The political economy of reforming fossil-fuel subsidies

Climate change concerns and the need to transition to more sustainable energy systems have triggered renewed attention to the ever increasing fossil-fuel subsidies. While the justification for sustaining subsidies is made on economic and social equity ground, there is meager evidence to support their continued use. By contrary, subsidies have been shown to have deep distortionary effects and to reduce the fiscal space for other public spending items (i.e. infrastructure, education, health). Subsidies to fossil-fuels also represent a barrier to large-scale deployment of sustainable energy solutions, leading to a lock-in into fossil-fuel based energy generation. This project examines the challenges and opportunities for reforming fossil-fuel subsidies in a politically and socially acceptable way. Our main focus is on assessing the political economy of enabling and sustaining reform and on identifying suitable policy interventions to reduce negative impacts from increases in energy prices on vulnerable population groups.