Do Policies for Phasing Out Fossil Fuel Subsidies Deliver what They Promise?

Book excerpt: Fossil fuel subsidies reform has been intensively debated and promoted as a concrete step towards sustainable development, with anticipated benefits of reduced carbon emissions, saved public spending, and improved social distribution. But does this "triple-win" policy deliver what it promises? This working paper focuses on the social "win"--The narrative of social and distributional gains of the energy subsidies reform. The research follows a comparative analysis approach. Three countries were selected as target for in-depth case studies based on their diverse political, economic and social contexts: Ghana, Indonesia and Iran. We examine in each case the distributional effects of subsidy removal, the design and implementation of social programmes and their impact on welfare, as well as the political economy around sustainability of the reform. Based on comparative studies across the three cases, a set of political, economic and social factors are identified to have key impact on the social outcome of reforms. The key conclusions are as follows. There is no quick fix for social "win". Instead, the social outcome is influenced by a set of political, economic and social factors at different levels. Governments need to put the energy subsidies reform in the bigger context and manage the complex mix of influencing factors, to anchor the policy on a broad coalition of interests. Long-term political commitment to subsidies reform is key. A clearly communicated commitment would help win trust from the public in energy subsidies reforms and support for the government to implement relevant policies. A long-term and gradual reform strategy which takes into account both immediate cushion and long-term distributional effects is essential to achieving social gains. Social gain needs to have a prominent role in energy subsidy reforms. The three case studies indicate a clear dynamic between social gains and subsidy reform processes. Thorough analysis using a social lens approach can identify important factors to be taken into account for reform policies to be sustained and more importantly, deliver a social win. Rather than to be taken as a given, a social win from fossil fuel subsidy reforms requires the social dimension to be a central part of the reform policy.