Spend Fossil-Fuel Subsidies on Pandemic Relief and the Poor
Many developing countries have long maintained fuel subsidies because they are politically impossible to abandon, owing to the sticker shock that the public encounters at the pump as soon as prices are floated. But now that oil prices have reached historic lows, this problem has all but disappeared.
JAKARTA/CAMBRIDGE, MASSACHUSETTS – In addition to its health and human toll, the COVID-19 pandemic is threatening to reverse much of the progress that developing countries have made in reducing poverty over the last 20 years. Substantial new spending is needed to protect those hit hardest by the crisis. Like advanced economies, many developing countries have unveiled new or expanded programs to forestall economic collapse and prevent widespread hunger. But, many have not been able to approach the scale of spending seen in the United States and other developed countries. At least 100 countries have already approached the International Monetary Fund for help.
One promising type of financing has not yet received enough attention. The collapse in oil prices represents a unique opportunity to eliminate fossil-fuel subsidies once and for all. This would not only help in the fight against climate change. It would also allow governments to direct more spending to the poor and finance crisis-related debt.
For decades, many countries – from Ecuador to Indonesia – have subsidized gasoline and other fuels, usually by fixing the price paid at the pump. Under this policy, when oil prices rise, the government’s subsidy bill also rises, but the pump price stays the same.