Summary:
Fossil fuel subsidies have been a popular measure for governments all around the globe. However, subsidies can have a range of adverse effects on the economy, which is why large international organisations, like the World Bank, the OECD as well as the IMF, advice to phase-out these subsidies.
By promoting wasteful consumption and discouraging the implementation of low-emission production technologies, energy subsidies can lead to an increase in Greenhouse Gas (GHG) emissions. Further, the IEA (2019) demonstrated that they rather benefit wealthy recipients and that only a small portion arrives at low-income households, thus they can even promote income inequalities. Further, subsidies can pose a substantial burden to government budgets – and consequently taxpayers.
This paper focusses on consumer subsidies in the natural gas and electricity sector. Producer subsidies in the coal sector are covered in a separate proposal and are proposed to be phased-out in accordance with the coal transition.
What is a Policy Note?
Policy Notes provide a very concise overview of one specific topic. They often build on earlier more substantive work. Some Policy Notes were also published as part of the Quarterly Monitoring Reports.