|June 08, 2010|
Getting the Prices Right - Cutting Subsidies Could Save Billions
|Global fossil fuel consumption subsidies in 2008 were much
higher than previously estimated and totalled USD557 billion,
according to IEA analysis
The IEA has undertaken an extensive survey to identify countries that offer subsidies that reduce prices of fossil fuels below levels that would prevail in an undistorted market, thus leading to higher levels of consumption than would occur in their absence.
The survey identified 37 countries and it is estimated that
these represent over 95% of global subsidized fossil‐fuel
consumption, with the remaining subsidized consumption occurring in
countries for which reliable energy consumption and price data is
Since 2008, a number of countries
- including China, Russia, India and Indonesia - have made notable
reforms to bring their domestic energy prices in line with world
prices. These efforts are expected to contribute to a reduction in
the cost of energy subsidies to these countries in
The IEA analysis highlights that the price signal from subsidy phase‐out would provide an incentive to use energy more efficiently, and trigger switching from fossil fuels to other fuels that emit less GHGs.
Compared with a baseline in which subsidy rates remain unchanged, IEA modelling indicates that phase out between 2011 and 2020 would:
Implementing the Copenhagen Accord and the phasing out subsidies
are complementary steps towards achieving the 450 Scenario,
although the savings are not strictly cumulative:
IEA analysis indicates that today 1.5 billion people around the world are still denied access to electricity and around 2.5 billion people rely on traditional biomass as their primary source of energy.
However, subsidies to kerosene, LPG and electricity in countries with low levels of modern energy access (ie. electrification rates under 95% or modern fuels access under 85%), represented just 11% of the $557 bn of consumption subsidies in 2008.
Furthermore, studies have shown that most existing subsidy
programs for these fuels could be made more cost‐effective through
To read the key findings of the IEA energy subsidies analysis click here.
To see the slide presentation of the key facts, click hereSource: www.iea.org