Low Oil Prices: An Opportunity for Fuel Subsidy Reform

DESCRIPTION: In a new paper for the Center on Global Energy Policy, Dr. Johannes Urpelainen, Associate Professor of Political Science at Columbia University and a Faculty Affiliate at the Center, and his co-authors examine the impact of low oil prices on global fuel subsidies across a number of dimensions. First, the paper explains the benefits of fuel subsidy removal and how low oil prices can enable action. Second, it summarizes key lessons about political obstacles to reform based on original research and the existing literature. Finally, it offers action-oriented recommendations for national and international policymakers, as well as social scientists.

OUTCOMES:
Key Findings:

• The main barriers to fuel subsidy reform are generally political. A move to eliminate subsidies can face popular resistance as well as resistance from vested interests. Efforts can also be complicated by a country’s low institutional capacity.
• Countries with lower institutional capacities can struggle to pay for alternative, targeted social welfare spending that compensates for the impact of higher fuel prices on their populations when subsidies are removed.
• One potential downside of low oil prices is that it may undermine the political will for a government to undertake reforms.
• For international and civil society organizations, the development of best practices and information-sharing mechanisms is an important area to continue to strengthen.
• Academic researchers will have a role to play in the international effort to abolish fuel subsidies. As governments consider reforms, they worry about short-run costs and popular opposition. Systematic data collection and rigorous analysis can be useful for estimating the magnitude of these costs and the extent of opposition in different circumstances.