Presentations at the conference made it clear that there is a sense of urgency among countries to reverse course on energy subsidies, in part because of the huge fiscal pressures they can create. In some cases governments are spending more than a fifth of their annual budgets to keep fuel and electricity prices at artificially low levels. There is also increasing concern about the overconsumption of fossil fuels due to subsidies and their associated contribution to pollution and greenhouse gas emissions.

“Governments are ready to take action, but reform is difficult and complex,” said Anita Marangoly George, speaking at the conference. “It’s important to take into account economics, as well as timing, social structure, and the political environment.”

Speakers emphasized the importance of taking the right approach to protecting the poor as subsidies are lifted, and ensuring that compensation is handled correctly.

“We have to take into account the long-term impact of fuel price adjustments, since we know that the poor and near-poor will cut health and education spending as a coping mechanism,” said Professor Mohamad Ikhsan of the University of Indonesia. “We also need to make the distinction between ‘painkillers’ – short-term cash handouts – and ‘vitamins’ – long-term social safety nets.”

Another session at the conference focused on public communications and how best to build consensus towards reforms. Participants agreed that government credibility, coordination and clearly articulated rationales for reform are essential ingredients for success.

Other topics covered at the conference included managing price fluctuations, independent regulation of energy pricing, and how best to manage political challenges. Among the country experiences presented at the conference were those of Chile, Indonesia, Iran, Kenya and the Philippines.

The $20 million ESMAP energy subsidy reform facility will support a wide range of activities to help countries ensure that reform efforts are successful and sustainable. These include:

- assessments of the social, economic, environmental and political impact of subsidies, and of reforms;

- support for consensus building through policy dialogue, consultations and communications strategies;

- design of subsidy reform approaches, transition plans, subsidy delivery mechanisms, and social protection measures; and

- support to governments throughout the process of implementation.

Work under the facility has been ongoing at the country level for over a year in the Middle East, East Asia, Central Asia and Latin America and the Caribbean.

In Tajikistan, the facility supported an assessment of how energy deprivation is affecting households, taking a broad look at energy security, affordability and coping mechanisms across different populations in the country. As part of this, it also explored the conditions under which an electricity tariff increase would be acceptable for consumers, and what measures could be put in place to cushion the impact of rising energy expenditure for the poor and vulnerable. In Vietnam, the facility supported work to assess how low carbon development scenarios would impact costs of electricity and the need for future price changes to avoid subsidies.

In addition to supporting country action on subsidy reform, the facility also supports knowledge exchange, encouraging peer learning among client countries on reform approaches, pricing strategies, communications and consensus building, and mitigation measures such as social protection mechanisms.