World Bank urges an end to fossil fuel subsidies that benefit rich

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The World Bank has released a report in which it offers a three step plan to move the world to a “zero net carbon” economy by 2100, and says that the longer countries wait to implement policies aimed at stopping climate change, the more it will cost. Using examples from Ghana and Egypt, it urges an end to fossil fuel subsidies and redistribution of the money saved through direct cash transfers and development initiatives for the poor.

The report, titled ‘Decarbonizing Development: Three Steps to a Zero Carbon Future‘, says the three things that should influence policy are:

  • Plan for the end goal, not just the short-term

How best to achieve a given reduction in emissions in 2030 depends on whether this is the final target or a step towards zero net emissions. If the latter, early action needs to be a mix of cheap quick fixes and costlier long-term measures to promote technology development, investment in long-lived infrastructure, and changes in how cities are built. Fortunately, many options with high potential offer immediate local co-benefits, so that early action need not represent a trade-off with short term development goals.

  • Get prices right as part of a broad policy package that triggers changes in investment and behavior

Carbon pricing is necessary for an efficient transition toward decarbonization. It is an efficient way to raise revenue, which can be used to support poverty reduction or reduce other taxes. But carbon pricing alone cannot solve the climate change problem, given the many market failures and behavioral biases that distort economies. Policy-makers also need to adopt measures that trigger the required changes in investment patterns, behaviors, and technologies – and if carbon pricing is temporarily impossible, use these measures as a substitute.

  • Smooth the transition for those most affected

Reforms live or die based on the political economy: a climate policy package must be attractive to a majority of voters and avoid impacts that appear unfair or are concentrated on a region, sector or community. Thus, reforms have to smooth the transition for those who stand to be affected – by protecting vulnerable people but also sometimes compensating powerful lobbies. Getting rid of environmentally harmful subsidies and pricing carbon provides additional resources with which to improve equity, protect those affected, and, when needed, appease opponents.

The report urges governments across the world to act as quickly as possible, as it explains that just by delaying the road to recovery by 15 years will cost 50% more then as to what it costs today.

“The actions necessary to make the transition to zero net emissions are affordable if governments start today, but it warns that the costs will grow if action is delayed. Waiting until 2030 would increase the global cost by 50 percent,” the World Bank explains.

Rachel Kyte, World Bank Group Vice President and Special Envoy for Climate Change, explained it wants to help countries achieve this goal.

“As science has indicated, the global economy needs to be overhauled to reach zero net emissions before the end of this century so we at the World Bank Group are increasing our focus on the policy options governments and businesses have now. Our role is to help our country clients and others to make the shift to low-emissions development.”

She nations to take climate change seriously, according to her the decisions countries make today could take years of corrective measures.

“Choices made today can lock in emissions trajectories for years to come and leave communities vulnerable to climate impacts. We will help support robust decisions when we can.”

The section on fuel subsidies is likely to prove the most controversial. Looking at examples from Ghana and Egypt, the report found that 89% of Egyptians didn’t know that energy subsidies made up 39% of the overall government budget, and while subsidyreform in Ghana did increase the cost of transport, the money saved was used to bring down the cost of schooling, improve public transport and electrify rural areas.

Furthermore, the report says, existing fuel subsidies disproportionately benefit the rich.

“Fossil-fuel subsidies and artificially low energy prices are not efficient ways to boost competitiveness or help poor people,” write the authors, “Such measures drain fiscal coffers, hurt the environment, slow the deployment of greener technologies, and chiefly benefit non-poor people. A review of fossil-fuel subsidies in 20 countries shows that the poorest 20 percent of the population receive on average less than 8 percent of the benefits, whereas the richest 20 percent capture some 43 percent (Arze del Granado, Coady, and Gillingham 2012).”

You can read the full report here.

[Image – CC by 2.0/Asian Development Bank]

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