Climate change has been a hot issue for most countries for several decades. Experts have expressed significant concern about the overconsumption of fuels across the globe. Its main driver: fuel subsidies.
Our latest publication (Jazuli, Steenmans, and Mulugetta 2021) highlights the importance of reducing global fuel subsidies. Nevertheless, studies are incredulous how these subventions persist. Our review shows that subsidy reforms are not just a matter of cuts to these subventions and the subsequent fuel price increase. It is more complex than that.
Globally, in 2014, fuel consumption subsidies from various countries accounted for 13% of global GHG emissions (IEA, 2015). Fuel subsidies also often lead to carbon lock-in where development cannot be separated from fuel even though renewable energy potential is abundant (Seto et al., 2016).
Fuel subsidies can reduce logistics and transportation costs to suppress prices. However, these policies often come with a variety of ramifications. In addition to exacerbating global warming, fuel subsidies are hampering investment in fundamental sectors such as education, health, and renewable energy. In addition, these subsidies spoil the rich rather than help the poor. In Indonesia, for example, more than 80% of these subsidies are enjoyed by the richest 50% (Diop, 2014).