The photos coming out of Nigeria over the last two weeks speak for themselves. People are angry – angry enough to have taken to the streets and for lives to have been lost in skirmishes with the police. After six days of strikes, the anger has made itself felt all the way to the top. Yesterday, President Jonathan partly recalled his New Year policy, restoring most of the subsidy on fossil fuels, which immediately reduced fuel prices.
Seun Kuti (son of Fela Kuti for those of you into AfroBeat) was interviewed by the BBC on streets of Lagos while handing out flyers to students and labourers earlier in the week. "I'm not talking economics here, I'm just talking common sense,” he said. “You cannot charge $1 a litre when the [majority of the] population lives on less than a dollar a day."
He talks good sense. But he is, of course, talking economics. Subsidies, along with any other economic instrument, shape the way an economy functions. And, while such economic instruments may sound the domain of suited and booted treasury-types, they determine what is affordable, they alter prospects, they shape lives. So was President Jonathan right to repeal the subsidy on fossil fuels?
The case for eliminating subsidies
The elimination of fossil fuels would be a significant step towards shifting to a low-carbon pathway and one that a range of non-governmental organisations, including our coalition partner International Institute for Sustainable Development, are focusing on for Rio 2012. After all, in 2011, as global consumers of fossil fuels we received about six times more government subsidies than those provided to the renewable energy industry. In short, we are using good money to support an industry that is destroying the natural world and wreaking environmental havoc. Surely, such subsidies have to go?
For those not convinced by the environmental case alone, there is also a strong economic case for removing fossil fuel subsidies in developing countries. World renowned ‘superstar’ economists such as Paul Collier and Jeffrey Sachs have come out strongly in favour of eliminating fossil fuel subsidies in developing countries, and Nigeria illustrates why.
Nigeria’s fuel subsidy eats into a quarter of the annual budget. By cutting it, the government claims that it will save £4.2 billion annually to invest on infrastructure (as well as improving underperforming refineries that have forced Nigeria to import its own refined oil to meet national demand). But this premise, of course, is dependent on the government investing the money effectively – more on that below.
Environment: tick; economy: tick. So, is this a storm that just needs to be weathered by the people on the streets of Lagos? I’m not so sure.
Anger has erupted on the streets because the removal of the fuel subsidy means monumental rises in the price of transport and food. Such price hikes hit the poorest the hardest. In a country that has significant oil reserves it is little wonder that the citizens are outraged that they cannot afford to fill up their cars. And, as the Financial Times reveals, people are angry because they cannot understand how the fuel subsidy more than doubled last year to a staggering (US) $8 billion, without there being a corresponding increase in petroleum products on the market. The public wonders why they are now being forced to pay the cost of the fuel subsidy this year when the government abused it last year to enrich themselves.
Fossil fuel subsidy reform featured prominently in government submissions (see our analysis) to the Rio+20 process and has made it into the first draft for the negotiating text. The Green Economy Coalition supports reforms but, as the Green Economy Coalition member the International Trade Union Confederation rightly points out,we can only back them if they are accompanied by a wide-reaching set of policies to protect workers and citizens through the transition.
- having a social protection floor, providing access to essential social services and income security for all citizens,
- protecting access to essential services and sectors,
- re-skilling workers who have lost jobs in fossil fuel industries so they can work in new industries, and
- more progressive taxation policies to ensure that the poorest do not continue to bear the brunt of the changes.
No one size fits all: every country has a different cultural and economic context which needs to be understood. That’s why IIED’s model for national dialogues are so important.
The pathway to greener economies is long, bumpy, uncomfortable and unknown. All of us interested in sustainable development often wax lyrical about the symbiotic relationship between environment, the economy and society. In the long-term and at the macro-scale that has to be right. Rio+20 has to act as the catalyst for a movement that brings together the most progressive of thinking and successful of practices so that we can build collective experience across a range of different contexts.
But in the short-term there are some stark choices and difficult policy decisions. To talk about the economy is to talk about politics and people. And, just as we’ve seen with the riots in Nigeria, the road to change is not smooth – especially if citizens doubt the government is working in their best interest and protecting them through the transition.