Transitional Policies to Assist the Poor While Phasing Out Inefficient Fossil Fuel Subsidies That Encourage Wasteful Consumption

The report argues that Bangladesh's state-dominated oil market and ad-hoc pricing policy create severe fiscal burdens, hinder investment, and encourage carbon emissions. It finds that oil subsidies primarily benefit the rich and upper-middle classes rather than the poor. To address these issues, the authors recommend a phased transition toward market-based pricing, the deregulation of all oil market segments to encourage private investment, and the implementation of targeted cash transfers to protect vulnerable populations from price increases.

• Oil subsidies in Bangladesh have created a significant fiscal burden, reaching 1.1% of GDP in FY2012-13, which was 60% higher than the health budget for that same year.
• The Bangladesh Petroleum Corporation (BPC) has suffered severe financial distress due to price controls, with cumulative deficits reaching TK 464 billion ($5.9 billion), or 3.1% of national GDP, by the end of FY2014-15.
• Empirical evidence indicates that oil subsidies in Bangladesh do not effectively benefit the poor; the rich and upper-middle classes consume the vast majority of petrol (88%), diesel (89%), and motor oil and CNG (94%).
• Phasing out fossil fuel subsidies by 2020 could reduce Bangladesh's national carbon emissions by 8.7%, and this reduction could increase to 13.6% if 30% of the fiscal savings are invested in renewable energy and energy efficiency.
• The current oil pricing mechanism is ad-hoc and driven by political considerations, failing to meet principles of cost coverage, transparency, or the internalization of external environmental costs.
• The state-dominated market structure and legal barriers to entry have resulted in outdated infrastructure, such as the Eastern Refinery Limited (ERL), and poor service and safety standards at retail stations.
• The report suggests a phased reform strategy: first adopting an automatic pricing formula administered by an autonomous Bangladesh Energy Regulatory Commission (BERC), and eventually moving toward full price liberalization.
• To mitigate the impact of subsidy removal on the poor, the document recommends transitioning to a cash transfer system, leveraging the existing National Social Security Strategy (NSSS).
• International experiences from India and the Philippines demonstrate that full deregulation of oil prices and markets can attract private investment, improve service quality, and reduce the fiscal burden on the state.

APA

Ahmed, S., Sattar, Z., & Alam, K. (2016). Transitional Policies to Assist the Poor While Phasing Out Inefficient Fossil Fuel Subsidies That Encourage Wasteful Consumption. Climate and Development Knowledge Network. https://cdkn.org/sites/default/files/files/Fuel-Oil-Subsidy-Reforms-and-OilMarket-Deregulation-in-Bangladesh-November-30-2016-Revised-14-May2017.pdf

Chicago

Ahmed, Sadiq, Zaidi Sattar, and Khurshid Alam. Transitional Policies to Assist the Poor While Phasing Out Inefficient Fossil Fuel Subsidies That Encourage Wasteful Consumption. Climate and Development Knowledge Network, 2016. https://cdkn.org/sites/default/files/files/Fuel-Oil-Subsidy-Reforms-and-OilMarket-Deregulation-in-Bangladesh-November-30-2016-Revised-14-May2017.pdf.

Wikipedia

{{cite report |last1=Ahmed |first1=Sadiq |last2=Sattar |first2=Zaidi |last3=Alam |first3=Khurshid |title=Transitional Policies to Assist the Poor While Phasing Out Inefficient Fossil Fuel Subsidies That Encourage Wasteful Consumption |publisher=Climate and Development Knowledge Network |date=30 November 2016 |url=https://cdkn.org/sites/default/files/files/Fuel-Oil-Subsidy-Reforms-and-OilMarket-Deregulation-in-Bangladesh-November-30-2016-Revised-14-May2017.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{ahmed2016transitional, author = {Ahmed, Sadiq and Sattar, Zaidi and Alam, Khurshid}, title = {{Transitional Policies to Assist the Poor While Phasing Out Inefficient Fossil Fuel Subsidies That Encourage Wasteful Consumption}}, institution = {Climate and Development Knowledge Network}, year = {2016}, month = nov, url = {https://cdkn.org/sites/default/files/files/Fuel-Oil-Subsidy-Reforms-and-OilMarket-Deregulation-in-Bangladesh-November-30-2016-Revised-14-May2017.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }