By Ghiya Bsat
The issue I am going to address in this article is one that is not merely highlighted and talked about enough on all media platforms, yet it has an extensive impact on our economic, social and health conditions.
In short, fossil fuel subsidies are a transparent rigged government-issued policy that favors fossil fuels over all types of energy. It lowers the cost of fossil fuel production, increases the price secured by energy producers and decreases the price paid by energy consumers. Talk about a 3 in 1 package!
The whole point of a “subsidy” is to offer aid to low-income families. However, many reports clearly emphasize that these subsidies are highly unfair, whereas they benefit the rich far more than those economically marginalized, since most can’t even afford to own a car, let alone gas. A study by the IMF (International Monetary Fund, 2018) showed that the poorest received only 7.4% of gasoline subsidy benefits, while the richest received 83.2%. It's also costing governments a whopping $548 billion a year (G20 countries alone, 2019), excluding the externalities costs that occur from congestion, pollution and accidents.
Which is why it's crucial to start eliminating these subsidies before severe consequences take place. An exemplary country where no subsidy reductions have been made, but in fact the amount of aid for fossil fuel subsidies doubled, is Lebanon. The outcome? The country is bankrupt and is about to run out of fossil fuel, leaving its citizens that have already experienced a sharp decline in its purchasing power (because of the high inflation rate) without any warning, as well as deeply hitting industrial and agriculture sectors.
So, how do we eliminate fuel subsidies in an orderly manner without causing trouble? The best sustainable way to face it without having protests all around the country and diving into a deep economic crisis is to adopt a phasing out strategy. Throughout the phases, fuel prices will increase, discouraging wasteful consumption and alerting people to make wiser decisions when it comes to purposeless trips. In return, the government would temporarily provide those directly impacted by a certain form of compensation so they have time to adapt (ex: workshops for the working labor in fossil fuel mines to avoid unemployment, aid for taxi drivers..)
Reducing fuel subsidies will help the government generate income that can be allocated instead to investing in renewable energy, healthcare, improving infrastructure, providing education and energy access for the poor. By shifting to climate-compatible energy pathways, a significant amount of GHG (greenhouse gas) will be diminished and by substitution help us get a step closer towards reaching the Paris Agreement commitments.
Therefore the subsidies program, both in theory and practice, has proven to be inefficient, expensive and regressive. And eliminating it, gradually but eventually, will help mitigate all these factors.
Note: It's important to understand that fossil fuels fall under a wide spectrum of fuels, not just gasoline as mentioned as an example above. The most common are coal and petroleum which are also used to provide heating & electricity for homes and factories.
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