Kazakhstan’s turmoil highlights difficult terrain for fuel subsidy cuts | fossil fuel news

The government announces a new policy that will increase fuel prices. Street protests erupt. Unprepared administration attacks with excessive force. This amplifies the public anger, which boils down to calls for more democratic rights.

It’s the story of Kazakhstan, where the end of price controls for liquefied petroleum gas (LPG) – a popular and affordable fuel – in early January triggered the country’s largest protests since the collapse of the Soviet Union three decades ago. But the current political crisis of the Central Asian Republic closely mirrors a growing series of similar mass protests around the world, all linked to increased taxes or reduced subsidies on fossil fuels in recent years.

From France to Ecuador, Pakistan to Iran, and Zimbabwe to Lebanon, mass mobilizations over the past three years have exposed the difficult terrain that governments tread as they attempt to allow the market to set energy prices without provoking mass uprisings.

Subsidies strain countries’ budgets and keep the planet addicted to fossil fuels. However, protests in Kazakhstan and other countries also reveal uncomfortable truths about democracies and authoritarian regimes alike, analysts say. Governments are often more willing to cut subsidies to vulnerable sectors of society than to direct the benefits to fossil fuel companies. And in country after country, citizens are deducing that they can influence energy policy only by taking to the streets.

The deficit of democracy and climate change

“There is a clear democracy deficit at play here,” said Naomi Hussein, a prominent professional lecturer at American University in Washington, who has done extensive research on the links between fuel prices and mass protests worldwide. “Citizens often do not trust their governments when it comes to energy policy.”

This mistrust is exacerbating the world’s struggle to tackle climate change. “Fossil fuel subsidies restrict dependence on coal, oil and gas while at the same time hampering the competitiveness of renewable energy sources,” Haro van Asselt, professor of climate law and policy at the University of Eastern Finland, told Al Jazeera.

There is a clear democracy deficit at play here.

Naomi Hussein, Senior Professional Lecturer, American University in Washington

In 2019, 81 major economies provided $468 billion – an amount greater than Nigeria’s GDP – in financial support for the fossil fuel sector, according to the International Energy Agency and the Organization for Economic Co-operation and Development (OECD). The COVID-19 pandemic has hurt global energy demand, but as economic growth has recovered, so has the hunger for fossil fuels. Many countries have chosen to double down on coal, oil and gas.

“Instead of using it as an opportunity to reset, many countries have gone back to the traditional way and supported energy options that were based on fossil fuels,” Viputy Garg, an energy economist at the Institute for Energy Economics and Financial Analysis, told Al Jazeera.

Billions of benefits for fossil fuel companies

However, experts point out that not all fuel discounts are the same. They say price setting and lower consumer taxes often get disproportionate attention. But governments also provide billions of dollars in annual benefits to fossil fuel companies. In 2019, for example, 50 of the world’s largest and richest economies increased their subsidies to fossil fuel production by 30% compared to the previous year. Altogether, these countries provided benefits worth $178 billion that year.

Some governments even refuse to view the benefits to energy companies as subsidies. “The UK maintains the ridiculous position of no fuel subsidies,” British development economist Neil McCulloch said in an interview with Al Jazeera. In fact, the UK provided more than $13 billion in tax cuts and other rebates to the industry in 2020, according to OECD data. Australia, the world’s largest coal exporter, spent $7.4 billion on subsidies in 2020-2021.

Garg said these subsidies to fuel producers help governments attract investors, and thus earn royalties and profits, while at the same time creating jobs.

Protection of the most vulnerable

It’s not the profit that tracks fossil fuel subsidies, said Bronwyn Tucker, co-director of global public finance at Oil Change International. “The richest companies, countries and individuals have to pay.”

The richest companies, countries and individuals have to pay.

Bronwen Tucker, Global Co-Director of Public Finance at Oil Change International

But on the streets of Almaty and previously in Paris, Beirut, Tehran and Quito, protesters have made clear they believe ordinary people are currently facing the brunt of fuel subsidy cuts. A proposed new fuel tax sparked protests in France in 2018. In Iran, Zimbabwe, Pakistan and Lebanon, governments faced turmoil after a sharp increase in fuel prices, which they limited through subsidies. And in Ecuador in 2019, the government of then-President Lenin Moreno announced an end to all fuel subsidies as it tried to balance its books.

Analysts say governments in many countries – especially energy-exporting countries – are using fuel price controls as a lazy alternative to building and maintaining strong social security systems.

“Maintaining fuel subsidies is easier than putting in place many other policies that would create a better life for the public,” Tucker told Al Jazeera.

Hussain said that if this is the only major benefit the state gives people to shield them from price fluctuations, it is not surprising that protests erupt when fuel subsidies are removed.

Successful transitions and transitions

The Kazakhstan government has reversed its decision to end price setting. France dropped plans to introduce a new tax. Ecuador has killed its attempts to end fuel subsidies. But the lesson from these protests is not that states should keep fuel subsidies intact, experts say.

Research by McCulloch and his colleagues suggests that countries with strict price caps on fossil fuels are more likely to experience large protests when financially stressed governments are forced to sharply raise energy costs.

“Countries need to move gradually towards a flexible pricing system, with the introduction of targeted cash transfers and other benefits so that the burden does not fall too much on ordinary people,” he said. “Frankly, if governments do not want the protesters to threaten their rule, this shift is in their interest.”

Few countries have succeeded in making that transition. In 2015, Indonesia introduced reforms that significantly reduced subsidies on diesel and gasoline. More recently, India has used direct transfers to reduce diesel price controls and end subsidies for LPG.

Meanwhile, Hussain said fuel is more essential in people’s lives than it has ever been before. “Energy today is like food 200 years ago,” she told Al Jazeera. “No one can do without it.”

the problem? Unlike other sectors, including food, where citizen groups have a seat at the policy table in most countries, energy policy is treated “like a top-secret national security issue,” Hussein said. She said this needs to change to be able to implement meaningful fossil fuel pricing reforms.

Without it, experts warn that other countries and regions where fuel subsidies are part of the social contract between the state and the people – such as the Middle East and Nigeria – could then witness protests of the kind that have wracked Kazakhstan.

“Until energy policy becomes democratic, I see more protests in the future,” Hussain said.



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