WORLD ENERGY OUTLOOK
pricing policy, exchange rates and demand. In 2008, when international energy prices spiked, subsidies amounted to US$558 billion. In 2009, oil products and natural gas were the most heavily subsidised fuels, attracting subsidies totalling US$126 billion and US$85 billion, respectively. Subsidies to electricity consumption were also significant, reaching US$95 billion in 2009. At only US$6 billion, coal subsidies were comparatively small. The vast majority of these subsidies are in non-OECD countries, which are projected to contribute 93% of incremental global energy demand to 2035 in the New Policies Scenario. Considerable momentum is building
globally to cut fossil-fuel subsidies. In September 2009, G20 leaders committed to phase out and rationalise inefficient fossil-fuel subsidies, a move that was closely mirrored in November 2009 by APEC leaders. Many countries are now pursuing reforms, but steep economic, political and social hurdles will need to be overcome to realise lasting gains. “Eradicating subsidies to fossil fuels
Figure 3: Fossil-Fuel Subsidies Distorting Price Signals Economic value of fossil-fuel consumption subsidies by country & type, 2009 0%
5% Iran
Saudi Arabia Russia India China Egypt
Venezuela Indonesia
Uzbekistan UAE
Iraq
Kuwait Pakistan Argentina Ukraine Algeria Malaysia Thailand Bangladesh
Turkmenistan Mexico
South Africa Qatar
Kazakhstan Libya
0 10 20 30 40 50 60 70 Billion dollars
Fossil-fuel consumption subsidies amounted to US$312 bn in 2009 with oil products amounting to half the total.
Source: WEO 2010, IEA
would have a dramatic effect on global energy balances, enhancing energy security, reducing emissions of greenhouse gases and air pollution, and bringing economic benefits,” says WEO 2010, estimating that a universal phase-out of all fossil-fuel consumption subsidies by 2020 — ambitious though it may be as an objective — would cut global primary energy demand by 5% compared with a baseline in which subsidies remain unchanged. This amounts to the current consumption of Japan, Korea and New Zealand combined. Oil demand would be cut by 4.7 mb/d by 2020, or around one-quarter of current US demand.
more affordable and accessible for the poor, the reality is that only a small proportion of subsidies go to poor households. In countries with low levels of modern energy access, subsidies in the residential sector for kerosene, electricity and LPG — fuels that often support the basic needs of the poor — represented just 15% of fossil-fuel consumption subsidies in 2009. Nonetheless, subsidy reform programmes need to be carefully designed as low-income households are likely to be disproportionately affected by their removal.
How Green Will the Energy Future Be? Renewable energy sources
... subsidy reform programmes need to be carefully designed as low-income households are likely to be disproportionately affected by their removal
“Phasing out fossil-fuel consumption subsidies
could represent an integral building block for tackling climate change. A complete phase- out would reduce carbon-dioxide emissions by 5.8%, or 2 Gigatonnes by 2020, equivalent to the current combined emissions of Germany, France, the UK and Italy. This amounts to over 40% of the abatement needed to be on track by 2020 to limit global warming to a 2°C rise,” says WEO 2010. Although the stated intent of many energy consumption subsidies is to make energy services
will have to play a central role in moving the world onto a more secure, reliable and sustainable energy path. The potential is unquestionably
large, but how quickly their contribution to meeting the world’s energy needs grows hinges critically on the strength of government support to stimulate technological advances and make renewables cost competitive with other energy sources. Government support for renewables can, in principle, be justified by the long-term economic, energy security and environmental benefits they can bring, though it is essential that support mechanisms are cost-effective. The greatest scope for increasing the use of
December 2010 87 10% 15% 20% 25% 30% 35%
Coal Oil Gas
Electricity
Total subsidy as share of GDP MER (top axis)
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