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Lost in translation: energy subsidies

Lost in translation: energy subsidies

Farah HalimeBy Farah Halime, Rebel Economy

“Energy subsidies” has become a phrase synonymous with the Middle East’s feeble efforts to reform and balance budgets.

Governments across the region, including Egypt, Jordan, Morocco, and to some extent even oil-rich Gulf states like Saudi Arabia, have struggled to address their addiction to subsidies that provide cheap fuel to sate the masses. They want to scrap expensive energy subsidies but fear they will provoke riots if they do.

But as huge international institutions like the International Monetary Fund and the International Energy Agency muscle in with their expertise on how to end this costly system that will cost $600bn this year, a substantial error has been overlooked.

These multinational organisations claim they have the technical expertise to help the Arab world with its most costly problem, but in fact have no standard way to measure energy subsidies, according to energy consultancy OpenOil.

Stephanie Heerwig, writing for OpenOil, explains:

“The IMF, IEA, EIA, OECD, UNEP, you name it – use either different methodologies or different assumptions or both and routinely come up with wildly different estimates for the same country in the same year.

“Not only are the data swilling around the public domain confusing – I might expect that – but the methodologies and assumptions on which it is based are incoherent most of the time. And what is particularly striking – there is no consensus on how to measure the subsidies. How could that be, given their huge impact on carbon emissions and government budgets?”

So while the definition of energy subsidies is easy, there are hundreds of mechanisms that could fall under “an energy subsidy”.

“What I have found out, especially when reading a brilliant paper by Doug Koplow, is that not only do major organisations often use different methodologies, they may use different underlying assumptions to arrive at radically different results even with the same methodology.

“For instance, according to estimates by the International Energy Agency the total amount of subsidies on oil products in Egypt amounted to $9.2bn in 2007. The IMF, however, estimates a figure of $3.8bn, for the same year using the same methodology! That is a difference of about 58%! What a statistical margin of error.”

Koplow, in the paper, compares 2007 estimates for total amount of subsidies on oil products from two of the biggest organisations, the IEA and the IMF (in billions of US dollars):

Heerwig goes into some detail on how these organisations come to such conflicting data. The conclusion is clear, however: If “experts” can’t even agree on the level of subsidies in each country, how can we expect the Egyptian government, which is going through a monumental transition, to come up with a better alternative?

No, this doesn’t mean Egypt is off the hook. But the nation, and others in the same boat, must seek as many different opinions as possible to come to a sound solution. This argument inevitably ends at the same conclusion for Egypt: be more inclusive and do not continue to mistakenly think that working in isolation is a mark of power.

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