Scrapping fossil fuel subsidies could play an important role in cutting emission of greenhouse gases while giving a small but not insignificant boost to the global economy, a news report by the UN Environment Programme (UNEP) observed.
The report also observed that globally around 300 billion dollars or 0.7 percent of global GDP is being spent on energy subsidies annually and cancelling these subsidies might reduce greenhouse gas emissions by as much as six percent a year while contributing 0.1 percent to global GDP.
According to sources here on Saturday, the news report 'Reforming Energy Subsidies: Opportunities to Contribute to the Climate Change Agenda' has been prepared by the UNEP's Division of Technology, Industry and Economics.
The report challenges the widely held view that such subsidies assist the poor arguing that many of these price support systems benefit the wealthier sections of society rather than those on low incomes. They are also diverting national funds from more creative forms of pro-poor polices and initiatives that are likely to have a far greater impact on the lives and livelihoods of the worse-off sectors of society. The lion's share of energy subsidies is being used to artificially lower or reduce the real price of fuels like oil, coal and gas or electricity generated from such fossil fuels.
The report acknowledges that some subsidies or mechanisms, whether in the form of tax breaks, financial incentives or other market instruments can generate social, economic and environmental benefits. A case in point are feed-in tariffs that have kick-started a renewable energy revolution in countries such as Germany and Spain. It also accepts that there may be cases where some subsidies can, if well devised and time-limited, meet important social and environmental goals.
However, the report argues that many seemingly well-intentioned subsidies rarely make economic sense and rarely address poverty. It therefore challenges the widely held myth that scrapping fossil fuel supports would hit the poor. The report cites the example of Liquid Petroleum Gas (LPG) subsidies in India where 1.7 billion dollars was spent in the first half of the current financial year on trying to get the fuel into poor households. "LPG subsidies are mainly benefiting higher-income households; despite the ineffectiveness of the subsidy, the programme is being extended until 2010," it added.
It says that Russia has the largest subsidies in dollar terms amounting to around 40 billion dollars a year and mainly spent on making natural gas cheaper. Iran comes second with around 37 billion dollars. Six countries, spending in excess of 10 billion dollars on subsidies come next. These are China, Saudi Arabia, India, Indonesia, Ukraine and Egypt.
The report concludes that in many developing countries the real beneficiaries of such subsidies are neither the poor nor the environment but well off households, equipment manufacturers and the producers of the fuels.
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