By - Jim Vess

Global energy subsidies soar to $424 billion in 2018 as oil prices rise

Energize Weekly, June 26, 2019

The value of global fuel subsidies was pushed up to their highest levels in five years, according the International Energy Agency (IEA).

IEA data show the estimated value of these subsidies at $424 billion, a 33 percent annual increase.

The subsidy estimates for oil, gas and fossil-fuel generated electricity all increased “significantly,” the IEA said.  This is creating challenges to reducing greenhouse gas emissions, the agency said.

“The continued prevalence of these subsidies – more than double the estimated subsidies to renewables – greatly complicates the task of achieving an early peak in global emissions,” IEA energy analysts Wataru Matsumura and Zakia Adam said in a commentary.

The average price for a barrel oil has risen from $43 in 2016 to $68 in 2017, according to the IEA.

In 2018, oil was the most heavily subsidized energy sector, expanding its share of the total to more than 40 percent. In 2016, electricity briefly became the sector with the largest subsidy bill.

Oil supports rose fastest in 2018 and accounted for $182 billion in subsidies, followed electricity subsidies at $141 billion and natural gas subsidies at $99 billion.

“There can be good reasons for governments to make energy more affordable, particularly for the poorest and most vulnerable groups,” Matsumura and Adam said. “But many subsidies are poorly targeted, disproportionally benefiting wealthier segments of the population that use much more of the subsidized fuel. Such untargeted subsidy policies encourage wasteful consumption, pushing up emissions and straining government budgets.”

Some countries are taking steps to curb subsidies. Tunisia, India and Mexico have adopted complete price liberalization for transport fuels. China, Indonesia and Oman introduced mechanisms to automatically adjust domestic prices to keep them in line with international prices.

Other Middle East nations – including Saudi Arabia, Kuwait, Qatar, Bahrain and the United Arab Emirates (UAE) – are working on a schedule of reforms to align subsidies with a cost-recovery mechanism or market-based prices.

“Notable reductions in oil-related consumption subsidies over this period were observed in many countries in the Middle East, including Saudi Arabia, the UAE, Qatar and Bahrain, as well as in Colombia and Pakistan,” the IEA said. “Ukraine saw the largest fall in subsidies for natural gas.”

The reductions in subsides were outstripped by a widening gap between prevailing prices and market-based prices in many countries and increased consumption of subsidized energy.

The largest increases in consumption subsidies for oil products were in Indonesia, Iran, Egypt and Venezuela.

Iran also saw the largest increase in natural gas subsidies, and – together with Venezuela, Mexico, Egypt and China – was among those seeing the most significant increase in subsidies to fossil fuel-based electricity.

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