Fossil-Fuel Subsidy Reform: Challenges and opportunities

This meeting report from the International Institute for Sustainable Development (IISD) documents a workshop held in Bali, Indonesia, in November 2012. The event focused on the challenges and opportunities of fossil-fuel subsidy reform in Southeast Asia, presenting case studies from the Philippines, Vietnam, Indonesia, Malaysia, and Iran, while providing a policy framework for sustainable reform.

• In 2011, fossil-fuel consumption subsidies in several Southeast Asian countries represented a significant portion of their GDP: Indonesia (US$21.3 billion, 2.5%), Malaysia (US$7.2 billion, 2.6%), Philippines (US$1.5 billion, 0.7%), Thailand (US$10.3 billion, 3.0%), and Vietnam (US$4.1 billion, 3.4%).
• The Philippines deregulated its downstream oil sector in 1998 to create a competitive market with fair prices and improved fuel quality. To mitigate the impact on vulnerable groups, the government implemented the Public Transport Assistance Program, which distributed 1.22 million smart cards to jeepney and tricycle drivers to discount fuel bills.
• Vietnam's Green Growth Strategy includes targets for 2020 to reduce energy consumption per unit of GDP by 1 to 1.5 per cent per year and reduce greenhouse gas emissions from energy activities by 10 to 20 per cent compared to business as usual. Fossil-fuel subsidy reform is central to this strategy because subsidies are costly, drive emissions, and are regressive.
• Indonesia faces rising subsidy costs due to an 8 per cent annual growth in gasoline consumption, driven by the addition of one million four-wheel vehicles and eight to nine million motorcycles each year. The government has attempted to reduce consumption by banning subsidized fuel for government vehicles in the Java–Bali region and for plantation and mining companies.
• Malaysia utilized a 'Subsidy Rationalization Lab' in 2010, involving 70 experts over six weeks, to develop a roadmap for reducing subsidies. Public engagement through an Open Day and an SMS/online survey of 216,770 respondents showed that support for reducing subsidies increased from 60 per cent to 90 per cent after the Open Day.
• Iran's 2010 energy subsidy reform succeeded through a combination of direct cash transfers to 80 per cent of the population, targeted assistance for 7,000 surveyed companies, and an extensive public relations campaign. Notably, cash payments were transferred to bank accounts in advance of the reforms but were inaccessible until the reforms were implemented.
• The Philippines' Oil Price Stabilization Fund (1984–1998) failed due to political interference and proved regressive, with 92.8 per cent of benefits going to high- and middle-income groups. Between 1990 and 1997, the fund required PHP17.6 billion in government subsidies, which displaced funding for 62,241 school houses and 5,280 kilometres of rural roads.
• India's fuel subsidies for diesel, LPG, and kerosene have led to significant 'under-recoveries' for national oil companies and fuel diversion, where subsidized diesel is used by industry and LPG is diverted for commercial use. The government is designing a system of targeted direct cash transfers to replace these subsidies.
• Vietnam employs an 'Incremental Block Tariff' structure for residential electricity to protect the poor. The lowest band (under 50 kWh) recovers approximately 40 per cent of the economic cost of supply, while profits are covered by higher blocks and cross-subsidies from industrial and commercial users.
• Bangladesh's power sector is increasingly reliant on petroleum products for electricity generation, with sales rising from 254,000 tonnes in 2006–2007 to 932,000 tonnes in 2010–2011. This has caused losses for the Bangladesh Power Company, reaching BDT1055 billion in 2012.

APA

International Institute for Sustainable Development (2012). Fossil-Fuel Subsidy Reform: Challenges and opportunities. https://www.iisd.org/gsi/sites/default/files/ffs_gsibali_meetingreport.pdf

Chicago

International Institute for Sustainable Development. Fossil-Fuel Subsidy Reform: Challenges and opportunities. 2012. https://www.iisd.org/gsi/sites/default/files/ffs_gsibali_meetingreport.pdf.

Wikipedia

{{cite report |author=International Institute for Sustainable Development |title=Fossil-Fuel Subsidy Reform: Challenges and opportunities |date=November 2012 |url=https://www.iisd.org/gsi/sites/default/files/ffs_gsibali_meetingreport.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{internationalinstituteforsustainabledevelopment2012fossilfuel, author = {{International Institute for Sustainable Development}}, title = {{Fossil-Fuel Subsidy Reform: Challenges and opportunities}}, institution = {International Institute for Sustainable Development}, year = {2012}, month = nov, url = {https://www.iisd.org/gsi/sites/default/files/ffs_gsibali_meetingreport.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }