Financing universal health coverage by cutting fossil fuel subsidies
Authors: Vinay Gupta, Ranu Dhillon, Robert Yates
Journal: The Lancet Global Health (2015)

Several countries that allocate large sums of public funds to fossil fuel subsidies have low public health spending and associated low health coverage. Two such nations, Indonesia and Iran, have eliminated these subsidies to finance health coverage and other social priorities. Other countries with high expenditure on fossil fuel subsidies are considering similar reforms, suggesting that the reallocation of fuel subsidies could become an important mechanism for countries to pursue universal health coverage. Worldwide, nearly half a trillion dollars were spent on fossil fuel subsidies in 2010.1Whitley S Time to change the game: fossil fuel subsidies and climate change. Overseas Development Institute, London2013http://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/8669.pdfGoogle Scholar Although these subsidies were at first intended to protect poor people from high fuel costs, in practice they are more likely to benefit wealthy households, promote overconsumption of fuel, and discourage energy efficiency.2The EconomistFossil-fuel subsidies: The green-growth twofer.The Economist (London). Jan 10, 2014; (accessed April 27, 2015).http://www.economist.com/blogs/freeexchange/2014/01/fossil-fuel-subsidiesGoogle Scholar Furthermore, cutting of fossil fuel subsidies has been associated with favourable economic factors, including stronger currencies and improved current accounts deficits.3Watts J Markets rally as Indonesia cuts fuel subsidy.The Wall Street Journal (New York). Nov 18, 2014; (accessed Jan 27, 2015).http://blogs.wsj.com/moneybeat/2014/11/18/markets-rally-as-indonesia-cuts-fuel-subsidy/Google Scholar Abolishment of fuel subsidies, however, is often difficult to pursue because of public opposition. Indeed some attempts to reduce fuel subsidies, such as those in Nigeria,4Associated PressNigeria restores fuel subsidy to quell nationwide protests.The Guardian (London). Jan 16, 2012; (accessed Jan 27, 2015).http://www.theguardian.com/world/2012/jan/16/nigeria-restores-fuel-subsidy-protestsGoogle Scholar Indonesia,5The TelegraphPolice and students clash in Indonesia over fuel price subsidy.The Telegraph (London). March 27, 2012; (accessed Jan 27, 2015).http://www.telegraph.co.uk/news/picturegalleries/worldnews/9169384/Police-and-students-clash-in-Indonesia-over-fuel-price-subsidy.htmlGoogle Scholar and Sudan,6BBC NewsSudan fuel protests: '50 shot dead.'.http://www.bbc.co.uk/news/world-africa-24297347Date: Sept 27, 2013Google Scholar have been met with violent protests. The perceived benefits of fossil fuel subsidies are apparent in daily life, and their removal is felt abruptly and immediately. Meanwhile, reallocation of funds towards other government programmes can take time to yield results, especially in the case of large infrastructure projects. In places where corruption is common, people might be sceptical that savings will be effectively used for such programmes and therefore prefer to retain the benefits they already receive from fossil fuel subsidies. Rapid health-care reforms, however, have been shown to deliver tangible benefits to the population relatively quickly.7Limwattananon S Universal coverage with supply-side reform: the impact on medical expenditure risk and utilization in Thailand.J Public Econ. 2015; 121: 79-94Crossref Scopus (62) Google Scholar Record-low oil prices provide a buffer that now makes such reforms more politically feasible than ever before, and several countries are moving to redirect fossil fuel subsidies into health investment. Indonesia, for example, has eliminated the fuel subsidies that constituted nearly 20% of government spending between 2009 and 2013 and, coupled with food subsidies, amounted to the same sum the central government had earmarked for health and education combined.8Lagarde C Fulfilling the Asian dream—lasting growth and shared prosperity.http://www.imf.org/external/np/speeches/2013/040713.htmDate: April 7, 2013Google Scholar In implementing this unpopular policy, President Joko Widodo has immediately allocated additional funds to scale up coverage for social services. This scale-up has included the launch of a new free health-care card for poor households not covered by previous health insurance schemes.9The EconomistIndonesia's anti-poverty plans: full of promise. The Economist (London).http://www.economist.com/news/international/21638129-cutting-fuel-subsidies-makes-space-ambitious-income-top-up-scheme-full-promiseDate: Jan 10, 2015Google Scholar In Iran, fossil fuel subsidies accounted for the largest portion of the nearly $100 billion spent every year on subsidies10The EconomistIran: cut those subsidies.The Economist (London). April 30,2014; (accessed Feb 8, 2015).http://www.economist.com/blogs/pomegranate/2014/04/iranGoogle Scholar and contributed to a rate of fossil fuel consumption twice that of other countries in the Middle East. Iran cut fossil fuel subsidies by 20% in 2010 and reallocated nearly 50% of these gains towards social assistance programmes for poor people, including health coverage. According to the International Monetary Fund, subsidy reform, which was initiated under former President Mahmoud Ahmadinejad, has resulted in a sustained decline in income inequality since the mid-2000s.11Staff Representatives for the 2011 Consultation with the Islamic Republic of IranStaff report for the 2011 Article IV consultation. International Monetary Fund, Washington2011http://www.imf.org/external/pubs/ft/scr/2011/cr11241.pdfGoogle Scholar Several other countries with high fossil fuel subsidies and poor health coverage have attempted similar reforms but have faced challenges (table). In Bolivia, for example, where fossil fuel subsidies use up to $400 million per year, attempts to curtail subsidies in 2011 were met with mass street protests. Venezuela has faced similar political resistance in attempts to reallocate the nearly 6% of gross domestic product (GDP) used to subsidise fuel towards other needs. Ecuador has spent $3 billion on subsidies in the past 4 years alone and, although President Rafael Correa has been vocal about the regressive nature of domestic fossil fuel subsidies, the country continues heavy subsidisation because of passionate popular support.TableCountries with high fuel subsidies and no universal health coverage schemeFuel subsidy rate*Subsidy rate represents the proportion of government subsidy over the full cost of supply; data obtained from the International Energy Agency. (%)Per capita PHE (US$)†Data obtained from the World Health Organization.Average regional PHE (US$)‡Average per-capita total health expenditure in other countries in the same region.Bolivia44·1220430Ecuador51·2290430Nigeria28·85045Turkmenistan65·7130200Uzbekistan58·7120200Venezuela92·7210430PHE=Public health expenditures.* Subsidy rate represents the proportion of government subsidy over the full cost of supply; data obtained from the International Energy Agency.† Data obtained from the World Health Organization.‡ Average per-capita total health expenditure in other countries in the same region. Open table in a new tab PHE=Public health expenditures. Nigeria, which has some of the worst health indicators in the world,12Anekoson JI A comparative analysis of health indicators of Nigeria and Rwanda: a Nigerian volunteer's perspective.Am J Public Health Res. 2013; 1: 177-182Crossref Google Scholar cut fossil fuel subsidies in 2010 with the intention of redirecting funds towards maternal and child health programmes, only to partly reinstate a subsidy because of widespread protests. In the budget submitted for 2015, former President Goodluck Jonathan proposed a 50% reduction in fossil fuel subsidies. Whether his successor, Muhammadu Buhari, will continue to push such reforms is unclear, as doing so would enable the government to increase health spending in a country with one of the lowest public allocations for health globally.13Ibukun Y Nigerian president seeks to cut fuel subsidies after oil decline.Bloomberg News (New York). Nov 20, 2014; (accessed Feb 8, 2015).http://www.bloomberg.com/news/2014-11-20/nigerian-president-seeks-to-cut-fuel-subsidies-after-oil-decline.htmlGoogle Scholar Many other countries, such as India, Ukraine, Turkmenistan, and Uzbekistan, have high fossil fuel subsidies and low health coverage and are well positioned to benefit from similar reforms. However, for this to happen, the leaders of these countries need to understand the potential benefits of this reform and develop strategies to communicate these advantages to reduce public opposition. As increasing numbers of such countries move towards universal health coverage, redirection of fossil fuel subsidies could become an increasingly important policy instrument to enable simultaneous tackling of several development priorities. Specifically, these countries will be able to expand health coverage, mitigate climate change by reducing their use of fossil fuels, enhance economic growth, and reduce income and health inequalities. Perhaps just as importantly for the political leaders concerned, such reform will enhance their popularity and ensure continued political relevance for them in future elections. We declare no competing interests. Fossil fuel subsidies and healthIn calling for a switch of fossil fuel subsidies to funding of universal health coverage,1 Vinay Gupta and colleagues (June, 2015) miss two health-relevant issues: all fossil fuels are not the same and all subsidies are not the same. Full-Text PDF Open Access