An article published in Al-Hayat newspaper on 3 November, quoted me as a participant at the Arab Forum for Environment and Development (AFED) annual conference on sustainable energy in Sharjah. Unfortunately, I found it misinterpreted my comment- perhaps some words got lost in translation - so I would like to make a clarification.
The article says that I contradicted one of the AFED report's recommendations regarding the elimination of subsidies. In fact, the AFED report does not mention elimination of energy subsidies. Rather it calls on policymakers to “phase out energy subsidies”. I have no objection to this recommendation; only that we should be clear that it is a means to an end. The real ends would be for example society's safety, health and welfare for current and future generations.
My comment was intended to urge caution over a focus on subsidy removal because this is not always useful or politically logical terms for oil and gas exporting countries, especially where governments preside over large welfare states. However, I argued that governments should knowthe costs of energy, not only its production but also the costs of depleting a national asset (e.g. oil or gas reserves) and the public health costs of burning the fuel for energy (e.g. air pollution and climate-harming emissions). This will bring to attention the amount that the government could be redirecting towards other investments to reduce fossil fuel energy dependence over the long term thereby providing other public goods such as improved health, jobs and resources for future generations.
Some of my thinking on this can be found in the report 'Saving Oil and Gas in the Gulf' (Chatham House, August 2013). This report considers low energy prices in the GCC region as a cause of wasted hydrocarbon wealth and a major obstacle to efficiency. It points out that the wealthy are benefiting most from this system whilst acknowledging that sudden price hikes would be politically undesirable. As a starting point, it recommends: "sharing national assessments of value of national hydrocarbons wealth and the costs of burning it in domestic energy systems” and working towards common GCC fuel and electricity prices.
Whatever the argument is, all GCC countries - and many more countries in Western Asia - could agree that the low prices of fuel, electricity and water are leading to gross inefficiency and that resulting over-consumption imposes additional costs on the economy. Those losses range from billions of dollars in new power generation capacity to respiratory illnesses to depletion of precious ground water. If governments talk about how to pass on some of these costs to the consumer – whilst protecting the poor - it will make logical sense to a constituency beyond some private sector groups and neo-liberal economists.
It is interesting to note that in the weeks following the AFED conference, the issue of energy pricing and subsidies attracted serious attention at the highest levels in the GCC countries. For example, Kuwait set up a high-level ministerial committee to review subsidies on commodities and servicesand the Federal Electricity and Water Authority in the UAE announced it would raise electricity tariffs for the four Emirates it supplies by 15% in January 2014. The most powerful statement came from the minister of oil and gas in Oman, Mr. Mohammed Al-Rumhi, who said on 10 November: “We are wasting too much energy in the region, and the barrels that we are consuming are becoming a threat now, for our region particularly… what is really destroying us right now is subsidies… we simply need to raise the price of petrol and electricity.”
Glada Lahn is Senior Research Fellow, Energy, Environment & Resources Department, the Royal Institute of International Affairs (Chatham House), London.
For further information please see:
Saving Oil and Gas in the Gulf, by Glada Lahn, Paul Stevens & Felix Preston, Chatham House, August 2013: http://www.chathamhouse.org/publications/papers/view/193884
Op-ed, " Cutting GCC Oil and Gas Consumption: A Roadmap" in the Middle East Economic Survey, September 2013 http://www.mees.com/en/articles/8399-cuting-gc-oil-and-gas-consumption-a-roadmap