November 25, 2014 - Countries around the world are finding that energy subsidies pose a threat to their economic, environmental and fiscal health. Despite originally being designed to help the poor and middle class, in most cases the benefits of energy subsidies have largely gone to higher income earners.
“Subsidized prices for fuel and electricity may have been put in place with the best of intentions, but in general the net effect has been to undermine sustainable growth and shared prosperity,” said Anita Marangoly George, senior director of the World Bank’s Energy and Extractives Global Practice.
However, such subsidies, once in place, are very difficult to remove. Powerful vested interests grow around subsidies, and the poor, while not the primary beneficiary of these programs, can be seriously affected if energy prices rise too quickly. Worldwide energy consumption subsidies were estimated at $492 billion in 2011, the equivalent of 0.7 percent of global GDP, or over 2 percent of total government revenues.
A new World Bank facility is now available to help countries reform their energy subsidies and put in place social protection measures to help the poor during this transition. The Energy Subsidy Reform Technical Assistance and Delivery Facility, led by the Bank’s Energy Sector Management Assistance Program (ESMAP), is already supporting World Bank engagements in a number of regions.
The facility was announced at a knowledge exchange conference held in Copenhagen on October 22, 2014. The event, organized by ESMAP, brought together senior representatives from 25 countries to look at what has worked to date – and what has not – as countries attempt to remove harmful energy subsidies. The event was co-hosted by Denmark’s Ministry of Foreign Affairs and opened by Foreign Minister Martin Lidegaard.