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November 17, 2019

Energy subsidies overshadow the problems of the sector

Energy subsidiesThe real cost of energy is key to policy making in the sector. In many countries, however, there are public subsidies that not only keep the price below its market level but also mask the social and environmental costs of production, according to the International Energy Agency (IAE).

The organization’s data, in 2016 subsidies for fossil fuels are down – 15% to 260 billion USD, which is the lowest level ever since these statistics have been maintained but have not yet disappeared. The report states that subsidies for fossil fuels are artificially low in electricity, oil and natural gas prices.

But the green sector enjoys state support in 2016, when global subsidies for renewables amount to 140 billion USD.

In many ways, the authorities have reason to support the energy sector and make energy more accessible, especially for vulnerable groups. The problem is that subsidies are often poorly targeted and benefit from the rich who use more of the subsidized energy resources.

Thus, the effect of public funds allocated to support is actually encouraging energy waste, which puts additional pressure on energy systems and the environment, and is often essential for country budgets.

Last year there has been some progress in shaping the right energy policy, especially in the Middle East. In many, subsidies to petroleum products have been lifted, resulting in higher gasoline prices in Kuwait, Bahrain, Oman, Qatar, Saudi Arabia and the United Arab Emirates. And although the region remains the place with the most support for fossil fuels, subsidies are substantially reduced – from 120 billion USD in 2015 to 80 billion USD in 2016.

The analysts, however, point out that the battle may be lost when the price of oil starts to rise again. There must also be a change in focus – from the transport sector to the other sectors, which will, however, be very difficult.

The subsidies for fuels used by transport are halved between 2010 and 2016, revealed the International Energy Agency. In other sectors, such as electricity, however, support remains, and often it is the cause of the poor financial performance of state-owned companies in the sector and the lack of investment in energy infrastructure.

In some countries, Argentina and Indonesia, the change begins, but it is a very difficult undertaking because it has a direct effect on consumers. But the lack of action will eventually lead to an increase in the cost and share of energy in final consumption.

Therefore, the analysts’ recommendation is to suspend subsidies, which will channel scarce resources in the right direction – to develop innovation, energy efficiency and clean technologies, and energy savings.

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