THE GLOBAL SUBSIDIES INITIATIVEUNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS
AND THE PATH TO REFORM

Strategies for Reforming
Fossil-Fuel Subsidies:
Practical lessons from Ghana,France and Senegal

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM
Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

www.globalsubsidies.org

Page II

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page III

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

Strategies for Reforming
Fossil-Fuel Subsidies:
Practical lessons from
Ghana, France and Senegal
APRIL 2010
PREPARED BY:
Tara Laan, Christopher Beaton and Bertille Presta
For the Global Subsidies Initiative (GSI) of the International Institute for Sustainable Development (IISD),
Geneva, Switzerland.

“Untold billions: fossil-fuel subsidies, their impacts and the path to reform” is a series of papers producedby the GSI with the valuable support of the Royal Norwegian Ministry of Foreign Affairs.

Support for the paper “Gaining Traction: The importance of transparency in accelerating the reform offossil-fuel subsidies” was also generously provided by the United Nations Environment Programme (UNEP).

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page IV

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal© 2010, International Institute for Sustainable Development
IISD contributes to sustainable development by advancing policy recommendations on international tradeand investment, economic policy, climate change and energy, measurement and assessment, and natural
resources management, and the enabling role of communication technologies in these areas. We report oninternational negotiations and disseminate knowledge gained through collaborative projects, resulting in more
rigorous research, capacity building in developing countries, better networks spanning the North and theSouth, and better global connections between researchers, practitioners, citizens and policy-makers.
IISD’s vision is better living for all—sustainably; its mission is to champion innovation, enabling societies to live
sustainably. IISD is registered as a charitable organization in Canada and has 501(c)(3) status in the UnitedStates. IISD receives core operating support from the Government of Canada, provided through the CanadianInternational Development Agency (CIDA), the International Development Research Centre (IDRC) and
Environment Canada; and from the Province of Manitoba. The Institute receives project funding from numerous
governments inside and outside Canada, United Nations agencies, foundations and the private sector.

International Institute for Sustainable Development
Head Office
161 Portage Avenue East, 6th Floor
Winnipeg, Manitoba
Canada R3B 0Y4
Tel: +1 (204) 958-7700
Fax: +1 (204) 958-7710
Web site: www.iisd.org
International Institute for Sustainable Development
Global Subsidies Initiative
International Environment House 2
9 chemin de Balexert
1219 Châtelaine
Geneva, Switzerland
Tel: +41 22 917-8373
Fax: +41 22 917-8054
Web site: www.globalsubsidies.org
Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal
April 2010
By Authors: Tara Laan, Christopher Beaton and Bertille Presta
ISBN: 978-1-894784-37-5

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page V

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

ACKNOWLEDGEMENTS
The authors are grateful for the assistance of Masami Kojima (The World Bank) and Ronald Steenblik (theOrganisation for Economic Co-operation and Development) for their insightful comments on an early versionof this paper. Chris Charles (GSI) provided invaluable support throughout the project and Stuart Slayen (copyeditor) provided helpful guidance on finalizing the paper.
The authors are also grateful for the comments of our peer reviewers:
Andrew Dobbie, U.K. Department of Energy and Climate Change;
Masami Kojima; andBhamy Shenoy, University of Texas at Austin.
Their comments greatly improved the paper. Any mistakes remain the responsibility of the author.
Finally, this effort and the other work of the GSI could not have been undertaken without the generous supportof the governments of Denmark, the United Kingdom, and the William and Flora Hewlett Foundation.
The views expressed in this study do not necessarily reflect those of the GSI’s funders, nor should they be
attributed to them.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page VI

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

TABLE OF CONTENTS
List of acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.1 Background and purpose of paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.2 Outline of the paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

2. Case studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.1 Ghana: if at first you don’t deregulate, try, try again . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2 French coal: the prolonged decline of an inefficient industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.3 Subsidies for LPG in Senegal: successful but not sustainable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

3. Strategies for reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.1 Throughout the reform process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.1.1 Communication and stakeholder strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.1.2 Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.2 Stages of reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.2.1 Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.2.2 Reform objectives and parameters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.2.3 Building a coherent reform strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.2.4 Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.2.5 Monitoring and adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.2.6 Going forward: preventing backsliding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

4. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
About the authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM
Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

LIST OF ACRONYMS
APEC
ASCM
CCT
CdF
CFA franc
CO2
ECSC
ESMAP
G-20
GDP
GHG
GSI
IEA
IISD
IMF
LDC
LPG
NDC
NPA
ODA
OECD
PSIA
SOFIREMSWOT
TOR
UNCTAD
UNDP
UNEP
WTO

Asia-Pacific Economic Cooperation
WTO Agreement on Subsidies and Countervailing Measuresconditional cash transfer
Charbonnages de FranceCentral African franccarbon dioxide
European Coal and Steel Community
Energy Sector Management Assistance ProgramGroup of Twenty countries
gross domestic productgreenhouse gas
Global Subsidies Initiative
International Energy Agency
International Institute for Sustainable Development
International Monetary Fund
least-developed countryliquefied petroleum gas
National Democratic CongressNational Petroleum Authority
official development assistance
Organisation for Economic Co-operation and Development
Poverty and Social Impact Analysis
Société Financière pour favoriser l’Industrialisation des Régions Minières
strengths, weaknesses, opportunities, threats
Tema Oil Refinery
United Nations Conference on Trade and Development
United Nations Development Programme
United Nations Environment Programme
World Trade Organization

www.globalsubsidies.org

Page 7

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 8Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

EXECUTIVE SUMMARY
This report analyzes the experiences of countries that have undertaken reform of their fossil-fuel subsidies
and establishes what lessons can be learned. It focuses in particular on France, Ghana and Senegal, as wellas drawing from case studies of other countriesi and previous work that examines the reform of energy subsidies
and price subsidies.
The study finds that, once in place, fossil-fuel subsidies are extremely difficult to remove. There is no single
formula for success, and country circumstances and changing global conditions must be taken into account.
However, strategies can be identified that contribute to successful reform and respond to individual country
circumstances. There are six important strategies that appear to improve the chances of lasting change:
1. Research: Early research to quantify the subsidy, assess how its costs and benefits are distributed andto estimate the likely effects of its removal (both direct and indirect) help in the drawing up of acomprehensive strategy for reform. In some cases, the findings may be perceived as having added
legitimacy if the research is conducted by independent institutions or international organizations. Thisis also an opportunity to identify stakeholders and take into account their concerns about reform.
2. Establishing reform objectives and parameters: Fossil-fuel subsidies might be reformed for manyreasons, including climate change mitigation, increasing energy efficiency or security, reducing
expenditure or complying with international agreements such as WTO obligations. The clear articulationof objectives helps focus the reform strategy on the highest priorities for de-subsidization and facilitates
the development of appropriate support policies.
3. Building a coherent reform policy: A coherent reform policy is ideally designed with support from a
broad range of stakeholders. It establishes a timeframe for implementation, includes complementarypolicies that offset any undesired secondary impacts (such as welfare support for the poor, programs
to help industries restructure or longer-term strategies to diversify the national energy supply), develops
a communications strategy to assure stakeholders that their interests are being respected, and creates
mechanisms to ensure transparency regarding subsidies and the reform process.
4. Implementation: Reform is not easy and may require several attempts. Implementation may sometimes
be postponed, or successful reforms reversed, due to dramatic changes in world fuel prices.
5. Monitoring, evaluation and adjustment: The best policies are those that can be adapted in light of new
information (Walker, Rahman and Cave, 2001). This requires a continual assessment of the underlying
objectives of the policy as circumstances change. By maintaining a focus on desired outcomes, policies
are more likely to be adapted in ways that support their original purpose.
6. Going forward: The major challenge following successful reform is preventing back-sliding. By making
pricing decisions the function of an independent body and by automatically linking domestic andinternational prices, governments can reduce the pressure to become enmeshed in fuel-price issues
in the future. However, any reform strategy will only be as robust as the political will to uphold it.

iThis paper takes into account findings from four companion case studies developed under IISD’s Trade and Climate Change initiative, whichobserve fossil-fuel subsidy reform in Brazil (de Oliveira, forthcoming), India (Shenoy, 2010), Indonesia (Lontoh et al., forthcoming) and Poland(Suwala, 2010).

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 9Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

1. INTRODUCTION
1.1 Background and purpose of paper
Many countries have attempted to reform their fossil-fuel subsides, with varying degrees of success.1 The
motivations behind these reforms can include a desire to reduce fiscal expenditure, improve energy efficiency
or to reduce air urban pollution and greenhouse gas (GHG) emissions.2 However, if poorly planned andexecuted, the removal of subsidies can cause adverse economic, social or environmental repercussions as aresult of higher energy prices.3 Governments that implement subsidy reform badly will pay a high politicalprice. Successful subsidy reform requires the permanent removal of subsidies, while reducing the short-term
impacts of de-subsidization.
Each country contemplating subsidy reform faces different challenges, depending on the nature of the subsidy
to be reformed, its role in the economy and national circumstances. This paper analyzes the experiences ofthree countries that have undertaken reform of their fossil-fuel subsidies: Ghana, France and Senegal. These
countries do not necessarily provide examples of best-practice—indeed, reform is still incomplete in both
Ghana and Senegal—but useful lessons can be drawn from their experiences nonetheless. The paper also
draws from case studies of other countries4 and previous work examining lessons learned from reform of energy
subsidies (UNEP, 2003) and price subsidies (Gupta et al., 2000). The paper finds that, despite importantdifferences, there are elements of each reform strategy that are consistent across different types of subsidies,
fuels and countries. Policy measures can also be identified that appear to be effective in responding toindividual country circumstances.
Practical lessons from previous reform efforts are particularly relevant given a renewed international interestin phasing out fossil-fuel subsidies. In September 2009 the leaders of the Group of Twenty (G-20) countries
committed to phase out inefficient fossil-fuel subsidies over the medium term to improve energy efficiency
and security, boost investment in clean energy sources and address climate change. This commitment wasechoed by the leaders of Asia-Pacific Economic Cooperation (APEC) in November 2009, which added 11
new countries to the group committing to the phase-out. Implementation of these commitments will require
countries to develop effective reform strategies.
Of course, a less structured path to reform is always possible. Some governments simply “seize the day” whenan opportunity to reform arises, such as when falling prices present an opportunity to remove assistance. However,such reforms are unlikely to result in permanent change unless policies are put in place to prevent backsliding
as decision-makers come under political pressure for renewed subsidization. High oil prices in 2007 and 2008
saw many countries that had deregulated their petroleum markets, such as Ghana, reverse these policies (Kojima,2009). Lasting reform requires ongoing political commitment as well as effective policies.

1

A subsidy is defined here as any government policy that lowers end-user prices or transfers cash to producers, reduces their cost of operations,bears risk or increases their returns. Fossil fuels refer to peat, coal (including lignite, sub-bituminous coal, bituminous coal and anthracite),
petroleum and natural gas (International Energy Agency, n.d.). Consumer subsidies for fossil fuels typically stimulate fuel consumption by industry
or the public. Producer subsidies promote domestic exploration, extraction or refining. See Section 3.1 for further discussion.
2 A full analysis of the impacts of fossil-fuel subsidies may be found in Ellis (2010) and of their political economy in Victor (2009). These papers
are part of the GSI series “Untold billions: fossil-fuel subsidies, their impacts and the path to reform” that can be accessed at
http://www.globalsubsidies.org.
3 Removing fossil-fuel subsidies can cause environmental problems when the price of relatively low-emission fuels, such as natural gas or liquefied
petroleum gas, rise sufficiently to cause consumers to switch to cheaper but relatively high-emission fuels, such as coal or biomass. Increased useof biomass can also contribute to deforestation.
4 This paper has four companion case studies developed under IISD’s Trade and Climate Change initiative. The studies observe fossil-fuel subsidy
reform in Brazil (de Oliveira, forthcoming), India (Shenoy, 2010), Indonesia (Lontoh et al., forthcoming) and Poland (Suwala, 2010). Lessons
learned from these country studies have been taken into account and incorporated in the discussion section of this paper where relevant.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 10Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

1.2 Outline of the paper
The first section of the paper contains three country studies outlining the lessons learned from the reform of
consumer or producer subsidies for fossil fuels. The first case study describes the repeated attempts by the
Ghanaian government to reform the country’s consumer subsidies to gasoline. The most recent concerted
effort at reform took place in 2005, providing time to assess many of its outcomes.
The second case outlines the reform of the French coal sector, which started in the 1960s and officially ended
in 2004 with the closing of the last mine. Taking over 40 years and involving billions of euros in structuraladjustment funding, the reform strategy is not an example that could be followed by many other countries.
However, some principles employed in the strategy—such as the gradual approach to reform and the measures
to reduce impacts on employment and energy supply—provide helpful insights regarding the removal of a
producer subsidy.
The third case study describes Senegal’s repeated efforts to reduce its subsidy for liquefied petroleum gas(LPG). Initially introduced to encourage a transition from environmentally damaging charcoal to cleaner LPG,
the government has found it difficult to remove the subsidy without political backlash and withoutdisadvantaging the poor.
A flow chart maps the observed strategies employed to assist the phase-out of subsidies. These are explainedin the subsequent sections.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 11Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

2. CASE STUDIES
2.1 Ghana: if at first you don’t deregulate, try, try again
In February 2001, the Ghanaian government attempted to liberalize its fuel prices as part of an International
Monetary Fund (IMF) Poverty Reduction and Growth Facility Program. Ex-refinery petroleum prices were raisedby 91 per cent, followed in June by the introduction of an automatic price-setting mechanism. This was
designed to ensure full-cost recovery for Ghana’s already heavily indebted Tema Oil Refinery (TOR). The effecton the poor was cushioned by cross-subsidization of kerosene and LPG, fuels used typically by the poor forcooking and lighting. But by the end of 2002, in the face of rising world oil prices, the supposedly-automatic
pricing mechanism had fallen entirely into disuse and TOR’s debt had continued to increase, equal to 7 percent of Ghana’s GDP (Government of Ghana, 2003).
In January 2003, the government tried again. Once more, sceptics found their fears fulfilled as fuel pricesrose by 90 per cent (Bacon and Kojima, 2006). Real incomes fell on average by 8.5 per cent (IMF, 2006).
And although the government continued their cross-subsidization, the poor were the hardest hit: the bottom
quintile of the population saw average drops in real income of 9 per cent (IMF, 2006).
Unsurprisingly, there was widespread popular opposition to the repeated price rises. Despite committing
themselves to automatic implementation of the pricing mechanism, the government had suspended it by theend of June 2003, “pending an examination of continuing losses by the Tema Oil Refinery… and the public
utilities” (Government of Ghana, 2003). They maintained this policy throughout 2004, citing fear of socialand political instability in the run-up to elections. As the year drew on, the gap between international anddomestic prices continued to widen (IMF, 2004).
Due to unexpected increases in international oil prices, Ghana had spent roughly 2.2 per cent of its GDP
subsidizing fuel throughout 2004 (IMF, 2006). This exceeded the budget of the Ghanaian Ministry of Health(Amoatey, 2006). On top of this, Ghana had continued to support its national refinery, the Tema Oil Refinery,lending it an additional 1 per cent of GDP to finance its operations (Bacon and Kojima, 2006).
The situation was clearly unsustainable. By February 2005, the government was ready to make a third attempt
to deregulate the market. In doing so, it implemented several strategies to improve the chances of success:preliminary research, a communications campaign, mechanisms that were intended to reduce politicalinterference in fuel prices, and policies to assist the poor.
The government commissioned an independent poverty and social impact assessment (PSIA) to assess thewinners and losers from subsidies and subsidy removal. It revealed that Ghana’s rich received the greatest
benefits from subsidies and quantified how and to what extent the poor would be affected by future
deregulation (Bacon and Kojima, 2006). This was an important foundation for persuasively communicating
the necessity for reform and for designing policies to reduce impacts of higher fuel prices on the poor.
The Ghanaian communications campaign began on 3 February 2005 with then-President John Kufuor’s Stateof the Nation address to Parliament. Announcing upcoming decisions on reform, Kufuor stressed his
government’s commitment to the new policies, saying that “with goodwill and sound management, whateverproblems will be encountered within the short term will be surmounted, and the economy will be the healthierfor this policy” (Ghana Web, 2005). Moreover, the money previously spent on fuel subsidies would bereallocated to social priorities. The same message was communicated by Kwadwo Baah-Wiredu, then-Ministerof Finance in a radio broadcast: $25.5 million U.S. would be redirected to help the needy (All Africa, 2005).
Advertisements were taken out in national papers comparing Ghanaian prices with its West African neighbours,

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 12Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

and interviews were held with government and trade-union officials (All Africa, 2005). The findings of the
PSIA, easily accessible, provided the government with an independent confirmation that its policy was in thebest interests of the citizens of Ghana.
The government used a pricing formula again, this time to be administered by a new National Petroleum
Authority (NPA). The intention was to separate the government from the politically sensitive process of setting
prices, and to make it more difficult for future governments to intervene in fuel pricing (IMF, 2006). The
reasoning behind the pricing formula was made transparent through publication of the components of theprice of gasoline at the pump (Amoatey, 2006):• 53 per cent was the cost of purchasing and processing raw crude;• 10 per cent was Excise Duty;• 8 per cent represented the dealer’s and marketer’s profit margins;• 8 per cent went to the Debt Refinery Levy, to pay the Tema Oil Refinery’s debt;• 7 per cent went to the Road Fund Levy, to pay for road maintenance;• 6 per cent went to the Cross-subsidy Levy to maintain cheaper prices for kerosene, LPG and several
other fuels;• 5 per cent went to the Deregulation Mitigating Levy, to minimize the impact of increased prices on
the poor;• 2 per cent went to the Unified Petroleum Fund, which helps distribute petroleum fuels to rural
areas; and• 1 per cent went to pay for Ghana’s six-week emergency reserve petroleum supply.
Of these, the Deregulation Mitigating Levy and the Unified Petroleum Fund were new contributions, intended
to demonstrate the government’s commitment to reduce the effects on the nation’s poor.
The government took several steps to financially assist the the poor to compensate for higher energy prices
resulting from de-subsidization: it eliminated fees for state-run primary and secondary schools; increased thenumber of public-transport buses; put a price ceiling on public-transport fares; channelled extra funds into a
health-care scheme for poor areas; raised the daily minimum wage from $1.24 to $1.50 U.S.; and started
programs to help spread electrification to rural areas and purchase essential equipment for workers (Coady etal., 2006; Ghana Web, 2005; IMF, 2006). It also continued its previous policy of cross-subsidizing kerosene
and LPG.5
The policies remained in place for several years. However, when oil prices soared in 2007 and 2008, Ghanaabandoned its policy of tracking domestic with international prices and froze its price ceilings between May
and November 2008 (Kojima, 2009). During this time, the government continued to subsidize fuel, crosssubsidizing other fuels with revenues from taxes on gasoline, and even supplemented the cross-subsidies withadditional funds.6 The intervention in fuel prices contributed to a high fiscal deficit for the Ghanaian
government in 2008 (Allum, 2009).

5

Cross-subsidization refers to the practice of using profits generated from one product or service to support another provided by the same operating
entity (OECD, 2002). In Ghana’s case, The government taxes automotive gasoline at a higher rate than other fuels in order to use these profits to
reduce the prices of gas oil (diesel), kerosene, LPG, premix (a type of gasoline for fishing boats), marine diesel and residential fuel oil.
6 The National Petroleum Authority Web site (http://www.npa.gov.gh/petroleum-prices/) provides the price build-up for fuel in Ghana by month,including the amount of cross-subsidy. Drawing on these figures and the consumption levels of each fuel type (also provided on the NPA Web site),
it is apparent that the government is providing a net fuel subsidy.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 13Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

Despite the decline in world prices after July 2008, energy prices became a campaign issue during the 2008
elections in Ghana. The then-opposition party, the National Democratic Congress (NDC), promised to reduce
fuel prices if it came to power. In early 2009, having won the election, the NDC fulfilled its election promiseby reducing fuel taxes. By March 2009 fuel prices in Ghana were more than 45 per cent below corresponding
fuel prices in neighbouring countries, leading to a dramatic increase in fuel consumption and smuggling outof the country (The Chronicle, 2009).
Partially as a result of selling fuel at subsidized prices, the accumulated debt of the Tema Oil Refinery
continued to increase and the refinery was forced to suspend operations in February 2009 (Reuters Africa,2009). By October 2009, its debt had reached around $660 million U.S., the majority of which was owed to
the Ghana Commercial Bank (Reuters Africa, 2009). The government appointed the Pan-African bank,Ecobank, to arrange a $600 million U.S. credit facility to refinance half of the debt owed to Ghana Commercial
Bank and use the other $300 million U.S. to strengthen the refinery’s balance sheet. TOR resumed operationsin October 2009 (Reuters Africa, 2009). The government has continued its cross-subsidization policy.

Discussion
The government’s 2005 reform policies were successful by several measures. Communication andcompensation strategies improved public acceptance of the price increases: the street protests associatedwith the 2003 reforms were not repeated in 2005 (All Africa, 2005). After an initial rise of 50 per cent,gasoline prices were raised several times during the remainder of the year in response to higher world prices.
Quarterly price adjustments were replaced by monthly price adjustments in 2006 to better link domestic withinternational prices (Coady et al., 2006), although one unforeseen consequence of regular price changes wasthat suppliers hoarded fuel in advance of a price rise, causing temporary shortages.
That Ghana chose to continue its cross-subsidization of kerosene and LPG was a critical flaw in its reform
strategy. Subsidizing liquid fuels can lead to misappropriation, as non-target groups access the fuel and mix
it with transport fuels for their vehicles. In Ghana this became common practice when the price of subsidized
kerosene fell significantly below that of diesel, creating shortages of kerosene.
Most problematic was the government’s lack of commitment and political support to maintain the reform it
had introduced. The National Petroleum Authority is evidently not independent in any meaningful sense given
the government’s intervention in fuel prices in 2008. The fuel-pricing structure continues to be reported
publicly but can no longer be considered transparent because of the arbitrary levels of cross-subsidization
and additional unspecified supplementary subsidies. A 2009 IMF report noted that the government intends
to address the cost of energy subsidies with bi-weekly price adjustments for petroleum pricing, which aredesigned to ensure cost recovery for the oil refinery and bulk importers (IMF, 2009a). However, suchadjustments are unlikely to be effective if cross-subsidies are subsequently applied that result in a net costto government.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 14

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

BOX 1: ELEMENTS OF THE 2005 REFORMS OF PETROLEUM SUBSIDIES IN GHANA:• Research was conducted to identify those most likely to be impacted by reform.
• A communications strategy was employed to increase popular support.
• Semi-independent and transparent institutions were established to manage fuel pricing.
• Domestic prices were linked with international prices.
• Policies were implemented to reduce impacts on the poor.

Lessons learned:
The policies employed to ease the removal of subsidies were only partially and temporarily successful.
The price-setting regime proved to be only as robust as the political will behind it, demonstrating thatgovernments will be tempted to intervene in fuel pricing for political reasons. A completely independent
pricing board is difficult to achieve. Governments can always override the regulator’s decisions and laws
can be changed. Automatic linking of domestic and international prices, without subsequent crosssubsidization, is necessary to prevent ongoing politicization of fuel prices.

2.2 French coal: the prolonged decline of an inefficient industry
Following the end of World War II, French coal mines were nationalized and managed by the state authority
Charbonnages de France (CdF) because of the key role that coal was expected to play in the reconstructionof the French economy. CdF’s first objective was set in April 1946 by the passing of the Monnet Plan: by
1950 France was expecting to produce 65 million tonnes of coal a year from domestic mines and from themines in the Ruhr and Saar areas of Germany over which France had assumed control (Charbonage de France,n.d.). To achieve this goal, the whole sector was heavily subsidized: mining sites were mechanized with help
from the state, the status of miners was greatly enhanced in order to attract workers to the industry (e.g.,through higher salaries and benefits in kind)7 and product prices were controlled. By 1957, CdF was employing
350 000 people. But its golden age did not last long. That same year, the Saar and Ruhr were re-unified withGermany, and French stocks of unsold coal rose to almost 8 million tonnes. The government’s objective shiftedto reducing production.
France’s decision to gradually reduce government intervention in the sector was a multi-faceted one. It canpartly be attributed to the 1951 formation of the European Coal and Steel Community (ECSC), from which
the European Union would eventually emerge. The creation of a common market for coal and steel was
intended to prevent further conflict among European nations, but it also meant that trade between members
had to be fair, allowing no “discriminatory measures or practices, subsidies, aids granted by States or special
charges imposed by States and restrictive practices” (Europa, 2005). In fact, significant government
assistance was still permissible for the retraining of workers released from service, and for research, hence
the continued magnitude of the French and German coal sector subsidies (European Commission, 2007).
Nonetheless, the ECSC, later followed by the European Social Fund and the European Regional Development
Fund, helped drive the continuing trend towards deregulation.

7

In 1946, a decree regarding miners’ status was passed. For more information see Statut du Mineur (1946).

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 15

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

The process started in the 1960s with the Jeanneney Plan. Coal production targets were to be reduced from59 million to 53 million tonnes by 1965 and a decree was passed anticipating the closing of several minesin the near future. In 1967, CdF set up the Société Financière pour favoriser l’Industrialisation des Régions
Minières (SOFIREM), a special fund created to promote investment in the mining regions, retrain workers
and encourage entrepreneurship, and support the establishment of new businesses, industrial zones andentities responsible for local economic development.
The Bettencourt Plan in 1968 decided production should be further reduced to 25 million tonnes by 1975.
Despite large-scale strike action and some policy vacillation in response to the energy crisis of the 1970s, anumber of pits were closed during that decade.
The decline in French coal production led to worries about excessive energy dependency—between 1973
and 1974, the six countries in the European Coal and Steel Community were importing two-thirds of theirprimary energy needs, compared with only 15 per cent in 1953 (Federation Nationale de l’Energie et desMines, n.d.). As mining prices rose and France became more dependent on imports, a decision was taken toinvest massively in nuclear energy, commencing in the 1950s (Vie Publique France, 2004).8 France’s energy
sources changed significantly as national coal was gradually replaced by nuclear energy, hydroelectric power,
petroleum products and natural gas.9
French coal reserves became more and more exhausted. Remaining deposits were increasingly costly to mine.
Following the liberalization of prices in 1978, the government had to provide more and more support to keep
French coal competitive with imports. By 1982, the average price of a tonne of French coal was 665 francs,
compared with only 420 francs for an imported tonne (Nodin, n.d.).
In 1994, the Pacte charbonnier agreed on a schedule for the closure of all remaining mines. The Pacte also
supplemented the work of SOFIREM and its subsidiaries by establishing generous incentives for workers toleave the industry. Upon reaching 45 years of age, workers with at least 25 years of service became eligible
for “conge” (leave), during which they would receive 80 per cent of their final working salary until retirement(Marie-Claire, 2005).
Between 1971 and 2000, the state spent around 35 billion EUR on restructuring the coal sector and CdF
accumulated 5.5 billion EUR of debt to which could be added 7.7 billion EUR of “special agreements” for its
staff, such as free housing and transportation (Philippon, 2004). The last mine, La Houve in Lorraine, wasclosed in 2004 (Charbonage de France, n.d.). In total, it took over 40 years for CdF to extricate the government
from the mining sector. Over that time period, SOFIREM helped create 98 000 jobs and, since 2007 alone, it
has provided more than 8 million EUR in unsecured loans backed by its own equity capital (SOFIREM, 2008).
Today, the national agency for guaranteeing the rights of miners, the Agence Nationale pour la Garantie desDroits des Mineurs, continues to offer social support to over 200 000 people. Its activities require state
support of around 700 million EUR a year, an amount that will decline over time as former miners age anddie. More recently, government assistance in the coal sector has extended to protection of the environment.
The reclamation of mining sites is now considered a priority, involving the rehabilitation of landscapes, thetreatment of polluted groundwater, and improved security around abandoned mine sites. The health of former
miners has also received increased attention.

8

The entire non-military costs of the French nuclear power program from 1970 to 2000 was about 1.5–1.6 trillion 1998-equivalent Frenchfrancs—some 230 billion EUR, or $330 billion U.S., based on 2008 exchange rates (Grubler, 2009). The extent of subsidization is unclear, asFrance has adopted subsidies that attempt to make the new plants appear financially viable and has not published enough information to facilitate
calculation of the level of public support (Subsidy Watch, 2009).
9 By 2000, nuclear energy was providing 78 per cent of France’s electricity needs, hydroelectric generation 11 per cent and coal only 4 per cent
(IEA, n.d.).

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 16

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

Discussion
A gradual approach to subsidy reform can minimize social unrest, but France’s experience with its coalindustry shows that slow change can create its own problems. In this case, the reform process lasted as longas the normal working life of those who had just entered the workforce when the first downsizing plan wasannounced. This situation is not unique to France. In Poland, for example, reform of the coal-mining sector
also took many years and required billions of euros in assistance to affected workers (Suwala, 2010).
Coal was still a crucial source of energy at the start of the reform and therefore a dialogue was created fromthe outset among the government (through national, regional and local representations), the European
Commission, CdF and trade unions in order to minimize the impact on sectors directly or indirectly concerned.
Most of the reforms resulted from these consultations. The 1994 consultations, which resulted in the Pacte
charbonnier, are one example of such beneficial dialogue.
While compensation can help displaced workers as they search for new employment, the French example
suggests that the principle can be taken too far. Assistance to working-age employees should provide themwith skills and new employment opportunities, but be limited in time. Otherwise, payments run the risk of
becoming long-term burdens on state finances. Such considerable expenditure may have been tolerated in
France because it provided a form of regional assistance to depressed coal-mining communities.
The diversification and substitution of energy sources is, in theory, a logical policy to pursue while reforming
coal subsidies. However, there will be little economic advantage if this involves merely shifting subsidies fromcoal to nuclear power.

BOX 2: ELEMENTS OF THE REFORM OF COAL SUBSIDIES IN FRANCE:• Those likely to be negatively affected by reform were identified early in the process.
• The overarching concern of those implementing reform was to minimize adverse economic impacts
on workers and their local communities.
• A long-term, gradual approach was taken that enabled the miners and the economy to adapt.
• In parallel, the government encouraged the diversification of energy sources so as to replacedeclining domestic coal supplies with other domestically produced electricity sources.

Lessons learned:
French deregulation of its coal sector is not an example of best-practice, as it required over 40 years tocomplete and billions of euros from the French government to underwrite structural adjustment. Only
wealthy countries like France can afford to pay such large subsidies over a long period to support theworkforce of a single industry. However, the case study provides an illustration of good principles forreforming producer subsidies.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 17Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

2.3 Subsidies for LPG in Senegal: successful but not sustainable
In the past decades, Senegal has engaged in multiple reforms of its energy policies and subsidization
programs. In the 1970s, its goal was to decrease deforestation by substituting part of the charcoal consumed,
especially in urban areas, with LPG (Sokona and Deme, 2004).10 To implement this change, the Senegalese
government subsidized LPG through exemptions of customs duties on cooking equipment designed to operate
on LPG.
By 1988, the government considered that too few consumers had switched away from charcoal and it began
subsidizing the LPG fuel itself (Fall et al., 2008). Prices were set by the government for four sizes of gas
cylinders: 2.7 kilograms, 6 kilograms, 9 kilograms and 12.5 kilograms. Only the two smaller gas bottles weredirectly subsidized. The price structure for the subsidized LPG cylinders comprises the price on importation,a base tax, port fees, the subsidy, a wholesaler margin, a distributor margin and a value-added tax.
The LPG subsidy became a growing fiscal burden and, by the late 1990s, the IMF recommended that it beremoved (Sokona and Deme, 2004). A law was adopted in March 1998 that called for gradually reducing
LPG subsidies in annual increments of 20 per cent, beginning on 1 July 1998, in accordance with IMF
guidelines. However, government plans to phase out subsidies by 2002 were put on hold due to negotiations
within the West African Economic Union over harmonization of economic policies. Price controls continued,
with the government switching between taxing and subsidizing the 2.7 kg and 6 kg LPG cylinders to keep
end-user prices constant, sometimes for years at a time (Figure 1).
Changes in exchange rates and international LPG prices caused the cost of the subsidy component of theprice structure to vary, whereas general price inflation only increased subsidies (Figure 2). In 2005 and 2006,
the cost of subsidizing the consumption of LPG was, respectively, 0.2 per cent and 1.4 per cent of GDP.

FIGURE 1: END-USER PRICES FOR SUBSIDIZED AND NON-SUBSIDIZED LPG GAS CYLINDERS IN
SENEGAL (CFA FRANCS), 2001 TO 2010
10 000
9 000
8 000
7 000
6 000
5 000
4 000
3 000
2 000
1 000
0
01/01/01

2.7 kg
6 kg
9 kg
12.5 kg01/01/02

01/01/03

01/01/04

01/01/05

01/01/06

01/01/07

01/01/08

01/01/09

01/01/10

Notes: 2.7 kg and 6 kg cylinders are subsidized. 9 kg and 12.5 kg cylinders are not.
Source: Authors’ graph based on data collected from Government of Senegal (various years).

10

LPG can include mixes that are primarily butane or propane, or more commonly, a mixture of both in roughly equal proportions. LPG is the term
used in this paper, although previous studies have referred to butane. These terms can be used interchangeably in Senegal, where LPG iscomprised primarily of butane.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 18

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

FIGURE 2: SUBSIDY-COST (CFA FRANCS) PER TONNE FOR 2.7 KG AND 6 KG LPG CYLINDERS FROM
2001 TO 2009, AS REPORTED BY THE SENEGALESE GOVERNMENT
350 000

300 000

250 000

200 000
2.7 kg6 kg

150 000

100 000

50 000001/01/01

01/01/02

01/01/03

01/01/04

01/01/05

01/01/06

01/01/07

01/01/08

01/01/09

01/01/10

Source: Authors’ graph based on data collected from the Government of Senegal (various years).

The subsidy program—in addition to a policy that allowed charcoal policies to rise—resulted in the widespread
adoption of LPG stoves. A 2004 survey of 300 households found that LPG was used by more than 85 percent of households in all income quintiles in rural, peri-urban and urban areas (Prasad, 2006).11 Sokona andDeme (2004) found that nearly 85 per cent of the population in the capital, Dakar, had adopted LPG stoves
but the take-up was lower (66 per cent) in the other main urban areas. In other towns, LPG remained a backup fuel to charcoal and wood.
According to estimates provided by the Ministry of Energy, the growth in LPG use resulted in the avoided
consumption of about 70 000 tonnes of wood -fuel and 90 000 tonnes of charcoal annually. This is equivalent
to 700 000 m3 of wood per year, which represented a decrease of 15 per cent in the rate of deforestation(Sokona and Deme, 2004).
Evidence emerged that subsidies were benefiting wealthier citizens more than poor ones. The government
had assumed that wealthier households would favour the larger (but unsubsidized) 12.5 kilogram bottle.
Instead, they used the subsidized bottles while poorer households, particularly in rural areas, were unable toafford LPG and continued to use wood and charcoal. In 2008, the IMF found that the 40 poorest per cent of
the population gained only 19 per cent of the total improvement in welfare from the LPG subsidy, while therichest 40 per cent gained 61 per cent (IMF, 2008).
The IMF study found that Senegal’s tax exemption for kerosene was benefiting the poor more than the LPG
subsidy. Poorer households, particularly those in rural areas, were continuing to use charcoal and firewood forcooking but used kerosene for lighting. Smuggling of subsidized LPG from Senegal into neighbouring counties
also led to leakage of the benefits of the subsidy to unintended recipients (Diouf, 2009).

11

The results show that households used the fuel, not the extent of consumption relative to other fuels. LPG was one of nine fuels reported to be
used by households Senegal. While 85 per cent of households used LPG, 93 per cent also used charcoal and 54 per cent used firewood, among
other energy sources.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 19

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

The government made repeated commitments to remove the subsidy and in June 2009 stated in a Letter ofIntent to the IMF that the subsidy would be eliminated by the end of that month (Sow, 2009). Since then,prices for the 2.7 and 6 kilogram LPG bottles have risen and the government claims that these price changes
are in line with its commitment to remove the subsidy. The government-reported subsidy level has also dropped
to zero (Figure 2). However, media reports indicate that the official prices for these bottles remain significantly
below their true market price (Diouf, 2009; African Manager, 2009).

FIGURE 3: USE OF LPG IN SENEGAL AND THREE OTHER COUNTRIES,ACROSS FIVE INCOME QUINTILES

100
90
80
70
60
50
40
30
20
10
0

Q1
Q2
Q3
Q4
Q5

Botswana

Ghana

SenegalHonduras

Notes:
1. Q1 is the lowest income quintile and Q5 the highest. The data were obtained from 2004–05 household surveys of energy use in urban, peri-urban
and rural households.
2. The results show only that households responded that they used the fuel, not the extent of consumption relative to other fuels.
Source: (Prasad, 2006)

Discussion
LPG subsidies have been in place in Senegal for over 30 years, helping to create new patterns of energy
consumption. LPG stoves are cleaner and more convenient for cooking than charcoal stoves. The LPG subsidy
program, which created strong incentives to switch from charcoal to LPG, yielded large environmental
benefits—reduced household pollution and reduced pressure on forests—and therefore met its initial
objectives, at least in urban areas.
And yet the policy also led to an unsustainable fiscal burden, disproportionate benefits for the relatively richand fuel smuggling. On the other hand, removal of the subsidy risks an increase in the use of charcoal andfirewood by some households. The government has attempted to reform the subsidy for over a decade andhas made little headway. These are not the outcomes of a successful policy.
What could Senegal do better in the future?

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 20

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

Transition policies: The Senegalese government put few policies in place to ease the transition away fromsubsidies. The packages of measures used by Ghana and France are not evident in Senegal: i.e., research toidentify those most-likely to be negatively impacted by de-subsidization, information campaigns about thebenefits of reform, cash transfers to the poor, and greater independence and transparency of fuel prices. Suchmeasures could improve the chance of successful reform in the future.
Disincentives to revert to charcoal and firewood: The government’s initial policy objective was to encourage atransition away from charcoal. Disincentives for the use of charcoal and wood, rather than fuel subsidies,would be a more direct way to address this goal. Earlier in the program to encourage LPG use, the government
reduced charcoal production quotas and increased wood-cutting licence fees (Sokona and Deme, 2004). The
effectiveness of these policies is not known, although the IMF finding of continued widespread use of charcoal
and firewood for cooking suggests that further measures may be required to prevent deforestation. A program
to promote the use of sustainably harvested wood fuel is reported to have helped to reduce the effect of LPG
de-subsidization on deforestation (The World Bank, 2007). In addition, “green charcoal” made fromagricultural waste is being tested in Senegal and offers a cheap alternative to charcoal from forests (All Africa,2009).
Alternative measures to assist the poor: The 2008 IMF study that found that Senegal’s tax exemption forkerosene was benefiting the poor more than the LPG subsidy and considered the option of shifting subsidies
from LPG to kerosene in rural areas (IMF, 2008). However, as illustrated by Ghana’s experience, subsidized
kerosene is often used to adulterate diesel and therefore is easily diverted to non-intended uses and recipients.
Following the recommendations of the IMF’s Poverty and Social Impact Analysis (PSIA), the government
requested technical expertise from the World Bank to assess the feasibility of a program of conditional cashtransfers (CCTs) to the poorest households. Their estimates showed that CCTs would be more cost effective inreaching the poor than the current tax exemption on kerosene and the LPG subsidy. The IMF has estimatedthat if a CCT were to target the poorest 10 per cent of the population, 58 cents of each dollar spent would
reach people in the poorest quintile of the population compared with only 22 cents from the excise tax
exemption for kerosene and only 6 cents for the LPG gas subsidy (IMF, 2008). A gradual rollout of the CCT
would facilitate monitoring and controlling of the fiscal cost and the effectiveness of targeting. Existing
structures such as retirement homes, hospitals and schools could be used to distribute transfers, via payments
made through banks, post offices or private companies.
There is no guarantee that households would spend the cash transfers on “clean” fuels. Policies to discourage
the use of wood and charcoal would be required in conjunction with a CCT program.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 21

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

BOX 3: ELEMENTS OF THE REFORM OF LPG SUBSIDIES IN SENEGAL:• A phased reduction of the subsidy in annual increments of 20 per cent was started in 1998 but
suspended in 2002. These reductions were undermined by increasing global LPG prices, exchange
rate variations and inflation, resulting in continuing high subsidies.
• Programs were created to discourage the use of charcoal and wood fuel.

Lessons learned:
Research is required to identify the populations most likely to revert to charcoal use or to be otherwise
disadvantaged by subsidy reform. These groups could be targeted through cash transfers that allow
recipients to buy cleaner fuels when they are available or spend the funds on other priorities, such as
food, health or education. Disincentives for the use of charcoal and wood fuel would be needed inconjunction with a cash transfer program to decrease the potential switch of householders back to
charcoal and biomass fuels. Disincentives would be a more direct way to reduce deforestation fromthese activities rather than through subsidizing LPG or kerosene.
Success would be assisted by developing a reform strategy based on the research findings of the IMF’s
2008 study, which identified recipients and non-recipients of the fuel subsidies and alternatives toassist target groups.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 22

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

3. STRATEGIES FOR REFORM
Analyzing the above case studies and other examples of the removal of fossil-fuel subsidies suggests several
important elements that appear to improve the chance of successful subsidy reform. These have been broadlygrouped into six categories, which are set out in Figure 4. The key features of each stage of reform are also
outlined, which are then described in detail in the following text.

FIGURE 4: ELEMENTS OF SUCCESSFUL STRATEGIES FOR REFORMING FOSSIL-FUEL SUBSIDIES!"#$%&%'()*#++!!,&&%&&#-*%#.'-/(%#01#-*%#&/2&345#-0#2%#(%10(6%47#3-&#0(383.'9#02:%);<%&#'.4#)/((%.-#(09%#3.#-*%#,&&%&&#-*%#.'-/(%#01#-*%#&/2&345#-0#2%#(%10(6%47#3-&#0(383.'9#02:%);<%&#'.4#)/((%.-#(09%#3.#-*%#%)0.065#%)
0.065#,&&%&&#*0=#-*%#&/2&343%&#*'<%#'(3&%.#0(#*'<%#2%%.#%>')%(2'-%4#++!!,&&%&&#*0=#-*%#&/2&343%&#*'<%#'(3&%.#0(#*'<%#2%%.#%>')%(2'-%4#,.'95?%#-*%#%)0.063)7#@093;)'97#&0)3'9#'.4#%.<3(0.6%.-'9#)0.-%>-#01#(%10(6#++!!,.'95?%#-*%#%)0.063)7#@093;)'97#&0)3'9#'.4#%.<3(0.6%.-'9#)0.-%>-#01#(%10(6#++!!A4%.;1
5#-*%#@093;)'9B%)0.065#3&&/%&7#3.)9/43.8#&/2&345#(%)3@3%.-&#'.4#.0.B(%)3@3%.-&#'.4#0-*%(#
A4%.;15#-*%#@093;)'9B%)0.065#3&&/%&7#3.)9/43.8#&/2&345#(%)3@3%.-&#'.4#.0.B(%)3@3%.-&#'.4#0-*%(#&&-'C%*094%(&#-'C%*094%(&#++!!D'C%#(%&/9-&#01#(%&%'()*#@/)*#@/293)###@/293)## 0#36@(# @ 0<%#/.4%(&-'.43.8#01#-*%#(
8## # #(
# ';0.'9%#10(#(%10(6#D'C%#(%&/9-&#01#(%&%'()*#@/293)#-0#36@(0<%#/.4%(&-'.43.8#01#-*%#(';0.'9%#10(#(%10(6#A4%.;15##&-'C%*094%(&#'.4#)0.&/9-#+!,(;)/9'+!
,(;)/9'-%#-*%#02:%);<%&#01#(%10(6#-%#-*%#02:%);<%&#01#(%10(6#++!!,&&%&&#-*%#@0%.;'9#%)0.063)7#&0)3'9#'.4#%.<3(0.6%.-'9#36@')-&#01#(%10(6#,&&%&&#-*%#@0-%.;'9#%)0.063)7#&0)3'9#'.4#%.<3(0.6%.-'9#36@')-&#01#(%10(6#G0.&34%(#-*%#9363-&#0.#(%10(67#3.)9/43.8#1/.43.8#'<'39'29%#10(#@093)3%&#-0#%'&%#-*%#-('.&3;0.#-0#4%B++!!G0.&34%(#-*%#9363-&#0.#(%10(67#3.)9/43.8#1/.43.8#'0( ### <'39'29%#1#10(#@093)3%&#0(#@093) # 0#%'&%#-*%#-('.&3;0.#-0#4%B
0(#@093)3%&#&/2&343?';0.#&/2&343?';0.#E"#F2:%);<%&#'.4#
5#%>-%(.'9#)0.&-('3.-&7#&/)*#'&#40.0(#(%H/3(%6%.-&#0(#3.-%(.';0.'9#02938';0.&#,&&%&&#'.5#%>-%(.'9#)0.&-('3.-&7#&/)*#'&#40.0(#(%H/3(%6%.-&#0(#3.-%(.';0.'9#02938';0.&#@'('6%-%(&#01#(%10(6# ++!!,&&%&&#'.

++!!K%
K%-%(63.%#-*%#;6%#@%(304#0<%(#=*3)*#(%10(6#3&#-0#-'C%#@9')%7#2'&%4#0.#'<'39'29%#(%&0/()%&#'.4#93C%95#-%(63.%#-*%#;6%#@%(304#0<%(#=*3)*#(%10(6#3&#-0#-'C%#@9')%7#2'&%4#0.#'<'39'29%#(%&0/()%&#'.4#93C%95#&&-'C%*094%(#(%&@0.&%#-'C%*094%(#(%&@0.&%#++!!K%&38.#-('.&3;0.'9#6%'&/(%&#-0#(%4/)%#36@')-&#0.#'L%)-%4#3.4/&-(5#'.4#)0.&/6%(&7#'&#=%99#'&#%>3-#
K%&38.#-('.&3;0.'9#6%'&/(%&#-0#(%4/)%#36@')-&#0.#'L%)-%4#3.4/&-(5#'.4#)0.&/6%(&7#'&#=%99#'&#%>3-#&&-('-%83%&#10(#-*%&%#6%'&/(%&##-('-%83%&#10(#-*%&%#6%'&/(%&##<%90@#'#)066/.3)';0.&#&-('-%85#
K%<%90@#'#)066/.3)';0.&#&-('-%85#
I"J/3943.8#'#)0*%(%.-# ++!!K%(%10(6#@093)5#++!!M.&/(%#-('.&@'(%.)5#(%8'(43.8#&/2&345#9%<%9&#'.4#&-('-%83%&#1#10(#4%B&/2
0(#4%
0(#4%B&/2&343?';0.#M.&/(%#-('.&@'(%.)5#(%8'(43.8#&/2&345#9%<%9&#'.4#&-('-%83%&#10(#4%B&/2&343?';0.#++!!M.&/(
M.&/(%#-*'-#-*0&%#)*'(8%4#=3-*#36@9%6%.;.8#-*%#(%10(6#&-('-%85#'(%#4%-%(63.%4#-0#)'((5#3-#-*(0/8*7#%#-*'-#-*0&%#)*'(8%4#=3-*#36@9%6%.;.8#-*%#(%10(6#&-('-%85#'(%#4%-%(63.%4#-0#)'((5#3-#-*(0/8*7#%%<%.#31#3-#-'C%&#6'.5#5%'(&#<%.#31#3-#-'C%&#6'.5#5%'(&#++!!G066/.3)
G066/.3)'-%#-0#'L%)-%4#8(0/@&#'.4#-*%#8%.%('9#@/293)#-*%#.%)%&&3-5#01#(%10(67#-*%#&-('-%85#'.4#-*%#'-%#-0#'L%)-%4#8(0/@&#'.4#-*%#8%.%('9#@/293)#-*%#.%)%&&3-5#01#(%10(67#-*%#&-('-%85#'.4#-*%#>@%)-%4#2%.%O-&##
N"#A6@9%6%.-';0.## %%>@%)-%4#2%.%O-&##

P"#D0.3-0(3.8#'.4#%<'9/';0.#01#(%10(6#Q"#R03.8#10(='(4##V-'C%*094%(#)0.&/9-';0.#K%<%90@#'.4#
36@9%6%.-#)066/.3)';0.#&-('-%83%&#++!!D0.3D0.3-0(#-*%#36@')-&#01#(%10(67#)*%)C3.8#'8'3.&-#-*%#3.3;'9#02:%);<%&#'.4#10(#/.3.-%.4%4#.%8';<%#
0(#-*%#36@')-&#01#(%10(67#)*%)C3.8#'8
0 ## '3.&-#-*%#3.3;'9#02:%);<%&#'.4#10(#/.3.-%.4%4#.%8';<%#))0.&%H/%.)%&#
0.&%H/%.)%&#,4:/&-#-*%#@093)3%&#'&#.%)%&&'(57#2'&%4#0.#02&%(<%4#36@')-&#++!!,4:/&-#-*%#@093)3%&#'&#.%)%&&'(57#2'&%4#0.#02&%(<%4#36@')-&#++!!MM&&-'293&*#3.4%@%4%.-#3.&;-/;0.&#'.4#'/-06'-%4#@(3)%B&%S.8#6%)*'.3&6&#-0#43&-'.)%#-*%#-'293&*#3.4%@%4%.-#3.&;-/;0.&#'.4#'/-06'-%4#@(3)%B&%S.8#6%)*'.3&6&#-0#43&-'.)%#-*%#
80<%(.6%.-#1(06#-*%#&/@@95#'.4#@(3)3.8#01#%.%(85#
80<%(.6%.-#1(06#-*%#&/@@95#'.4#@(3)3.8#01#%.%(85#+!
+!MM.&/(.&/(%#-*'-#-*%#80<%(.6%.-T&#3.<09<%6%.-#3.#-*%#%.%(85#&%)-0(#3&#-('.&@'(%.-#'.4#'))0/.-'29%##%#-*'-#-*%#80<%(.6%.-T&#3.<09<%6%.-#3.#-*%#%.%(85#&%)-0(#3&#-('.&@'(%.-#'.4#'))0/.-'29%##+!U
U((060-%#8(%'-%(#)0.-%&;2393-5#01#%.%(85B(%9'-%4#4%)3&30.&7#&/)*#'&#'))%&&#-0#(%&0/()%&##
060-%#8(%'-%(#)0.-%&;2393-5#01#%.%(85B(%9'-%4#4%)3&30.&7#&/)*#'&#'))%&&#-0#(%&0/()%&##+!

www.globalsubsidies.org

F.803.8#)066/.3)';0.#'.4#)0.&/9-';0.#THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 23

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

3.1 Throughout the reform process
3.1.1 Communication and stakeholder strategies
Clear communication with stakeholders and the public appears to be a key element of an effective reform
strategy. If stakeholders participate in the decision-making process from the beginning, opposition to subsidy
reform can be addressed early and taken into account in designing policies to ease the transition. Publicawareness campaigns help citizens to understand why reform is necessary and how their money can be
redirected to other services, or returned to them in the form of lower taxes. In addition, some promotion of
the benefits of reform can be necessary to counteract campaigns by lobbyists that publicize the negative
impact of reform on jobs, affected communities or financial services to the poor.
In the case of Ghana’s 2005 reforms, a clear communication strategy highlighting the positive results ofsubsidy reform and the negative consequences of inaction played a major role in muting protests. The
involvement of the President in announcing the reforms signalled a high-level commitment, particularly
because his government had recently won a national election and hence enjoyed a high level of legitimacy.
There was also a clear message that funds previously devoted to subsidies would be spent on social priorities(Ghana Web, 2005). A campaign followed the announcement, including radio broadcasts, interviews andadvertisements in national newspapers. The research findings supporting the decision to reform were madepublic. As a result, price increases in 2005 were met with only minor protests.

3.1.2 Transparency
Information regarding fossil-fuel subsidies is often hidden, as support can be provided by multiple jurisdictions,departments and in many different forms. Even when presented in fiscal accounts, they can be difficult toisolate (IMF, 2008).
Protocols to improve transparency in subsidy policy help reform efforts by increasing accountability in public
expenditure and allowing better monitoring of the subsidy over time, its recipients, and the identification ofpolitical and economic relationships (see Laan, 2010, for a discussion of the role of transparency in reformof fossil-fuel subsidies). Public information also allows for an independent assessment of the costs and benefitsof a subsidy policy, particularly in order to answer the question of whether there are more cost-effective waysof achieving the desired outcomes. Useful information would include: i) total subsidy funding; ii) the
distribution of the benefits across society; iii) the application of the subsidies over time; and iv) estimates of
total government support by sector and by individual recipients (De Moor, 2001).
Following deregulation, price fluctuations can be difficult for consumers to understand. They expect to be
sheltered from rising oil prices but demand to benefit immediately from falling prices, leading to calls to bringback price controls. Governments can increase acceptance of fuel-price fluctuations, including any differences
between domestic and international prices, by disclosing as much information as possible about how the
prices are formed (Kojima, 2009). Such information can include the components of fuel prices (such as
refining margins, taxes and distribution cost, as Ghana provided to its citizens), rates of stock turnover(particularly for small markets where slow turnover could lead to a delay in the transmission of international
to domestic prices), historical price data and comparisons with other countries.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 24

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

3.2 Stages of reform
3.2.1 Research
The subsidy and its role in the economy need to be well understood. Early research to quantify the subsidy,
to assess how its costs and benefits are distributed throughout society, and to estimate the likely direct andindirect effects of its removal will assist the likelihood of successful reform (Coady et al., 2006). The
information facilitates the development of a comprehensive approach to dismantling the subsidy, cushioning
adverse impacts of its removal and taking into account the concerns of stakeholders.
An analysis of the subsidy’s initial objectives, and whether those objectives have been met, can help predictthe potential impacts of its removal. In Senegal, for example, the initial purpose of subsidizing LPG was toencourage households to stop using charcoal as a cooking fuel, which was contributing to deforestation.
Reform efforts could be assisted by research to determine the extent to which an increase in LPG prices would
lead to a switch to charcoal and wood fuel, and in which communities. Research has found that households
rarely switch completely between fuels and often use multiple fuel types depending on availability or theirenergy needs (for example, whether for space heating or cooking—even different types of cooking) (UNDP
and ESMAP, 2003). Household income is not necessarily the main factor in determining fuel choices (Masera,
2000). Country-specific research would be useful to determine the likely outcome of higher LPG prices on
Senegalese fuel usage and to identify the factors that contribute to charcoal use.
In Ghana, research prior to the 2005 reforms found that the relatively wealthy were benefiting more than thepoor from the fuel subsidy. Communicating this result helped to build support for reform among the poor andenabled the government to include measures to assist the poor in its reform strategy.
The magnitude of the subsidy (in absolute numbers or as a percentage of GDP) and the size of the industry(number of jobs, value of infrastructure, capital and revenue) will be important in determining the impact
and speed of reform. The greater the level of support, the greater the shock to the sector on its removal. A
government is likely to be best-placed to undertake the necessary research, as it has the greatest access to
information on expenditure, policy-development rationale and stakeholders. On the other hand, theinvolvement of other actors may help confer legitimacy to the results. In the case of Ghana, research was
outsourced to an independent institute to decouple it from government influence. The World Bank and the
IMF have provided technical assistance to developing countries, including Senegal, and carry out ex ante
poverty and social impact analysis to map out hypothetical impacts of a subsidy reform on the population andthe environment (Singh and Hope, 1995). In addition, the involvement of international institutions, or
becoming a party to an international agreement, can enable a national government to deflect politicalresponsibility onto another entity in a helpful way.

3.2.2 Reform objectives and parameters3.2.2.1 Goals
A clear articulation of objectives will help focus the reform strategy on the highest priorities for de-subsidizationand facilitate the development of appropriate support policies. Objectives for reform could include domestic
considerations such as reduced fiscal expenditure or obligations under international agreements such as the
WTO. Objectives can be short- or long-term. A short-term goal might be the reduction of fiscal expenditure,
while the long-term goal might be increased energy efficiency.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 25

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

The stated objectives of G-20 leaders in eliminating inefficient fossil-fuel subsidies were improving energy
efficiency and security, boosting investment in clean energy sources and addressing climate change (G-20
Leaders, 2009). A reform strategy for G-20 governments would therefore need to target the fossil-fuel subsidies
that have the most impact on their policy goals. For example, subsidies that reduce the price of fuels to endusers would be expected to boost consumption, thus increasing CO2 emissions (depending on the type offossil fuel) and reducing energy efficiency. Subsidies that facilitate the continued use of the most carbonintensive fuels would be particularly relevant for climate change and reducing the competitiveness of renewableenergy. These subsidies would be a high priority for reform. Subsidies for research and development, such as
those supporting the development of “clean-coal” technologies, appear to be a lower priority for analysis as
their impact on these policy objectives is mixed.
In addition to domestic considerations, governments face international obligations and constraints that can
dictate the timing and nature of subsidy reform. The WTO Agreement on Subsidies and Countervailing
Measures (ASCM) prohibits two types of subsidies: export subsidies; and those contingent upon the use ofdomestically produced over imported goods. All other “specific subsidies,” which benefit only particularcompanies or industries, are allowed but actionable. In other words, if adverse effects on the interests of a
WTO member can be demonstrated, the affected country can take one of several actions, either by applying
a countervailing duty or by seeking remedies through the WTO’s Dispute Settlement Body. Some WTO
subsidy cases have led to the obligation to reform, although none of these cases have related to fossil-fuelsubsidies so far.
Countries acceding to the WTO have come under pressure to reduce energy subsidies that could affect thecost of production and therefore exports. For example, some of Russia’s negotiating partners view state controls
over energy prices as a trade-distorting subsidy and have urged Russia to reform its energy sector (Yudaeva,
2003). Russia argues that its energy prices are lower than in the world market because they reflect Russia’s
comparative advantage in energy. Russia refuses to tie WTO accession to reform of its energy policy.
While most governments must comply with WTO obligations or risk responses from other member economies,some developing countries also need to observe donor guidelines. Least-developed countries (LDCs), forexample, rely heavily on external sources of funds, particularly official development assistance (ODA). Among
LDCs, the average share of ODA disbursements as a share of GDP was about 8 per cent in 2006 (UNCTAD,
2008). Multilateral lending institutions, other international organizations and aid providers can therefore be
influential in the implementation of fossil-fuel subsidy reforms through the provision of advice or by assigning
conditions to the provision of assistance.
The constraints and obligations imposed on a country from its international commitments can provide useful
insulation from domestic lobbying. When part of an international agreement, it may be easier to defend
deregulation in the face of domestic criticisms. In addition to WTO and donor obligations, such agreements
include bilateral or regional trade agreements. The G-20 and APEC commitments to phase-out subsidies
provide such an opportunity.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 26

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

3.2.3 Building a coherent reform strategy
3.2.3.1 Timeframe
Reform strategies can be differentiated by the duration of implementation and the level of compensation
available (Orden et al., 1999). Reform can be gradual and without compensation,12 at a pace sufficiently fast
to yield benefits but slow enough to avoid resistance. Gradual reform can also involve compensation, where,
typically, the old policy is terminated and replaced with a series of cash payments, as was done in France forthe coal-mining sector. Rapid reform terminates a policy completely without a phase-out period, either
associated with a compensation payment or not (Cox, 2007).
The longer a subsidy has been in place, the more difficult it will be to remove and the longer the likely
timeframe required for reform. Subsidies have a tendency to become perceived as entitlements and any
attempt to reduce them can be politically hazardous (Steenblik, 2007). In India, a slow process of “reformby stealth” of the power sector in the 1990s included tolerance of enterprises that evaded laws, rather thanthe more politically difficult path of attempting to change the relevant regulations. Some state governments“conveniently ignored… firms that established their own (sometimes illegal) captive power stations to avoid
the poor quality and expensive power from the state-dominated electric system” (Tongia, 2007). Such
practices were an important step towards liberalization, as they undermined the monopoly of the inefficientand under-capitalized state-owned utilities while facilitating the development of new power generation capacity.
If the reform process is lengthy, recipients have more time to adjust to the new policy settings. However, there
will also be greater opportunity for those with vested interests to find ways to prevent or delay change.
There are evidently opportune moments to deregulate quickly. Falling oil prices in the second half of 2008
provided an opportunity for several governments to undertake price-subsidy reforms. In December 2008,
China introduced a new pricing mechanism that adjusts the benchmark retail prices of oil products against
the international crude price (China View, 2009), although it later announced that it would intervene to set
prices when international prices exceeded $80 U.S. per barrel (Kojima, 2009). Vietnam introduced marketbased pricing in September 2008 and Ethiopia eliminated subsidies in October 2008 (Kojima, 2009).
An economic crisis can also provide a chance for governments to institute fast-paced reform measures for
subsidies that are contributing to the difficulties faced by the country (Drazen and Grilli, 1993). High energy
prices in 2007 and early 2008 led to many consumer fuel subsidies becoming fiscally crippling forgovernments. Many governments were forced to raise prices, despite political backlash.
There are contexts in which speedy reform can be unwise. In July 2005, petroleum price rises in Yemen
incited widespread social disorder in which 22 people died and many others were injured. However, “violent
reactions to subsidy reform are the exception rather than the norm, and often are not triggered by the reform
alone” (Coady et al., 2006). If such circumstances can be predicted, it may be best to advance by a longterm policy of “death by a thousand cuts” (Pearce, 2000)13 rather than introduce new support measures thatcan create new entitlements. If these measures have a firm phase-out period, however, they can assist thetransition without becoming entrenched. Senegal introduced short-term subsidies on staple fuel and foodcommodities in 2008 in the face of international price increases, but these were removed six months laterand did not become viewed as entitlements.
12

Reductions in subsidies must be reductions in real spending. The example of Senegal shows that reducing the subsidy rate by 20 per cent yearon-year when fuel prices or inflation are rising could undermine the goal to improve the government’s bottom line.
13 “Death by a thousand cuts” is an expression that refers to a major change, which might be seen as negative, that happens slowly in many
unnoticed increments and is therefore not perceived as objectionable.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 27

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

3.2.3.2 Policies to reduce the impacts of reform
Whether reform takes place over a short or long period of time, measures to reduce any negative effects ofreform will make changes more palatable. A government’s leeway to manoeuvre will be determined in part by
its wealth. A country with a higher GDP can generally afford to provide greater assistance to industry andconsumers, diversify its supply of energy and invest more funds in information campaigns to build public andstakeholder support (De Moor, 2001). However, few countries have France’s wealth or inclination to invest
billions of dollars over several decades in order to reform a set of subsidies.
The example of Ghana’s 2005 reform strategy demonstrates that the capacity of a country to execute flanking
measures is not necessarily proportional to GDP, particularly if the revenue gained from de-subsidizing iscommitted to targeted social measures. The Ghanaian government established a “Deregulation Mitigating
Levy” to pay for its announced assistance measures as a transparent way to show taxpayers that the subsidy
funding was being re-allocated prudently to assist the poor. Public support can be increased once citizens
realize that public spending is effective and not being misappropriated or directed to favoured sectors of thecommunity (Collier, 2008).
Temporary assistance measures need to be carefully designed to ensure they reach the intended recipients.
Research indicates that support for the poor is best transferred through a social welfare net, rather than
through cross-subsidization. “A well-designed transfer program can avoid distorting economic decisions, whileboth ensuring extensive coverage of poor households and minimizing leakage to higher income groups” (DeMoor, 2001).
Conditional cash transfers (CCTs) have been found to be a more cost-effective way of assisting the poor thanenergy subsidies (IMF, 2008). These programs provide money to poor families on the condition that the family
demonstrates a commitment to using the funding to improve the family’s welfare, such as spending on healthor education. The governance systems required to implement the system are minimal. Funds can be distributed
to eligible families via schools or other local public offices. Such programs have been used successfully in
Brazil, Mexico and Colombia and, as noted earlier, could be feasible in Senegal.
In countries where the poor are located in geographically discreet areas, targeting can be achieved bysubsidizing access to a fixed network (i.e., electricity, natural gas, district heat). By funding the installationof infrastructure, governments can deliver services to communities without becoming involved in subsidizing
energy prices, which can become an ongoing and unpredictable funding commitment.
Finding a means to identify target groups reduces the risk that subsidies will dissipate, be misspent or reachunintended recipients. In India, for example, the use of a coupon system to determine eligibility for subsidized
kerosene helped target the subsidy to those most in need (Shenoy, 2009). However, the coupon system wasabandoned for political reasons and up to 40 per cent of subsidized kerosene continues to be diverted to theblack market. In this circumstance, direct cash payments or the free provision of social services would be
more direct ways to assist the poor.
Sporadic measures cannot indefinitely replace more comprehensive governance systems. Short-term measurestend to be administratively difficult to design and implement, because they are situation-specific.
Sophisticated safety-net measures, such as social-assistance systems or a progressive income tax regime,
require investment in long-term structural reforms.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 28

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

3.2.3.3 Encouraging energy diversity or substitution
The example of France’s coal-subsidy reforms demonstrates that diversifying energy supplies can reduce theimpact of reform on consumers and other industries. If a country relies primarily on one specific type of fossil
fuel, policy change that affects its supply or price is likely to have repercussions throughout the economy.
This could result in higher electricity or transport prices, feeding inflationary pressures, or making energy
unaffordable for some segments of the population. Such impacts need to be determined through researchand economic modelling before implementing reform.
The development of substitute forms of energy is likely to ease reform. While coal may be the cheapest energy
source, wealthy countries can also generate electricity from nuclear, geothermal, solar, wind power or biomassenergy sources. Countries with suitable hydrological resources can develop hydroelectric power. And countries
with natural gas resources might choose to use natural gas for electricity generation before importing coal.
For others, coal is likely to remain the only financially viable option for electricity generation in the near future.
Few economically competitive alternatives currently exist for petroleum transport fuels and therefore any
subsidy reform that raises prices is likely to be transmitted directly to higher costs to consumers, without theameliorating affects of substitution (although increased energy efficiency can help reduce overall costs to
consumers). Affordable non-fossil-fuel alternatives to kerosene for lighting do exist in some countries. Morocco
has had success using solar power in rural electrification schemes, although these were assisted by one-time
payments from the government to supply the necessary capital (UNDP, n.d.). Grameen Shakti, a company inBangladesh, uses micro-credit financing to supply poor communities with solar power and biogas (Grameen
Shakti, 2009).

3.2.3.4 Building a reform strategy – SWOT analysis
Table 2, which is based on a SWOT analysis (strengths, weaknesses, opportunities and threats), summarizes
the various situations that face governments subsidizing fossil fuels and suggests strategic responses to thesechallenges. The strengths and weaknesses refer to the areas in which governments might or might not havecapacity or resources. The opportunities are the circumstances auspicious to reform, while threats refer tothose situations that could de-rail reform.
Potential response strategies are drawn from the case studies reviewed for this paper and the broader literature
on fossil-fuel subsidy reform. The analysis is not intended to be comprehensive but to summarize the key
elements of building a reform strategy discussed in this paper. Greater complexity would inevitably follow
with more detailed assessment of country circumstances and reform options.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 29

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

TABLE 1: SITUATIONS FACING GOVERNMENTS SUBSIDIZING FOSSIL-FUELSAND THEIR STRATEGIC RESPONSES
Circumstances

Strategies for reform

Strengths and weaknesses in capacity

Potential response actions

Extent of knowledge about the subsidy,
including of:• extent of subsidy expenditure or forgone
revenue• information about recipients, i.e., whothey are and the proportion of subsidies
going to rich and poor
• the likely effect of subsidy removal on
target groups and the economy as a whole

Conduct independent research to:• quantify the support by gathering
available data from all relevant government
jurisdictions; initiate data collection where
necessary• assess the distribution of subsidies, e.g.,through household surveys and estimatingleakage to non-target groups• estimate impacts through economic
modelling of subsidy removal on
consumption, energy prices and inflation

Understanding about the need for reform
among:• government ministers and agencies• recipient groups• the general public

Build support for reform by:• enlisting support from the executive andfinance ministers• engaging in stakeholder consultation froman early stage• communicating in public fora
(newspapers, radio, television)

Having a diverse energy supply or potential forenergy substitution

Consider whether other forms of energy areavailable for substitution or, if energy substitution
is not feasible, consider energy-efficiency
measures to reduce impact on energy expenditure

A welfare system to facilitate:• accurate targeting of poor households• effective transfer of welfare

Put in place transfer mechanisms to help thepoor cope with higher energy prices:• cash transfers via local government
authority services (schools, postal offices)• geographically targeted discount energy
services to poor neighbourhoods such as
district heating or electricity

Available funding for assistance programs toease the transition to subsidy removal

If additional funding is not available, userevenue gained from de-subsidization to fundwelfare programs:• make explicit to subsidy recipients andthe public that savings or revenues will bedirected to assist those most in need

Strong governance structures for effective
law enforcement

Increase transparency regarding revenue andexpenditure to expose any corrupt practices

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 30

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

TABLE 1: SITUATIONS FACING GOVERNMENTS SUBSIDIZING FOSSIL-FUELSAND THEIR STRATEGIC RESPONSES (Continued)
Circumstances

Strategies for reform

Threats to reform
Unpopularity, specifically from:• the public• vested interests• those losing employment• the poor
• corrupt politicians and their supporters

Potential response actions
Communicate the benefits of reform to the publicand develop targeted assistance measures tohelp those most affected by reform, specifically:• communicate the costs of the subsidy andbenefits of reform• develop short-term compensation measuresin consultation with subsidy recipients toease the transition to subsidy removal• welfare payments to retrenched workers
and retraining and relocation programs• communicate that there are better ways toassist the poor and these will be pursued• increase transparency and public
understanding of the subsidy and its
distribution to broaden support for reform

Changing circumstances:• volatile prices, exchange-rate fluctuations
or inflation (increasing the cost of subsidies
before total elimination takes place)

Adjust the pace of reform and price-setting
mechanisms:• rapid pace to reform can reduce the riskof subsidy reduction being eroded• institute automatic linking of domestic
and international prices or independent
price-setting mechanisms, without further
government intervention such as crosssubsidization

Subsequent governments might undo reform

Distance the government from price-setting by:• increasing understanding among decisionmakers and the public about why thegovernment is not intervening to reduce
fuel prices• introduce independent and automatic
price-setting mechanisms

Opportunities to reform

Potential response actions

Falling or rising fossil-fuel prices

Take advantage of favourable circumstances toinstitute lasting reform. Ensure “threats to reform”
are also addressed to prevent backsliding

In a position of political strength

Take advantage of political capital to implement
reform quickly. As above, ensure “threats toreform” are addressedwww.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 31

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

3.2.4 Implementation
Effective implementation of the reform strategy is obviously crucial. Several attempts might be required,depending on the opposition to reform and international conditions. As we have seen, Ghana and Senegal
have tried repeatedly to reduce their fuel subsidies and France’s reforms required implementation over a long
period.
Implementation of reform is sometimes postponed, or reforms reversed, in the face of dramatic changes inworld fuel prices. During record-high oil prices in 2007 and early 2008, many governments that had
deregulated fuel prices or adopted automatic price-adjustment mechanisms froze and subsidized retail prices,while others that had announced reform postponed implementation (Kojima, 2009). Colombia and Vietnam
were among this group, although Vietnam went on to remove subsidies later. Jordan removed subsidies in
February 2008 and did not intervene despite record-high oil prices towards the middle of the year. Jordan
did, however, maintain LPG and food price subsidies that year (IMF, 2009). Indonesia’s experience (Box 4)demonstrates that a long phase-out of fossil-fuel subsidies can be politically difficult to implement, particularly
when fossil-fuel prices fluctuate dramatically and no clear long-term reform strategy is in place.

BOX 4: INDONESIA’S REPEATED ATTEMPTS TO IMPLEMENT REFORM
The Government of Indonesia has on a number of occasions increased the price of subsidized fuels andreduced the number of consuming sectors able to purchase subsidized fuels (IEA, 2008). Fuel-priceadjustments in 2005 saw the introduction of market prices for industry and an average 126 per centhike in subsidized fuel prices for other sectors (The World Bank, 2007). Presidential Decree No.
55/2005 stated that the remaining domestic fuel subsidies would be phased out but no schedule wasprovided. Price adjustments were necessary again in May 2008 due to a sharp rise in world oil prices.
Despite reforms to allow domestic prices to be adjusted in line with international prices, Indonesia’s
subsidized fuel prices were among the cheapest in Asia and approximately 30 per cent of the world
price in 2008 (IEA, 2008). Subsidized fuels can still legally be used for transport, households, certain
types of fishing boats and public service facilities.
In September 2009, the government announced that Presidential Decree No. 55/2005 would be revised
to adjust subsidized fuel prices, eligibility criteria, delivery points and quotas in order to better target
subsidies to those most in need (Antara News, 2009). However, strong political opposition continues tohold back implementation of Indonesia’s reform strategies. Later that month, the Jakarta Post reported
that total spending on fuel subsidies in 2010 would increase to Rp 68.73 trillion ($7 billion U.S.),
equal to 7.2 per cent of the state budget, due to rising oil prices and increased subsidies for the state
power generation company (GSI, 2009).

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 32

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

3.2.5 Monitoring and adjustment
Reviewing progress and outcomes of a reform on an ongoing basis is necessary for assessing whether measures
have been effective, checking whether there have been unintended consequences, and adapting policies over time.
The best policies are those that can be adapted in light of new information (Walker et al., 2001). This approach
recommends a continual assessment of the underlying objectives of the policy as circumstances change. By
maintaining a focus on desired outcomes, policies are more likely to be adapted in ways that support their
original purpose.
Monitoring the distribution of subsidies for kerosene and LPG has revealed that these subsidies are subject
to significant leakage, mistargeting or both. The IMF observed in Senegal that the poor do not favour LPG but
the poor do use kerosene for lighting (IMF, 2008). From these results of monitoring the subsidy, it might betempting to adjust the policy to subsidize kerosene rather than LPG in order to better assist the poor.
However, other studies that monitored kerosene subsidies have found that no effective subsidy mechanism
for kerosene exists (UNDP and ESMAP, 2003). Subsidized kerosene is frequently used to adulterate diesel
and in these circumstances it is diverted from the intended recipients (the poor), and instead benefits therelatively wealthy that own kerosene dealerships and service stations. UNDP and ESMAP used two sets ofdata to calculate the leakage of subsidized kerosene to non-target households: the total amount of subsidized
kerosene allocated for household consumption; and the sum of the amounts consumed by households
belonging to different income groups (calculated from household survey data). In the case of India, thisleakage was as much as 50 per cent, making the kerosene subsidy regressive overall once leakage wasfactored in.
Temporary assistance policies—particularly those involving financial support—also require careful monitoringin order to ensure that the assistance is reaching the target groups and that support does not continue for solong that it becomes entrenched. Groups can become dependent on the new support measure, making it
difficult to end. The likelihood of such an outcome can be minimized through the early establishment of timeboundaries and maximum levels of support for subsidy programs (De Moor, 2001). And it requires commitment
on the part of policy-makers to ensure that the sunset clauses are enforced.

3.2.6 Going forward: preventing backsliding
Governments will always be called upon by the public to intervene when fuel prices are high. By making
pricing decisions the function of an independent body, they can reduce the pressure to become enmeshed in
fuel-price issues in the future.
The Ghanaian National Petroleum Authority was established to monitor implementation of its new pricing
mechanism in 2005. The authority is composed of representatives from government, oil-marketing companies,
trade unions, and non-governmental organizations such as the association of Ghana Industries, as well as
various experts (Coady et al. 2006). Its mission is to “regulate, oversee and monitor the Petroleum Downstream
Industry to ensure efficiency, growth and stakeholder satisfaction” (National Petroleum Authority, n.d.).
However, the Authority is evidently not independent in any meaningful sense given the government’s
intervention in fuel prices in 2008. The Authority sets the prices according to prescribed pricing formula. It
is not clear how this formula is reviewed and revised from time to time. In addition, the Authority manages
the United Petroleum Price Fund that equalizes the freight costs of different marketers. This appears to be acomplex exercise involving many transactions. Thus an elaborate structure has been created that lends itself
manipulation. Only when the price fixing is simple and transparent, without involving subjective assessments
and cross subsidies, will it transparently demonstrate independence from government influence.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 33

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

4. CONCLUSION
The case studies of reform and literature reviewed in this paper demonstrate that, once in place, fossil-fuelsubsidies are extremely difficult to remove. As the example of Ghana demonstrates, a reform strategy will
only be as robust as the political will to carry it through and uphold it. The Senegalese government appears
to have the will for reform but could potentially benefit from a more systematic and comprehensive set ofpolicies to support de-subsidization. France’s position was somewhat unique in that it employed worthy
principles for reform—a gradual phase-out of subsidies, assistance for affected workers and energy
substitution—but implemented these in such a way as to generate a new set of entrenched and highly
expensive forms of government support.
There is no single formula for success, and country circumstances and changing global conditions must be
taken into account in developing a reform program. However, strategies can be identified that contribute tosuccessful reform and respond to individual country circumstances. Designing and properly implementing anappropriate strategy will improve the chance of successful reform. Countries without a comprehensive strategy,
such as Indonesia and Senegal, flounder in their efforts to eliminate fossil fuel subsidies. There is clearly aneed for any reform strategy to include effective mechanisms to prevent backsliding, such as independent
regulation of fuel prices, automatic price-setting mechanisms, and education of decision-makers and the
public about the problems with government intervention in fuel pricing.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 34

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

REFERENCES
African Manager. (7 July 2009). Senegal: further increase in oil prices. African Manager.
All Africa. (20 April 2009). Can ‘Green Charcoal’ Help Save the Trees? All Africa .
All Africa. (4 March 2005). Muted Protests to Government Hike in Oil Prices. Retrieved on April 5, 2010,
from All Africa: http://allafrica.com/stories/200503040838.html.
Allum, P. (16 July 2009). Ghana gets $602 million IMF loan, readies oil production. IMF Survey Magazine:
Countries and Regions .
Amoatey, C. (2006). Fuel Pricing in Ghana. GTZ.
Antara News. (11 September 2009). Govt to revise presidential decree on fuel oil prices. Antara News.
Bacon, R. and Kojima, M. (2006). Coping with higher oil prices. Washington, DC: The World Bank.
Burniaux, J.-M., Chateau, J., Delink, R., Duval, R. and Jamet, S. (2009). The Economics of Climate Change
Mitigation: How to Build the Necessary Global Action in a Cost-effective Manner. Paris: Organisation for
Economic Cooperation and Development.
Charbonage de France. (n.d.). Quelques dates clés. Retrieved 4 June 2009 from Charbonage de France:
http://webcdf.brgm.fr/dArticle.php?id_rubrique=150&id_article=419
China View. (27 March 2009). China View. Retrieved 3 June 2009 from China’s fuel prices raised:
http://news.xinhuanet.com/english/2009-03/27/content_11082478.htm
Coady, D., El-Said, M., Gillingham, R., Kpodar, K., Medas, P. and Newhouse, D. (2006). The Magnitude ofand Distribution of Fuel Subsidies. International Monetary Fund Working Paper.
Collier, P. (2008). Implications of changed international conditions for EITI. Oslo: Extractive Industries
Transparency Initiative.
Cox, A. (2007). Easing subsidy reform for producers, consumers and communities. In Organisation for
Economic Co-operation and Development, Subsidy Reform and Sustainable Development: Political Economy
Aspects. Paris: OECD Publishing.
Daily Guide. (17 September 2009). Daily Guide. Fuel prices unchanged.
De Moor, A. (May 2001). Towards a grand deal on subsidies and climate change. Natural Resources Forum,
167–176.
de Oliveira, A. (forthcoming). Lesson learned from Brazil’s experience with fossil-fuel subsidies and theirreform. Geneva: The Global Subsidies Initiative of the International Institute for Sustainable Development.
Diouf, A. (23 September 2009). Senegal: Why is subsidized butane fraudulently sold in the sub-region. All
Africa.
Drazen, A. and Grilli, V. (1993). The benefits of crises for economic reforms. American Economic Review ,598–607.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 35

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

Ellis, J. (2010). The Effects of Fossil-Fuel Subsidy Reform: A review of modelling and empirical studies.
Geneva: The Global Subsidies Initiative of the International Institute for Sustainable Development. Retrieved
16 March 2010 from the GSI: http://www.globalsubsidies.org/files/assets/effects_ffs.pdf
Europa. (31 January 2005). Treaty establishing the European Coal and Steel Community. Retrieved 4 June2009 from Europa: http://europa.eu/scadplus/treaties/ecsc_en.htm#MODIFICATIONSEuropean Commission. (2007). Commission Report on the Application of Council Regulation (EC) No
1407/2002 on State Aid to the Coal Industry. Brussels: European Commission.
European Commission. (2007). Commission report on the application of Council Regulation (EC) No
1407/2002 on state aid to the coal industry. Brussels: European Commission.
Fall, A., Sarr, S. and Dafrallah, T. (2008). Modern energy access in peri-urban areas of West Africa: the caseof Dakar, Senegal. Energy for Sustainable Development , 12 (4), 22–37.
Federation Nationale de l’Energie et des Mines. (n.d.). Retrieved 4 June 2009 from Federation Nationale del’Energie et des Mines: http://www.fnem-fo.org
G-20 Leaders. (25 September 2009). Leaders’ Statement: The Pittsburgh Summit. Retrieved 7 December
2009 from The Pittsburgh Summit 2009: http://www.pittsburghsummit.gov/mediacenter/129639.htm
German Technical Cooperation (GTZ). (n.d.). Best Practice – Petroleum. Retrieved 4 June 2009 from GTZ
Eastern Africa Regional Energy Support Base: http://regionalenergy-net.com/index.php?option=com_
content&task=view&id=107&Itemid=118
Ghana Web. (2005). Kufuor argues for deregulation of petroleum sector. Retrieved from Ghana Web:http://www.ghanaweb.com/GhanaHomePage/SportsArchive/artikel.php?ID=74664
Global Network on Energy for Sustainable Development. (2008). Clean Energy for the Urban Poor: an urgent
issue. Geneva: UNEP.
Global Subsidies Initiative. (September 2009). Indonesia poised to increase energy subsidies. Retrieved 1
December 2009 from the Global Subsidies Initiative of the International Institute for Sustainable Development:
http://www.globalsubsidies.org/en/subsidy-watch/news/indonesia-poised-increase-energy-subsidies
Government of Ghana. (3 December 2003). Letter of Intent, Memorandum of Economic and Financial
Policies, and Technical Memorandum of Understanding. Retrieved 9 June 2009 from International Monetary
Fund: http://www.imf.org/External/NP/LOI/2003/gha/03/index.htm
Government of Senegal. (various years). Journal Officiel. Retrieved 1 December 2009 from Republique duSenegal Primature: http://www.jo.gouv.sn/recherche1.php3?recherche=butane&valider=Ok&jodate2=+
Government of Senegal. (11 March 2002). Letter of intent, Memorandum of Economic and Financial Policies
to the IMF.
Government of Senegal. (5 December 2008). Letter of intent, Memorandum of Economic and Financial
Policies, and Technical Memorandum of Understanding to the IMF.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 36

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

Grameen Shakti. (March 2009). Programs at a Glance. Retrieved 17 December 2009 from Grameen Shakti:
http://www.gshakti.org/ics.html
Grubler, A. (2009). An assessment of the costs of the French nuclear PWR program 1970–2000. Laxenburg:
International Institute for Applied Systems Analysis.
Gupta, S., Verhoeven, M. and Gillingham, R. (2000). Equity and Efficiency in the Reform of Price Subsidies:
A guide for policy makers. Washington DC: International Monetary Fund.
International Energy Agency. (26 March 2002). Coal references. Retrieved 4 June 2009 from International
Energy Outlook 2001: http://www.eia.doe.gov/oiaf/archive/ieo01/coalref.html#21
International Energy Agency. (n.d.).
http://www.iea.org/stats/defs/defs.htm

Definitions.

Retrieved

8

December

2009

from

IEA:

International Energy Agency. (n.d.). Electricity/Heat in France in 2006. Retrieved 31 October 2009 from IEA
Energy Statistics: http://www.iea.org/stats/electricitydata.asp?COUNTRY_CODE=FRInternational Energy Agency. (2008). Energy Policy Review of Indonesia. Paris: IEA.
International Energy Agency. (2008). World Energy Outlook 2008. Paris: IEA.
International Monetary Fund. (2008). Fuel and food prices subsidies: issues and reform options. Washington,
DC: International Monetary Fund.
International Monetary Fund. (19 December 2008). IMF Approves US$75.6 Million Exogenous Shocks Facility
Arrangement for Senegal and Completes Second Review under the Policy Support Instrument. Press Release
No. 08/334. Washington, DC: International Monetary Fund.
International Monetary Fund. (2008). Senegal: selected issues. Washington DC: International Monetary Fund.
International Monetary Fund. (2004). Staff Country Report – Ghana: Second Review Under the Poverty
Reduction and Growth Facility and Request for Waiver of Nonobservance of Performance Criteria. Washington
DC: International Monetary Fund.
International Monetary Fund. (2006). The Magnitude and Distribution of Fuel Subsidies: Evidence from
Bolivia, Ghana, Jordan, Mali, and Sri Lanka. Washington DC: International Monetary Fund.
International Monetary Fund. (2008). The balance of payments impact of the food and fuel price shocks on
low-income African countries: a country-by-country assessment. Washington DC: International Monetary Fund.
International Monetary Fund. (2009a). IMF Country Report No. 09/256. August 2009. Retrieved 11 March2010 from IMF: http://www.imf.org/external/pubs/ft/scr/2009/cr09256.pdf.
International Monetary Fund. (2009b). IMF Country Report No. 09/159. Jordan: 2009 Article IV Consultation– Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive
Director for Jordan. Retrieved 17 March 2010 from IMF: http://www.imf.org/external/pubs/ft/scr/2009/cr09159.pdf
Kojima, M. (2009). Government response to oil price volatility: experience of 49 developing countries.
Washington, DC: The World Bank.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 37

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

Laan, T. (2010). Gaining traction: the importance of transparency in accelerating the reform of fossil-fuelsubsidies. Geneva: Global Subsidies Initiative of the International Institute for Sustainable development.
Lontoh, L. (forthcoming). Lessons learned from attempts to reform Indonesia’s subsidies to oil products.
Geneva: Global Subsidies Initiative of the International Institute for Sustainable development.
Marie-Claire. (28 September 2005). Le pacte charbonnier et le CCFC. Retrieved 4 June 2009, from Histoirede Ch’Tis: http://www.histoires-de-chtis.com/index-news-2190-le-pacte-charbonnier-et-le-ccfc.php
Morgan, T. (2004). Designing and implementing energy subsidy reforms. In UNEP, 2003, Energy subsidies:lessons learned in assessing their impact and designing policy reforms (pp. 146–154). Geneva: United Nations
Environment Programme and Greenleaf Publishing.
Masera, O., Saatkamp, B. and Kammen, D. (2000). From Linear Fuel Switching to Multiple Cooking
Strategies: A Critique and Alternative to the Energy Ladder Model. World Development 28(12): 2083–2103.
National Petroleum Authority. (n.d.). Mission. Retrieved 4 June 2009 from National Petroleum Authority:
http://www.npa.gov.gh/mission/
Nodin, F. (n.d.). Jeanneney: une revolution culturelle. Retrieved 4 June 2009 from Politique et economie:
http://webcdf.brgm.fr/historia/poleco_jeanneney3.html
Nonor, D. (1 April 2009). Ghana: Fuel Prices Adjusted Upwards. Retrieved 27 May 2009 from All Africa:
http://allafrica.com/stories/200904010603.htmlOrden, D., Paarlberg, R. and Roe, T. (1999). Policy reformin American agriculture. Chicago: University of Chicago Press.
Organisation for Economic Co-operation and Development. (13 August 2002). Cross-subsidization. Retrieved
14 December 2009 from OECD Glossary of Statistical Terms: http://stats.oecd.org/glossary/detail.asp?ID=4968
Organisation for Economic Co-operation and Development. (2005). Environmental Fiscal Reform for Poverty
Reduction. Paris: OECD Publications.
Organisation for Economic Co-operation and Development. (2007). Subsidy reform and sustainable
development: political economy aspects. Paris: OECD Publishing.
Oxfam. (1994). Embracing the Future. Avoiding the Challenge of World Poverty. Oxfam.
Pearce, D. (2000). Advancing subsidy reform: towards a viable policy package. The Centre for Social andEconomic Research on the Global Environment. London: University College London.
Philippon, T. (25 March 2004). Mine: la derniere decente. Retrieved 4 June 2009 from Le Nouvel
Observateur: http://hebdo.nouvelobs.com/hebdo/parution/p2055/articles/a235964-mines__la_derni%20per%
20centC3%20per%20centA8re_descente.html
Plant, M. (13 May 2008). IMF Closely Involved in Drive to Relieve Global Food Crisis. International Monetary
Fund. International Monetary Fund Survey Online. Washington, DC: IMF.
Prasad, G. (2006). Energy Sector Reform and the Pattern of the Poor: Energy Use and Supply, a Four Country
Study: Botswana, Ghana, Honduras and Senegal. Energy Sector Management Assistance Program (ESMAP).
Retrieved on 6 March 2010 from ESMAP: http://www.esmap.org/filez/pubs/38201022226_Energy
usePDF2010.pdf

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 38

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

Prasad, G. (2008). Energy sector reform, energy transitions and the poor in Africa. 36 (8), 2806–2811.
Reiche, K. and Teplitz, W. (2008). Energy subsidies: why, when and how? final internal draft: iiDevelopment
GmbH and German Technical Cooperation (GTZ).
Reuters Africa. (2 November 2009). Ghana refinery at 70–80 pct after restart. Retrieved 14 January 2010
from Reuters Africa: http://af.reuters.com/article/idAFJOE5A10FM20091102
Reuters Africa. (22 October 2009). Ghana Tema oil refinery still without crude: government. Reuters Africa.
Reuters Africa. (26 October 2009). Ghana’s Tema oil refinery receives Nigerian Crude. Reuters Africa .
Saunders, M. and Schneider, K. (2000). Removing energy subsidies in developing and transition economies.
ABARE Conference Paper 2000.14.
Shenoy, B.V. (2010). Lesson learned from attempts to reform India’s kerosene subsidy. Winnipeg: International
Institute for Sustainable Development. Retrieved on 17 March 2010 from IISD: http://www.iisd.org/
pdf/2010/lessons_india_kerosene_subsidy.pdf
Singh, B. and Hope, E. (1995). Energy Price Increases in Developing Countries: Case Studies of Colombia,
Ghana, Indonesia, Malaysia, Turkey, and Zimbabwe. Washington DC: The World Bank.
Société Financière pour favoriser l’Industrialisation des Régions Minières. (January 2008). 2007: Recordd’activite et cession du groupe SOFIREM. Retrieved 4 ,June 2009 from Société Financière pour favoriserl’Industrialisation des Régions Minières: http://www.sofirem.fr/
Sokona, Y. and Deme, P.-A. (2004). LPG Subsidies in Senegal. In UNEP, 2003, Energy subsidies: lessons
learned in assessing their impact and designing policy reforms (pp. 113–121). Geneva: United Nations
Environment Programme and Greenleaf Publishing.
Sow, M.A. (5 June 2009). Senegal: Letter of Intent, Memorandum of Economic and Financial Policies, andTechnical Memorandum of Understanding. Dakar, Senegal: Government of Senegal.
Statut du Mineur. (1946). Décret n° 46-1433 du 14 juin 1946 relatif au statut du personnel des exploitations
minières et assimilées, modifié. Retrieved 4 June 2009 from AdmiNet: http://admi.net/jo/dec46-1433.html
Steenblik, R. (2007). A Subsidy Primer. Geneva: Global Subsidies Initiative of the International Institute for
Sustainable Development.
Straits Times. (19 November 2008). Malaysia to dump petrol subsidy? Retrieved 3 June 2009, from Straits
Times: http://www.straitstimes.com/Breaking%2BNews/SE%2BAsia/Story/STIStory_303779.html
Subsidy Watch. (August 2009). Gambling on nuclear power: how public money fuels the industry. Subsidy
Watch.
Suwala, W. (2010). Lessons learned from the restructuring of Poland’s coal-mining industry. Winnipeg: The
Global Subsidies Initiative of the International Institute for Sustainable Development. Retrieved 16 March2010 from the GSI: http://www.globalsubsidies.org/en/research/case-study-restructuring-polands-coal-miningindustry

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 39

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

The Chronicle. (26 March 2009). Ghana: Fuel Price Change & Concomitant Smuggling, Editorial. Retrieved
27 May 2009 from All Africa: http://allafrica.com/stories/200903260977.html
Tongia, R. (2007). The political economy of Indian power sector reforms. In D. Victor and T. Heller, The
political economy of power sector reform: the experience of five major developing countries. Cambridge:
Cambridge University Press.
United Nations Conference on Trade and Development. (2008). Least Developed Countries Report. Geneva:
UNCTAD.
United Nations Development Programme. (n.d.). Morocco case study (solar power). Retrieved 20 January2010 from Public-private partnerships: case studies for sustainable development: http://www.ncppp.org/
undp/morocco.html
United Nations Development Programme and Energy Sector Management Assistance Program. (2003). Accessof the poor to clean household fuels in India. Washington, DC: United Nations Development Program and theWorld Bank Energy Sector Management Assistance Program.
United Nations Environment Programme. (2003). Energy Subsidies: Lessons Learned in Assessing Their
Impact and Designing Policy Reforms. United Nations Environment Programme and Greenleaf Publishing.
Victor, D. and Heller, T.C. (2007). The political economy of power sector reform: the experiences of five major
developing countries. Cambridge: Cambridge University Press.
Vie Publique France. (22 November 2004). La politique de l’énergie (2003–2005). Retrieved 4 June 2009,
from Vie Publique France: http://www.vie-publique.fr/politiques-publiques/politique-energie/chronologie/
Vietnam News. (8 December 2008). Petrol smuggling blamed for Mekong farmers’ fuel shortage. Retrieved
3 June 2009 from Vietnam News: http://vietnamnews.vnagency.com.vn/showarticle.php?num=02ECO081207
Walker, W.E., Rahman, S.A. and Cave, J. (2001). Adaptive policies, policy analysis and policy making.
European Journal of operational research, 282–289.
World Bank. (2007). Spending for development: making the most of Indonesia’s new opportunities. Indonesia
Public Expenditure Review 2007. Washington, DC: The World Bank.
World Bank. (April 2007). Sustainable woodfuel improves rural livelihoods in Senegal. (International
Development Association) Retrieved 3 June 2009 from The World Bank: http://web.worldbank.org/
WBSITE/EXTERNAL/EXTABOUTUS/IDA/0,,contentMDK:21290074~menuPK:3266877~pagePK:51236175~piPK:437394~theSitePK:73154,00.html
Yudaeva, K. (June 2003). Impact of WTO Accession on the Russian Economy: A Review of Current Findings.
Retrieved 14 January 2010 from The World Bank Group: http://www.worldbank.org/html/prddr/trans/
aprmayjun03/pgs18-19.htm

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE | UNTOLD BILLIONS:FOSSIL-FUEL SUBSIDIES, THEIR IMPACTS AND THE PATH TO REFORM

Page 40

Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal

ABOUT THE AUTHORSTara Laan
Tara Laan is an Associate of the Global Subsidies Initiative. Before joining the GSI, Tara held several positionsin the Australian government, including senior adviser for trade policy in the Prime Minister’s department,
and adviser on natural resource management and environmental conservation issues. Tara also led a team on
education policy in the premier’s department in the state of Victoria.

Christopher Beaton
Christopher Beaton is a Research Analyst and Communications Officer. He performs trade and climate change
policy research, and supports our Global Subsidies Initiative communications work by managing the GSI Web
site and editing the monthly e-newsletter, Subsidy Watch. Christopher received a Master’s degree ininternational relations in 2009 and has worked as a lecturer at Stevenson College in Edinburgh, teaching
English and communication.

Bertille Presta
Bertille Presta holds a BA in European Studies from King’s College London and works on fisheries and fossilfuel subsidy issues for the Global Subsidies Initiative. She has also worked in the areas of socially responsible
investment, microfinance, and cultural conservation and development in the Democratic Republic of Congo.
She is currently completing an MSc in international political economy and a Master’s degree in environment,sustainable development and risk management.

www.globalsubsidies.org

THE GLOBAL SUBSIDIES INITIATIVE (GSI) OF THE
INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT (IISD)
The International Institute for Sustainable Development (IISD) launched the Global Subsidies Initiative (GSI)in December 2005 to put a spotlight on subsidies—transfers of public money to private interests—and how
they undermine efforts to put the world economy on a path toward sustainable development.
Subsidies are powerful instruments. They can play a legitimate role in securing public goods that would
otherwise remain beyond reach. But they can also be easily subverted. The interests of lobbyists and theelectoral ambitions of officeholders can hijack public policy. Therefore, the GSI starts from the premise thatfull transparency and public accountability for the stated aims of public expenditure must be the cornerstonesof any subsidy program.
But the case for scrutiny goes further. Even when subsidies are legitimate instruments of public policy, theirefficacy—their fitness for purpose—must still be demonstrated. All too often, the unintended and unforeseen
consequences of poorly designed subsidies overwhelm the benefits claimed for these programs. Meanwhile,the citizens who foot the bills remain in the dark.
When subsidies are the principal cause of the perpetuation of a fundamentally unfair trading system, and lie
at the root of serious environmental degradation, the questions have to be asked: Is this how taxpayers want
their money spent? And should they, through their taxes, support such counterproductive outcomes?
Eliminating harmful subsidies would free up scarce funds to support more worthy causes. The GSI’s challenge
to those who advocate creating or maintaining particular subsidies is that they should be able to demonstratethat the subsidies are environmentally, socially and economically sustainable—and that they do not undermine
the development chances of some of the poorest producers in the world.
To encourage this, the GSI, in cooperation with a growing international network of research and media partners,
seeks to lay bare just what good or harm public subsidies are doing; to encourage public debate and awarenessof the options that are available; and to help provide policy-makers with the tools they need to secure sustainableoutcomes for our societies and our planet.

www.globalsubsidies.org
The GSI is an initiative of the International Institute for Sustainable Development (IISD). Established in 1990,
the IISD is a Canadian-based not-for-profit organization with a diverse team of more than 150 people locatedin more than 30 countries. The GSI is headquartered in Geneva, Switzerland and works with partners locatedaround the world. Its principal funders have included the governments of Denmark, the Netherlands, New
Zealand, Norway, Sweden and the United Kingdom. The William and Flora Hewlett Foundation have also
contributed to funding GSI research and communications activities.

FURTHER DETAILS AND CONTACT INFORMATION
For further information contact Ms. Kerryn Lang at: klang@iisd.org or info@globalsubsidies.org
or +41.22.917.8920.
The Global Subsidies Initiative
International Institute for Sustainable Development
International Environment House 2
9 chemin de Balexert, 1219 Châtelaine
Geneva, Switzerland
Fax: +41.22.917.8054

www.globalsubsidies.org