Balancing Act : Cutting Energy Subsidies While Protecting Affordability
The cost of energy in Eastern Europe and Central Asia, as elsewhere, is an important policy issue, as shown by the concerns for energy affordability during the past harsh winter. Governments try to moderate the burden of energy expenditures that is...
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| Language: | English en_US |
| Published: |
Washington, DC: World Bank
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2013/01/17181718/balancing-act-cutting-energy-subsidies-protecting-affordability http://hdl.handle.net/10986/12296 |
| Summary: | The cost of energy in Eastern Europe and
Central Asia, as elsewhere, is an important policy issue, as
shown by the concerns for energy affordability during the
past harsh winter. Governments try to moderate the burden of
energy expenditures that is experienced by households
through subsidies to the energy providers, so that
households pay tariffs below the cost recovery level for the
energy they use. These subsidies result in significant
pressures on government budgets when international prices
rise. They also provide perverse incentives for the
overconsumption of energy as households do not pay the true
cost of energy, and therefore, have fewer incentives to save
or to invest in energy efficiency. Balancing competing
claims-fiscal and environmental concerns which would push
for raising energy tariffs on the one hand, and
affordability and political economy concerns which push for
keeping tariffs artificially low on the other-is a task that
policy makers in the region are increasingly unable to put
off. Addressing this issue is all the more pressing as the
ongoing crisis continues to add stress to government
budgets, and that international energy prices remain high.
While challenging, the reforms needed for this balancing act
can build on much that has been learned in the last decade
about improving the effectiveness of social assistance
systems and increasing energy efficiency. This is the first
report to assess, at the micro level for the whole region,
the distributional impact of raising energy tariffs to cost
recovery levels and to simulate policy options to cushion
these impacts. In conclusion, this report highlights that
countries face a difficult balancing act between fiscal and
environmental concerns that call for raising energy tariffs
to lower fiscal burdens and curb household consumption and
concerns for the affordability of energy and the political
economy of unpopular reforms. |
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