Lessons Drawn from Reforms of Energy Subsidies

Energy subsidies are “any government action that lowers the cost of energy production, raises the revenues of energy producers or lowers the price paid by energy consumers.” Though designed to shield domestic energy consumers and producers from price volatility, energy subsidies may have negative ramifications: Supply-side subsidies protect producers from competition but distort market prices, fund projects that may not otherwise be viable, deter investment in green energy and discourage energy firms from becoming more efficient. Demand-side subsidies make fuel affordable but disincentivize efficient energy use. In 2009, G20 leaders pledged to “rationalize and phase out over...