Subsidy Reform Research Articles

AN OVERVIEW OF ENERGY CONSUMPTION AND CO2 EMISSIONS IN IRAN'S RESIDENTIAL SECTOR: ENERGY TRANSITION AND SUBSIDY POLICIES

The transition from fossil fuels to renewable energy sources has become a critical global issue, particularly in response to climate change. This study aims to analyse the trends in energy consumption and CO2 emissions within Iran's household sector. The findings reveal a significant increase in energy consumption in Iran between 2001 and 2019. Despite the household sector's heavy reliance on fossil fuels, a shift in fuel consumption patterns can be observed, with a transition from oil to natural gas starting in 2008. Electricity generation in Iran is also predominantly fossil fuel-based, with natural gas playing a major role. This underscores the urgent need to reinforce renewable energy sources to mitigate CO2 emissions from the household sector. Another key factor influencing energy consumption in Iran is the country's extensive energy subsidies. The disparity in fuel prices compared to neighbouring countries has also led to fuel smuggling. However, the results show that the twophase subsidy reform plan implemented in 2010 and 2013 did not lead to a reduction in energy consumption. Therefore, further reforms are needed to improve energy equity and reduce CO2 emissions in the household sector.

Economy-wide impact of targeting and repurposing fossil fuel subsidies in Malaysia

Fossil fuel subsidy reform is a critical strategy for fostering cleaner energy systems and promoting sustainable development. The Malaysian government has signalled commitments to implement a targeted fuel subsidy reform where vulnerable households would be unaffected by the direct impact of higher fuel prices even after the reform. But despite this commitment, little is known about the economy-wide impact of the reform. This study employs a dynamic Computable General Equilibrium (CGE) model to examine the economic, social, and environmental impact of a targeted fuel subsidy removal in Malaysia under a spontaneous and gradual implementation scenario. The research also explores the impact of direct cash transfers to households and reinvestment in key sectors of the economy in the aftermath of the reform. Results from the study show that subsidy removal brings positive gains to the Malaysian economy in the medium to long term. Sequencing the phaseout of subsidies, providing compensation to vulnerable households, and reinvesting in education, health, transportation, and food assistance helps to avoid short-term adverse effects on households and output. The study recommends the need for a gradual removal of fuel subsidies that is accompanied by cash transfers to vulnerable households and investment in key sectors of the economy.

Energy price reforms, exchange rate devaluation and macroeconomic instability: Evidence from Bayesian VAR identified with sign‐and‐zero restrictions

AbstractThis study sets out to examine the effects of the interaction of subsidy removal on premium motor spirit (PMS) and exchange rate devaluation on macroeconomic instability in Nigeria. In this regard, this study adopted the Bayesian vector autoregressive model (BVAR) identified with sign‐and‐zero restrictions for annual data between 1985 and 2022. The empirical results reveal that both the removal of subsidies on PMS and the devaluation of the naira exchange rate significantly undermine real gross domestic product (GDP) growth and raise inflationary pressures in Nigeria. One important implication of this finding is that the ongoing subsidy reforms in the energy sector and associated devaluation of the naira exchange rate raise the risk of stagflation in Nigeria. Secondly, the simulation shows that simultaneous subsidy removal on PMS and exchange rate devaluation can trigger macroeconomic instability. This finding implies that stabilising PMS price and the exchange rate is key to achieving macroeconomic stability in Nigeria. Thus, this study recommends that Nigeria should be cautious and act quickly to cushion the price of PMS from the vagaries of foreign exchange market fluctuations to improve macroeconomic stability in the country.

A review of Indonesia's JETP through the dynamics of its policy regime

AbstractDuring its 2022 G20 presidency, Indonesia committed to reducing carbon emissions through the Indonesia Just Energy Transition Partnership (JETP). In addition to other policies, the Partnership is designed to drive the country's broader energy transition and net‐zero aspirations for decades to come. In addition to technical challenges, the Partnership is expected to face social and political resistance. Considering its importance for Indonesia's sustainable development and gaining support from influential stakeholders, this paper examines the JETP through the lens of a policy regime framework, drawing on insights from the country's multi‐decade fossil fuel subsidy reforms (FFSR) – a comparable effort to drive significant changes in energy use. It highlights the critical role of navigating political, social, and regulatory realities that have contributed to the successes or failures of policy reforms. The policy appraisal suggests the need for significant reconsideration of its broader policy‐regime context, specifically political, social, and regulatory factors, to ensure the successful implementation of the JETP and Indonesia's energy transition in general. Furthermore, the paper offers relevant policy recommendations to assist advocates and administrations supporting the Partnership in broadening its appeal beyond environmental concerns to secure stronger social and political backing.

Analysis of solution strategies for the transition to renewable energy in Saudi Arabia

The shift from fossil fuels to low-carbon energy solutions is crucial to mitigate the effects of climate change. The Kingdom of Saudi Arabia (KSA) has formulated a policy framework to accelerate the development of renewable energy (RE) as part of Vision 2030. Therefore, the transition to RE is vital for reducing dependence on fossil fuels and mitigating climate change. Nevertheless, critical barriers hinder RE adoption in the KSA. This study identified several main barriers, sub-barriers, and solution strategies for the analysis. Therefore, the fuzzy Analytical Hierarchy Process (AHP) method was incorporated to evaluate seven barriers and twenty-eight sub-barriers. Later, the fuzzy Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS) method was used to prioritize the nine solution strategies for adopting RE technologies in the KSA. The fuzzy AHP results emphasize that technological, environmental, and market barriers obstruct RE adoption. Fuzzy TOPSIS indicates that public awareness campaigns, energy subsidy reforms, and modernization of the energy grid are the most suitable solutions for the adoption of RE technologies in the KSA. Consequently, this research will help governments, stakeholders, and policymakers expedite RE adoption by determining these barriers and strategies to achieve the Saudi Vision 2030 goal.

A Flexible Model for Fuel Subsidy Reform in Malaysia

A Flexible Model for Fuel Subsidy Reform in Malaysia

A political economy theory of fossil fuel subsidy reforms in OECD countries

Fossil fuel subsidies continue to be a considerable barrier to meeting the targets of the Paris Agreement. It is thus crucial to understand the political economy of fossil fuel subsidies and their reform. To understand these mechanisms in the developed world, we use a database of different types of fossil fuel subsidy reforms among Organisation for Economic Co-operation and Development (OECD) countries. We find evidence for four intertwined processes i) a market-power mechanism: higher market shares for renewables ease fossil fuel subsidy reforms, and ii) a policy mechanism: reforms reduce the levels of fossil fuel subsidies. Importantly, both effects are contingent on iii) a polity mechanism where institutional quality influences the feasibility and effectiveness of political reforms, and iv) a feedback mechanism where systemic lock-ins determine the effectiveness of market competition. Our results even suggest that reforms carried out by effective governments with low corruption control are associated with increasing subsidies per capita. Renewable energy support can however provide a leverage point to break path-dependencies in fossil fuel-based economies. This turns out to be more effective when coupled with improvements to institutional quality and the insulation of political processes from pro-subsidy interests.

Policy-driven food security: investigating the impact of China’s maize subsidy policy reform on farmer’ productivity

IntroductionChina is the largest producer, consumer, and trader of grain. Changes in China’s agricultural policies will affect global food trade and thus impact food security. In this paper, we use China’s maize subsidy system reform (MSSR) as a quasi-natural experiment to investigate the impact of market-oriented reforms in price support policy on the productivity of grain.MethodsWe use official Chinese government panel data on farm households and a PSM-DID model to overcome the endogeneity problem of policy change.Results and discussionThe empirical results show that MSSR can increase maize productivity. The MSSR is divided into two phases: eliminating the maize purchase price and implementing maize producer subsidies. The policy effect of eliminating the purchase price exceeds the implementation of producer subsidies. Further analysis reveals that for farmers with a larger scale of cultivation, higher level of specialization, and higher degree of part-time employment, the MSSR enhances their productivity more significantly. In the high quartile, the MSSR reduces farmers’ productivity. In the low quartile, the MSSR raises farmers’ productivity, suggesting that the MSSR reduces the productivity differences among farmers. The results of our study suggest that market-based reform of price subsidies is an effective institutional arrangement to mitigate resource mismatch and increase food productivity, and point to the need to continue to improve the MSSR, explore diversified maize producer subsidy policies, and take into account the impact of other subsidies on farmers’ maize production behavior.

The economy-wide impact of cooking oil subsidy reforms and compensation to the oil palm industry

This study analyses the economy-wide impact of cooking oil subsidy reforms using two simulations: complete subsidy removal and compensation for the oil palm industry. The study focuses on macroeconomic variables, industrial output, and employment. A Computable General Equilibrium model is used for analysis. The study found that complete subsidy removal leads to negative impacts on the macroeconomy, causing a slight decrease in economic growth. It also results in negative impacts on industrial output and employment. On the other hand, reallocating the revenue to the oil palm industry investment could mitigate these adverse effects, and further leads to an increase in economic growth. The reallocation improves the output of the oil palm industry and reduces its labour demand. The impacts on other industries' output and employment vary. Removing cooking oil subsidy can be a viable option because of its marginal impacts. It's also recommended to compensate the oil palm industry, especially independent smallholders.

Indonesiaʼs energy transition: Dependency, subsidies and renewables

AbstractIndonesiaʼs economy is highly dependent on the fossil fuel industry as evidenced in measures of non‐taxable revenue, energy subsidy, energy mix and regulatory flexibility. To cut carbon emissions by 41% in 2030, the energy system needs to transition faster than anticipated through progressive reforms and investment. Policy makers understandably are fearful of the shocks and unrests resulted from fossil fuel subsidy reform. However, the fears were shown to be an over‐reaction, especially if poorer households were supported. The state‐owned enterprise, Perusahaan Listrik Negara, is the central player in the tug of war between the fossil fuel and renewable sectors. The government should signal unwavering support for international investment in the renewables, and update the regulation on rooftop solar that boosts return on investment for domestic households. International investors will need modelling of cost competitiveness of wind farms against coal‐fired plants in more remote areas.

Fossil fuel subsidy removal, economic welfare, and environmental quality under alternative policy schemes

The literature related to the environmental impacts of fossil fuel subsidy removal is inconclusive and fragmented, with non-negligible methodological shortfalls. Also, can the adverse economic effects of such subsidy removal be mitigated through government transfer payments to the firms and households? Taking the 2020 subsidy reform in Nigeria as a case, this study introduces the African Energy and Environment Integrated Computable General Equilibrium (AEEICGE) model, version 2.0., to examine the economic and environmental impacts of fossil fuel subsidy removal. The AEEICGE V.2.0. model accounts for the substitutability of intermediate input demand for energy products. The results show that although subsidy removal on fossil fuels improves environmental quality, such reform negatively affects the economic well-being of the economic agents and raises overall prices. These adverse impacts are reversed when the subsidy is reallocated differently to businesses and households through the government's transfer payments nonetheless. Particularly, the subsidy removal makes a 0.25 bps contribution to aggregate inflation and leads to welfare losses of about ₦0.049 billion and ₦0.108 billion, on average, for the poor and rich Nigerian households respectively. Notwithstanding, their welfare improves and gains, on average, about ₦15.89 billion and ₦78.96 billion respectively with the proposed resource reallocation schemes. The AEEICGE V.2.0 modelling approach and results do not only resolve existing puzzles in the literature, but also offers both theoretical and practical implications that are pivotal for the scientific community, policymakers, and industry stakeholders alike.

Analysis of energy policy reform in Iran: Energy and emission intensity changes

The Subsidized energy system of Iran, with its high financial burden, failed to achieve its intended economic goals, resulting in increased energy consumption and pollutant emissions. Energy product subsidies in Iran are among the highest in the world and have important implications for developing countries. This study examines the impact of subsidy removal policy on energy and emission intensities using a Dynamic Computable General Equilibrium model. The findings reveal that after subsidy removal, total output experiences an annual growth of around 1.5%, with output composition changes mainly favoring agriculture and services that are less energy dependent. However, prices soar by at least 10% owing to the higher costs of energy products. The decreasing trend in energy intensity after subsidy reform is accompanied by a decrease in emission intensity. Higher prices of energy after subsidy removal and the corresponding improvement in the efficiency of energy consumption lead to lower emission intensity.

Reinforcement learning in individual pension system: the case of Turkey

Purpose- How individuals make saving/investment decisions and they are subject to learning processes are important questions in economics. Behavioral economics and finance literature tell us that individuals can deviate from bayesian decisions and the personal experiences can be effective in decision making. “Reinforcement learning” provides a framework for individual investors who are weighing on strategies successful and avoid strategies unsuccessful in which they experience. In this study, we investigate the effect of past experiences on individuals' retirement savings/investment decisions and whether individual investors are reinforcement learner. For this purpose, we examine individual contracts in the annual micro panel dataset obtained from the Pension Monitoring Center in Individual Pension System in Turkey. Methodology- Essentially, we assume that individuals' retirement saving/investment decisions are influenced by returns and variances (represents the risk level) of their avaliable portfolio as well as their time horizon, spending habits, retirement goals, risk tolerance and demographic characteristics. In this context, we estimate a linear model by including returns and variances in order to investigate how much sensitive individual investors are to returns and variances of their portfolio. Moreover, we add lagged returns and variances to our econometric setup to examine whether they are reinforcement learner. After that, we conduct a before-after analysis by looking at the dataset from 3-year window to analyze the impact of the 2013 state subsidy reform on reinforcement learning of individual investors. Findings- Similar to individuals' age, gender and education level, portfolio returns and variances also have a statistically significant effect on the contributions paid. Increases in portfolio returns affect the contributions paid positively, while increases in portfolio variance affect it negatively. As an indicator of reinforcement learning, respectively, lagged returns and variances have a significant positive and negative effect like the same year returns and variances of individual investors. According to this result, individual investors weigh on successful strategies and avoid unsuccessful strategies they have experienced. Increases in variances and lagged variances of individuals' portfolios have a larger negative effect compared to returns. Additionally, looking at the 3-year window, we report that the reinforcement learning of individual investors has strengthened after the 2013 state subsidy reform. Conclusion- We show that individual investors in IPS in Turkey exhibit reinforcement learning when making retirement savings/investment decisions. High return or low variance obtained in previous periods causes individuals to pay more contributions paid in the next period. This result reveals that individuals benefit from their past experiences when making logical and optimized decisions based on their avaliable knowledge and expectations. The 25% state subsidy in 2013 caused individual portfolio returns to increase and variances to decrease. With these effects, we report that reinforcement learning has become stronger after 2013. Keywords: Reinforcement learning, decision-making, pension savings, personal finance, retirement policies JEL Codes: D80, D70, H3, D14, J26

Assessing the impact of China's agricultural subsidy reform on fertilizer management: a county-level empirical analysis based on difference-in-difference model

Agricultural subsidies are widely acknowledged to be a crucial cause in food security and environmental protection, with a substantial impact on fertilizer consumption. China is also attempting to promote the green transformation of agricultural subsidies and sustainable food production. Existing research has explored the impact of China's agricultural subsidies reform (ASR) on farmers' fertilizer application behavior at household level, but little is known about the overall effect of ASR at the regional level. This paper investigates the effect of on fertilizer inputs using the staggered difference-in-difference (DID) approach, based on county-level panel data for 723 counties in China's Main Grain Producing Area (MPA) from 2013 to 2020. The results show that the ASR obviously increases fertilizer consumption by 5–6% in MPA during the study period. An analysis of mechanism reveals that ASR boosts fertilizer input through increased grain output and on-farm employment, which both play a 13.83% and 6.42% partial mediator role. Conversely, the growth of planting scale is the primary conduit for fertilizer reduction, accounting for 11.78% of the total. Furthermore, this positive effect is significantly lower in counties with low farmer disposable income or high agricultural mechanization than in others. These findings offer valuable insights for other developing countries aiming to promote green transformation of agriculture.

Information campaigns and public perceptions of structural reforms: Evidence from a survey experiment on gasoline subsidy reform in Nigeria

AbstractGovernments often reform financial policies, such as industrial subsidies taxes and currency exchange rates, during times of fiscal distress. Existing studies suggest that information campaigns can improve popular support for policy reforms that promise longer term macroeconomic growth but come with short‐term financial costs to people's livelihoods. This article assesses the effects of information campaigns on the acceptance of fossil fuel subsidy reforms in Nigeria, a type of fiscal reform that many developing countries may adopt in the coming years. A randomized survey experiment imbedded in a nationally representative survey of Nigerian households investigates whether information interventions lead Nigerians to change their opinion on fossil fuel subsidy reforms. We find that merely providing factual information does not affect whether or not people support fossil fuel subsidy reforms. Moreover, we find that factual information helps supporters articulate their preferences and weakens the propensity of opponents to use wrongful information to justify their position.

The Economic Impact of Natural Gas and Electricity Subsidy Reforms in Bangladesh

The Economic Impact of Natural Gas and Electricity Subsidy Reforms in Bangladesh

Impact of Subsidy Reform with Cash Transfer on the Macro-Economy, Household, and Industry: A Scoping Review

Impact of Subsidy Reform with Cash Transfer on the Macro-Economy, Household, and Industry: A Scoping Review

The Vital Role of Cash Transfers: Lessons from the Largest Energy Subsidy Reform in the Developing World

The Vital Role of Cash Transfers: Lessons from the Largest Energy Subsidy Reform in the Developing World

ENERGY SUBSIDY REFORMS, SOCIAL CONTRACT AND POVERTY REDUCTION IN NIGERIA

The study examined the relation among energy subsidy, social contract and poverty in Nigeria covering the period 1999-2022. The study used autoregressive distributed lag (ARDL) model, dynamic ordinary least square (DOLS), and fully modified ordinary least square (FMOLS) approaches to determine the outcome of long-term estimates of the ARDL robustness. The unit root tests shows that the series were stationary at levels I(0) and first difference I(1). Cointegration was established with 2 optimal lag. The results of DOLS and FMOLS show that energy reforms of petrol motor spirit, automobile gas oil, dual purpose kerosene and electricity tariffs have impacted on high level of poverty in Nigeria. The reforms have also affected control variables like inflation and per capital income as inflation erodes the purchasing power of economic agents. The study suggests the need to deepen and implement short-to medium term fuel subsidy removal using market-based pricing as a necessity to protect the poor. This should be complemented by conversion plan from petroleum to natural gas (CNG) vehicles. Strategic policies to strengthen the voice and accountability by the citizens are required. It is essential to trust between government and citizens to strengthen social contract in a manner that improves service delivery, reduce corruption and strengthen institutions which will enhance subsidy reforms more feasible.

Measuring Total Carbon Pricing

Abstract While countries increasingly commit to pricing greenhouse gases directly through carbon taxes or emissions trading systems, indirect forms of carbon pricing—such as fuel excise taxes and fuel subsidy reforms—remain important factors affecting the mitigation incentives in an economy. Taken together, how can policy makers think about the overall price signal for carbon emissions and the incentive it creates? We develop a methodology for calculating a total carbon price applied to carbon emissions in a sector, a fuel, or the whole economy. We recognize that rarely is a single carbon price applied across an economy; many direct carbon pricing instruments target specific sectors or even fuels, much like indirect taxes on fossil fuels; and carbon and fuel taxes can be substituted for one another. Tracking progress on carbon pricing thus requires following both kinds of price interventions, their coverage, and specific exemptions. This inclusive total carbon pricing measure can facilitate progress in discussions on minimum carbon price commitments and inform assessments of the pricing of carbon embodied in traded goods. Calculations across 142 countries from 1991 to 2021 indicate that although direct carbon pricing now covers roughly one-quarter of global emissions, the global total carbon price is not that much higher than it was in 1994 when the United Nations Framework Convention on Climate Change entered into force. Indirect carbon pricing still comprises the lion's share of the global total carbon price, and it has stagnated. Taking these policy measures into account reveals that many developing countries—particularly net fuel importers—contribute substantially to global carbon pricing. Tackling fuel subsidy reform and pricing coal and natural gas emissions more fully would have a profound effect on aligning carbon prices across countries and sectors and with their climate costs.