New Study Finds Kerosene Subsidies an Obstacle to Energy Efficiency and Development

In the latest issue of World Development, Evan Mills of the Lawrence Berkeley National Laboratory (USA) publishes an in-depth article about kerosene subsidies impeding progress toward social and development goals.

Used in more than 170 countries, kerosene is often an overlooked form of subsidized energy.  For many, it is the dominant fuel — more than 1B people worldwide have no access to electric lighting and rely instead on dirty alternatives such as kerosene lanterns.

The study found that global subsidies to kerosene have topped $18 billion per year based only on the difference between local retail prices and true market prices, and is nearly $35 billion per year when externality costs from climate change damage and local air pollution are counted.

Approximately 52% of the global kerosene supply receives direct subsidy, or 63% when externality costs are considered. The cooking end use receives $2B per year in direct kerosene subsidies, lighting receives $7.1B per year, and heating and other residual use $9.3B per year, or $76 per over all households each year.

Defining subsidies at this level of granularity is useful for pinpointing policy issues and opportunities. Promoting a transition to efficient off-grid energy services is one of the most cost-effective ways of reducing dependency on subsidies. However, the very presence of subsidies undercuts this process by diluting market price signals and rendering energy efficiency investments less cost-effective, while competing with other social and development-focused budgetary needs.

The study goes on to say that kerosene subsidies are additionally counterproductive because the emerging technologies they impede (e.g., improved lighting and cook-stoves) also improve productivity, safety, and quality of life. Forty-five countries—many in the developing world—have priced kerosene such that there are no direct subsidies. Twenty-two countries have done so even when accounting for environmental externalities, suggesting the practice is economically and politically feasible.

Click here to review the full article.