cost-effectiveness, and environmental sustainability in a volatile market.

The Microeconomic and Macroeconomic Implications of Fuel Subsidy Removal in Nigeria

This paper examines the microeconomic and macroeconomic implications of fuel subsidy removal in Nigeria 2023 while adopting a desk review method using discourse analysis methodology. The paper offers some insights into the implications of fuel subsidy, drawing from the interplay of economic, political, environmental, and societal factors necessitating a holistic approach. The removal of fuel subsidy in Nigeria has prompted a profound shift with far-reaching implications across economic, social, and environmental circles. Nigeria, as an oil-dependent economy has long relied on fuel subsidy to ensure affordable fuel prices for its citizens. However, in recent years, the country has faced numerous challenges including the rising rate of inflation, unemployment and increase in poverty rates. Based on these challenges, the decision to remove petroleum subsidy has had a significant impact on the economy. To achieve the objective highlighted in the paper, the background of the problem was discussed, review of related literature was undertaken, and possible recommendations were suggested towards mitigating the severe effect of fuel subsidy removal on the general living standard of the citizens and the economy.

PETROLEUM SUBSIDY WITHDRAWAL, FUEL PRICE HIKES AND THE NIGERIAN ECONOMY

The study investigated petroleum subsidy withdrawal, fuel price hikes and the Nigerian Economy. The purpose of the study was to determine the extent to which the removals of petroleum subsidies stimulate hikes in fuel prices and increases in the prices of products of other sectors in the Nigerian economy. It employed input-output model to determine the value added per sector from the computed table of flow of goods. Subsequently, the impacts of reductions in petroleum subsidies (10%, 20%, 30%, 40% and 50%) on the prices of products from the other sectors were computed. Results showed that reduction in petroleum subsidies stimulate increases in prices of petroleum products and such increases trigger increases in transport fares; increases in transport fares subsequently lead to increases in prices of other products owing to the degree of interdependency among the various sectors. The need for policy makers to be mindful of the economic implications of subsidy removal was suggested, among others.Keywords: Petroleum subsidy; Petroleum subsidy removal; Fuel Price HikeJEL Classification: H25DOI: https://doi.org/10.32479/ijeep.8307

Petroleum subsidy and its impact on tax revenue volatility

Petroleum subsidy and its impact on tax revenue volatility

A fine balance: Lessons from India's experience with petroleum subsidy reforms

India's energy sector is passing through a significant transformation, triggered by recent international developments in global oil prices. Historically, diesel, kerosene and Liquefied Petroleum Gas (LPG) have been subsidised leaving a small net balance from petroleum taxes for the government, and poor financials for the oil companies. However, all this changed when crude prices declined from over $100/barrel in June 2014 to $50/barrel in June 2017. Concurrent reforms undertaken by the government have radically reduced subsidies from $24.6 billion in 2013 to just $1.16 billion in 2017. This paper shows how reforms involved the strategic application of three different policy 'levers' – retail prices, tax rates and subsidies – with beneficial outcomes for the three main stakeholders – oil companies, the government, and the poorest consumers – the latter through keeping subsidies intact for LPG and kerosene which are used by the poor. It examines policy interventions by the Indian government across these different levers at different points of time. The analysis reveals that petroleum subsidy reform involves much more than simply raising retail prices. The paper brings out policy recommendations from the Indian experience for countries that wish to implement structural reforms in pricing, taxation and subsidies.

Economic, social and environmental impacts of fuel subsidies: A revisit of Malaysia

Subsidizing energy has been widely used but is economically unfavorable. The Malaysian government has shown strong intention to reduce energy subsidies recently, but face challenges to prepare policy instruments to manage the impact. This study develops a Computable General Equilibrium (CGE) model with breakdown of households by income level to evaluate the potential impacts of removing energy subsidies on the Malaysian economy. It is shown that removing petroleum and gas subsidy would improve economic efficiency and increase GDP up to 0.65%. Budget deficit would be largely reduced after removing the petroleum subsidies, especially when the saved subsidy cost is not budgeted for other expenditure. Households would be worse off in most scenarios due to higher price level, but some compensation policy could make the lowest income group no worse than baseline, without harm the economy. The reduction in carbon emissions ranges 1.84–6.63% in different scenarios. The simulation results suggest Malaysia to completely remove all fuel subsidies and use the saved funding to cut budget deficit or spend on education, health and other service sector. It is also necessary to set a compensation scheme to minimize public resistance and make sure such scheme is affordable.

Bioindustry development based on citronella essential oil to meet the needs for renewable energy: A review

In 2015, national domestic fuel consumption is already above 1.5 million barrels per day, while production is under 800,000 barrels per day. The gap between production and consumption will be considerably widened, serious efforts is needed to save the use of petroleum and also look for alternative replacement with renewable natural energy. Two approaches that can be taken: First, save the use of fossil fuel directly by using citronella essential oil-based bioadditive by 20 percents, equal to at least Rp. 55.2 trillions of national petroleum subsidies. Second, encourage increased utilization of biofuel mixed with that bioaditives that gradually reduce dependence on fossil fuels while developing machines which will fully operated with biofuels. Development of Sustainable Agricultural Bioindustry (SAB) system by integrating crops (candle nut, citronella) with livestock (dairy cattle) in a specific region. could contribute to: a) production of biodiesel and bioadditive feedstocks, b) production foodstuffs like beef and/or milk, c) utilitization of non-productive land, d) employment, by absorbing large number of farmer, e) increase the farmers income, f), biogas that can be used to meet daily household energy needs, and g) environmental conservation and sequestration of carbon emissions.

Drilling for Disputes: Petroleum Subsidy Claims and ASCM Competence

Drilling for Disputes: Petroleum Subsidy Claims and ASCM Competence

Energy consumption, inter-fuel substitution and economic growth in Nigeria

Nigeria's energy mix has been dominated by petroleum with a year on year increase due to huge petroleum subsidy by the government. This study adopts the translog production function to investigate the potential for inter-factor and inter-fuel substitution between capital, labor, petroleum and electricity. Ridge regression has been adopted to estimate the model's parameters due to evidence of multicollinearity in the data. The results show that all input pairs are substitutes; and as such, adopting competitive pricing policies and removal of petroleum subsidies and price ceilings would redirect industries towards an increased use of electricity and increase capital and labor intensiveness. In addition, the study shows that a 5% and 10% increase of investment in petroleum reduction technologies for the period 2010, 2011 and 2012 would reduce CO2 emissions by 1.13518, 1.8554, 1.2722 and 2.27119, 2.37109, 2.49444 million metric tons respectively. Furthermore, the study points to evidence for convergence in relative technical progress among the various input pairs with electricity registering the fastest rate. These imply that petroleum would gradually lose its dominance in Nigerian energy mix.

Sudan and South Sudan: Distributional Impact of Public Spending and Taxation

AbstractThis paper considers options for the governments of Sudan and South Sudan to use tax and expenditure policy to reduce poverty and inequality. We focus on understanding who benefits when government spends money on services such as paying teachers, building clinics, and subsidizing food or petrol, as well as the redistributive consequences of some standard taxes. Among the many findings is that it makes sense for South Sudan to concentrate on providing a few public services, such as expanding primary and secondary schooling, and primary health care units, with broad coverage, rather than trying to provide a wide range of public services with more limited coverage, especially given the limits of South Sudan's young bureaucracy. Taxing transport and communication would be strongly progressive. In the case of Sudan, we suggest that policy‐makers focus on expanding schooling services at both the primary and secondary levels, and also find that food aid, in kind and in cash, are highly pro‐poor. It would make sense to expand the electricity grid to rural areas, but the cost of doing so may be prohibitive. In contrast, it does appear as though petroleum subsidies are regressive in both countries, as they are in most developing countries.

Effect of Petroleum Subsidy Removal on Poverty Level in Kogi State, Nigeria

Effect of Petroleum Subsidy Removal on Poverty Level in Kogi State, Nigeria

Petroleum Product Pricing, Deregulation and Subsidies in Ghana: Perspectives on Energy Security

This paper reviews Ghana’s recent experience with downstream petroleum products pricing and deregulation and looks at its implications for the nation’s energy security needs. The Government of Ghana in June 2015 put in place a deregulation policy that had the expectation of allowing marketers and importers of petroleum products to sell directly to consumers by setting their own prices. The policy has the primary objective bring an end to government subsidies on the product which arises in from exchange rate losses and consumer subsidies. The study welcomes government’s decision to revert to the competitive market forces using automatic price formulation as this removes implicit subsidization and its distortionary effects on the economy. With the advent of full deregulation, the burden of managing forex risks will shift from the government to the BDCs and TOR, and any such losses will become their prerogative. Petroleum subsidies, if any, should be redesigned and better targeted at the poor in the form of direct cash transfers as well as entrepreneurial skills training to improve their social and living conditions. Subsidies create distortionary effects and further exacerbate fiscal pressures as government has to borrow or tap into its reserves to offset price differentials.

Nigeria's Post-Election Financial Realities

Nigeria faces a paradox of having Africa’s biggest economy but not Africa’s biggest government revenue. While Nigerian economy is about 155.4 percent of South Africa’s economy, the revenue generated by Nigerian government is only about 79.5 percent of the revenue generated by South African government. The total revenue in the Nigerian federation account has been 12 percent of GDP, compared to minimum government revenue of 25 percent of GDP in Africa’s next five largest economies: South Africa, Egypt, Algeria, Angola, and Morocco.The stark fiscal reality is that Nigerian government currently has less than half of the revenue required to deliver quality governance. Little wonder that health, education, security and basic infrastructure services provided by Nigerian government are very poor. However, revenue leakages through crude oil ‘theft’, spurious petroleum ‘subsidy’ payouts, abuses of tax/import-duty waivers and too much ‘autonomy’ for revenue collecting agencies is the bane of Nigeria’s revenue inadequacy.Nigeria needs to put an end to crude oil theft, stop all petroleum subsidy payments, streamline tax/import-duty waivers, amend existing laws to abolish the autonomy granted revenue collecting agencies and create a single-treasury-account for all types of government revenue, with all government ministries, departments and agencies included in a single appropriation process to ensure adequate resources for good quality governance. In addition government should rely on self-funding mechanisms for developing nationwide rail network and related infrastructure systems.Financial intermediaries and markets are contributing their bits in mobilizing the financial assets required for Nigeria’s growth and stability, but Nigerian government has to pull its weight as an independent attractor of foreign capital, and also court investors more actively by liberalizing growth enabling sectors, getting out of the way, making necessary arrangements to provide concrete assurances of stability, and being more conscious of the sensitivity of inward investment to realities of, especially government’s pronouncements about, the fiscal situation.

Nigeria's Post-Election Economic Realities

This paper examines Nigeria’s post-election sectoral, fiscal and financial realities and highlights reform priorities.Sectoral realities: Nigeria’s economy is Africa’s biggest. Indeed, just the largest six of Nigeria’s 46 production sectors combine to generate slightly more than South Africa’s GDP! However, the sobering sectoral reality is that, beyond the six giant sectors, Nigeria’s remaining 40 sectors are mostly small, constituting weak or broken links in Nigeria’s output and growth chain. Nigeria needs to accord priority to fixing the broken links.Nigeria has a great potential to enable growth by urgently fixing the sectors that will contribute the most to the reduction of system-wide transaction costs and restore competitiveness and growth across all sectors, cities, states, and regions, such as rail transportation, gas, and petroleum products supply.Unlike the colonial regime that had to rely on tax revenue to develop the narrow gauge rail tracks and termini across the country a century ago, the new regime is well placed to explore self-financing mechanisms that would enable the government to sell property development rights in advance and capture some of the anticipated increases in land values around new rail termini that will be constructed in hundreds of towns and big cities across the 36 states and the FCT to fund the development of an ultra-modern rail system across the country.The resulting growth across sectors will provide jobs and better economic livelihoods for all. The reduction in system-wide transaction costs will translate to reduced cost of living that will enhance the welfare of all. Renewed growth of cities, states and regions will provide increased revenue for all levels of government, especially increased internally generated revenues for states and local government to raise the quality of health, education, security, defense and general infrastructural services delivered by government.Fiscal Realities: Nigeria faces a paradox of having Africa’s biggest economy but not Africa’s biggest government revenue. While Nigerian economy is about 155.4 percent of South Africa’s economy, the revenue generated by Nigerian government is only about 79.5 percent of the revenue generated by South African government. The total revenue in the Nigerian federation account has been 12 percent of GDP, compared to minimum government revenue of 25 percent of GDP in Africa’s next five largest economies: South Africa, Egypt, Algeria, Angola, and Morocco.Thus, the stark fiscal reality is that Nigerian government currently has less than half of the revenue required to deliver quality governance. Little wonder that health, education, security and basic infrastructure services provided by Nigerian government are very poor. However, revenue leakages through crude oil ‘theft’, spurious petroleum ‘subsidy’ payouts, abuses of tax/import-duty waivers and too much ‘autonomy’ for revenue collecting agencies is the bane of Nigeria’s revenue inadequacy.Nigeria needs to put an end to crude oil theft, stop all petroleum subsidy payments, streamline tax/import-duty waivers, amend existing laws to abolish the autonomy granted revenue collecting agencies and create a single-treasury-account for all types of government revenue, with all government ministries, departments and agencies included in a single appropriation process to ensure adequate resources for good quality governance. In addition government should rely on self-funding mechanisms for developing nationwide rail network and related infrastructure systems.Financial Realities: Financial intermediaries and markets are contributing their bits in mobilizing the financial assets required for Nigeria’s growth and stability, but Nigerian government has to pull its weight as an independent attractor of foreign capital, and also court investors more actively by liberalizing growth enabling sectors, getting out of the way, making necessary arrangements to provide concrete assurances of stability, and being more conscious of the sensitivity of inward investment to realities of, especially government’s pronouncements about, the fiscal situation.Realistic Priorities: A fully functioning rail transport system urgently required to unleash economic growth in Nigeria is readily within the country’s reach. Optimal revenue mobilization is required for meaningful governance. Nigeria’s government needs to master ways of making other people’s money work for the country.

Democracy, Autocracy and the Urban Bias: Evidence from Petroleum Subsidies

Petroleum subsidies are economically costly and environmentally destructive. Autocracies tend to offer higher subsidies for petroleum products than do democracies. Why? This study uses a global dataset of gasoline prices in developing countries for the years 2003–9 to show that the autocratic subsidy premium stems from countries where much of the population lives in small cities. Urban riots are a major threat to autocratic political survival, and high fuel prices cause social unrest. In large cities, autocrats can use public transportation to mitigate the effects of high fuel prices, but this strategy is not practical in small cities. Therefore, autocratic rulers offer high petroleum subsidies if they have large urban populations living in small cities. These findings suggest that the exact nature of urbanization has a critical effect on the political calculus of leaders and on policy outcomes.

Subsidies and Fiscal Deficit in Post Reforms India

The Government of India has been subsidising various economic goods, mainly food, fertiliser and petroleum. It is argued that subsidies are responsible for persistent high fiscal deficit over the years. The present paper attempts to study the trend of major subsidies given by the Government of India, and then examines whether all the forms of subsidies are uniformly responsible for fiscal deficit or otherwise. Based on annual time series data from 1992-93 to 2012-13, the study observes that in the post-reforms period, food and fertiliser subsidies have grown at a sharper rate than petroleum subsidies. The regression results also confirm that food and fertiliser subsidies have a positive and significant impact on fiscal deficit. The analysis of petroleum subsidies is more complicated. If we see only the explicit subsidies for petroleum products, then their rise is not significant over the post-reforms period, except for 2008-12. However, when we include the under-recoveries of Oil Marketing Companies (OMCs), the story of petroleum subsidies becomes completely different. While the effectiveness of subsidies vis-à-vis their fiscal burden need a detailed scrutiny, the present paper argues for a National Policy on Subsidies.

Domestic Petroleum Product Prices and Subsidies: Recent Developments and Reform Strategies

Domestic Petroleum Product Prices and Subsidies: Recent Developments and Reform Strategies

A bargain born of a paradox: the oil industry's role in American domestic and foreign policy

Scholarly attention to oil reached its zenith in the late 1980s. Spirited debates on regime theory, neorealism and American hegemony dovetailed with the aftermath of the oil shocks, the ongoing Ira...

Issues in Domestic Petroleum Pricing in Oil-Producing Countries

This paper discusses issues relating to the domestic pricing of petroleum in oil-producing countries. It finds that in most major oil-exporting countries, government policies keep domestic prices below free-market levels, resulting in implicit subsidies that equaled 3.0 percent of GDP, on average, in 1999. Moreover, the paper argues, these petroleum subsidies are inefficient and inequitable-entailing substantial opportunity costs in terms of forgone revenue or productive spending-and also procyclical, complicating macroeconomic management. Nonetheless, the elimination of petroleum subsidies is often politically difficult, although countervailing measures and publicity campaigns can help engender support for reform.

Issues in Domestic Petroleum Pricing in Oil-Producing Countries

This paper discusses issues relating to the domestic pricing of petroleum in oil-producing countries. It finds that in most major oil-exporting countries, government policies keep domestic prices below free-market levels, resulting in implicit subsidies that equaled 3.0 percent of GDP, on average, in 1999. Moreover, the paper argues, these petroleum subsidies are inefficient and inequitable-entailing substantial opportunity costs in terms of forgone revenue or productive spending-and also procyclical, complicating macroeconomic management. Nonetheless, the elimination of petroleum subsidies is often politically difficult, although countervailing measures and publicity campaigns can help engender support for reform.