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Governments subsidise fossil fuels to the tune of

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DiscoverGold   Friday, 10/18/19 04:07:42 PM
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Governments subsidise fossil fuels to the tune of $427bn a year
By: Economist | October 16, 2019

Doing away with such handouts is devilishly difficult



A CRISIS WAS defused in Quito, Ecuador’s capital, on Sunday. After 11 days of mass protests, which left at least seven dead and more than 1,000 injured, President Lenín Moreno’s government agreed not to scrap subsidies on petrol and diesel. Repeal of the popular subsidies, which cost the government an estimated $1.3bn a year, was part of a package of public-spending cuts needed to secure a $4.2bn loan from the IMF. Promises to soften the blow by increasing welfare payments to poor families were to no avail.

It is little wonder that Mr Moreno’s decision to end subsidies sparked unrest. Petrol prices have since climbed by 30% while diesel prices have more than doubled. Ecuador has subsidised fuels for 40 years. According to the Inter-American Development Bank, the subsidies have gobbled up 7% of the country’s yearly spending over the past decade. Although they benefit poor Ecuadorians, better-off households gain most. As a way of redistributing income, they are remarkably inefficient. A recent study finds that using petrol subsidies to transfer $1 to the poorest fifth of households costs the government $20. It would make far more sense to pay them in cash.

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