All around the world, developing countries are quieting domestic unrest by subsidizing the cost of fuel. As the New York Times reports, these policies come with some heavy economic and environmental costs:
[Venezuelan drivers] pay roughly the equivalent of 40 cents a gallon for regular gasoline, and that is after the government raised prices slightly in a minor adjustment in a vast, popular subsidy, which is helping to prop up the tottering government politically, while helping to bankrupt it economically. With little incentive to conserve fuel and the more they drive, Venezuelans release more greenhouse gases into the atmosphere, which contribute to climate change.Venezuela is hardly the only developing country wasting oil and natural gas with consumer subsidies. In many nations, transportation fuels are as cheap as soda. Electricity rates are so discounted in the Persian Gulf states that some residents do not bother to turn down their air-conditioners while away on vacation. By some estimates, the consumption subsidies may be responsible for more than 10 percent of total global emissions of carbon dioxide, the leading greenhouse gas. They also contribute to traffic jams and air pollution in cities across the developing world.
There isn’t much low hanging fruit left on the environmental policy tree. Now that we’re aware of the dangers of air pollution and climate change, most of the easy, no-brainer options have already been exercised, and the solutions we’re left with too often come with thorny trade-offs and implementation difficulties.Ending lavish fuel subsidies don’t fall into that category, however. When governments devote large swaths of their budgets on these subsidies, they’re not just footing the bill for keeping prices low, they’re also paying an opportunity cost for other government programs on which that money might be better spent. Moreover, these subsidies encourage inefficient overconsumption of fuel, which is both economically wasteful and environmentally damaging.It’s no coincidence, though, that the countries employing these fuel subsidies are often ruled regimes with let’s just say unsettled with their citizens. As good as it looks on paper, normalizing fuel costs to market prices is politically unpalatable because it’s bound to be unpopular, to say the least. That being said, there’s rarely been a better time to start phasing these subsidies out, thanks to the fall in crude prices over the past 28 months. With oil selling at less than half of what it was in June of 2014, the pain of gradually increasing fuel prices is duller than it could be.Rather than railing against nuclear power or promoting renewables at any cost, greens would be far better served fighting fuel subsidies—rolling them back just makes sense.