Fossil Fuel Subsidy Reforms: A Guide to Economic and Political Complexity

Countries around the world are spending up to $500 billion per year on subsidising fossil fuel consumption. By some estimates, the G20 countries alone are spending around another $450 billion on subsidising fossil fuel production. In addition, the indirect social welfare costs of these subsidies have been shown to be substantial – for instance due to air pollution, road congestion, climate change, and economic inefficiency, to name a few. Considering these numbers, there is no doubt that fossil fuel subsidies cause severe economic distortions that compromise countries’ prospects of achieving equitable and sustainable development.

This book provides a guide to the complex challenge of designing, assessing, and implementing effective fossil fuel subsidy reforms. It shows that subsidy reform requires a careful balancing of complex economic and political trade-offs, as well as measures to mitigate adverse effects on vulnerable households and to assist firms with implementing efficiency enhancing measures. Going beyond the purely fiscal perspective, this book emphasises that smart subsidy reforms can contribute to all three dimensions of sustainable development – environment, society, and economy.

Over the course of eight chapters, this book considers a wide range of agents and stakeholders, markets, and policy measures in order to distil the key principles of designing effective fossil fuel subsidy reforms. This book will be of great relevance to scholars and policy makers with an interest in energy economics and policy, climate change policy, and sustainable development more broadly.

Jun Rentschler is an Economist (YP) at The World Bank working at the intersection of climate change and sustainable resilient development. He is also a Visiting Research Fellow at the Oxford Institute for Energy Studies, the Payne Institute for Earth Resources in Colorado, and the Graduate Institute for Policy Studies in Tokyo. Prior, he worked at the German Foreign Ministry and the European Bank for Reconstruction and Development (EBRD). He is a co-author of the book Investing in Resource Efficiency: The Economics and Politics of Financing the Resource Transition (2018).