The Asian Development Bank's Asian Development Outlook 2013 highlighted the need to constrain artificially stimulated energy demand in Asia and the Pacific. The report recognized that energy subsidies are well-intentioned, or at least popular, but that they increase energy consumption, distort energy development planning, and, when applied unevenly, provide incentives for adulteration and illegal cross-border sales. Worse, the main beneficiaries of energy subsidies are not the poor. If the intent is to make energy more affordable to the poor, only the poorest 20 percentile should benefit from the subsidy. In fact, the poor in Asia benefit little from subsidized fuel prices because many lack electricity and gas connections, few own vehicles, and most use public transport sparingly.
The IEA (2011a ) surveyed nine Asian countries with the highest fossil fuel subsidies, along with two countries in Africa, and found that only 15% of the benefit of kerosene subsidies— and a paltry 5% of subsides for liquefied petroleum gas—went to the poorest 20th percentile. As the stated intent of energy subsidies is to provide affordable energy to the disadvantaged, the better solution would be to give the target populations direct cash benefits or energy coupons. Poor households are identified for benefits like food distribution, education support, and medical treatment. The energy subsidy could be similarly targeted. For example, a cash payment scaled for the energy used by a typical energy-poor household, not tied to the household’s energy consumption, would extend access without encouraging wasteful use. In fact, a beneficiary household would have incentive to use less energy and keep the surplus from the
payout to pay for other needs. This achieves the objective of restraining energy use without creating the perverse incentives that so f requently drive energy systems off track.
Replacing general energy subsidies with subsidies targeting the energy poor can immediately restrain energy demand without denying those in need. It can go a long way toward laying the foundation for Asian energy security.
Regards,
Bart
Bart W. Édes
Director, Poverty Reduction, Gender and Social Development Division; Officer-in-Charge, Public Management, Governance and Participation Division
Chair, Social Development and Poverty Community of Practice,
Asian Development Bank
The IEA (2011a ) surveyed nine Asian countries with the highest fossil fuel subsidies, along with two countries in Africa, and found that only 15% of the benefit of kerosene subsidies— and a paltry 5% of subsides for liquefied petroleum gas—went to the poorest 20th percentile. As the stated intent of energy subsidies is to provide affordable energy to the disadvantaged, the better solution would be to give the target populations direct cash benefits or energy coupons. Poor households are identified for benefits like food distribution, education support, and medical treatment. The energy subsidy could be similarly targeted. For example, a cash payment scaled for the energy used by a typical energy-poor household, not tied to the household’s energy consumption, would extend access without encouraging wasteful use. In fact, a beneficiary household would have incentive to use less energy and keep the surplus from the
payout to pay for other needs. This achieves the objective of restraining energy use without creating the perverse incentives that so f requently drive energy systems off track.
Replacing general energy subsidies with subsidies targeting the energy poor can immediately restrain energy demand without denying those in need. It can go a long way toward laying the foundation for Asian energy security.
Regards,
Bart
Bart W. Édes
Director, Poverty Reduction, Gender and Social Development Division; Officer-in-Charge, Public Management, Governance and Participation Division
Chair, Social Development and Poverty Community of Practice,
Asian Development Bank
