Jun 3, 2020 - Energy & Environment

Coronavirus pushes fuel subsidies lower — for now

Reproduced from IEA; Chart: Axios Visuals
Reproduced from IEA; Chart: Axios Visuals

Government fuel and electricity subsidies are projected to drop sharply this year due to declines in prices and energy consumption from the pandemic, the International Energy Agency said in a new analysis.

Why it matters: Subsidies for consumption (which the IEA data tracks) and production have long been a target of climate advocates, though supporters of cutting the payments note that some are needed to help low-income people.

  • Reforms have occurred in a number of countries, but progress has been uneven and inconsistent.

The big picture: IEA notes that periods of low prices are typically a good time to implement reforms to cut wasteful and expensive subsidies, especially in countries reliant on energy revenue that are now under financial strain.

But, but, but: These are obviously not normal times.

  • "The overriding economic priority for policy makers so far in 2020 has been to limit the damage from the crisis," IEA notes, pointing to government support programs for households and businesses.
  • "As such, there are few signs so far that low fuel prices are prompting an accelerated effort to phase out subsidies, although pre-existing reform efforts have continued."

What's next: IEA argues that as economic conditions improve, so should efforts to phase out subsidies, while maintaining targeted protections for the poorest and most vulnerable.

  • The goal should be preventing countries with "artificially low" prices from "locking in a new cycle of market distortions that favour polluting and inefficient technologies."
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