Iran: A Heavy Fiscal Burden
Fire spreads through a Tehran gasoline station in 2007, the kind of protest that has paralyzed governments around the world that are addicted to fossil-fuel subsidies.
Iran has long led the world in government support for oil consumption, spending $80 billion in 2010 to ensure that its citizens would have cheap gasoline. But the Islamic Republic, which has taken major steps since then to slough off this growing burden on its economy, is far from alone.
(Interactive Map: "Fossil-Fuel Burden on State Coffers")
Global government spending on programs that directly lowered the cost of consuming or producing oil, natural gas, or coal totaled $409 billion in 2010, a number expected to swell to $630 billion this year, the International Energy Agency (IEA) says. Add to that figure $45 billion to $75 billion in tax breaks and other support for oil companies in the mostly developed nations, led by the United States, that are part of the Organization for Economic Cooperation and Development, an OECD inventory shows.
Renewable energy gets government support, too—about $66 billion in 2010, says IEA; fossil fuel subsidies were at least six times larger.
Fossil-fuel subsidies have strained government finances. And because below-market fuel prices encourage wasteful consumption and undermine efforts to slow climate change, the issue is front and center this week at the United Nations Conference on Sustainable Development in Rio de Janeiro. Nations have been slow to fulfill the climate-protection pledges first made 20 years ago in this Brazilian city at the historic Earth Summit. But many believe Rio+20 could bring consensus on fossil-fuel subsidy reform that would slash global carbon dioxide emissions significantly, even though concern for the planet is not the prime motivator for many countries.
(Related Quiz: What You Don't Know About Energy Subsidies)
Iran is a case in point. With its finances under pressure due to Western-led sanctions over its nuclear program, Iran became the first major oil-exporting country to enact large subsidy cuts in December 2010. Wary of the miles-long gas lines and civil unrest sparked by the 2007 gas rationing, its earlier effort to curb subsidy costs, the government set a different course. The legislature approved raising fuel prices while compensating citizens with monthly cash payments. A public relations campaign delivered the message that subsidies promoted waste and social injustice because the poorest citizens here, as in most high-subsidy countries, do not benefit as much as the wealthy.
(Related: "Nigeria's Rocky Effort To Wean Itself From Subsidized Fuel")
President Mahmoud Ahmadinejad announced sweeping economic "surgery," and on December 19, 2010, gasoline prices quadrupled to $1.44 per gallon (38 cents per liter). Riot police were deployed, but violence never materialized.
Mohammad Reza Farzin, Iran's deputy finance minister and head of the subsidy reform, co-authored an International Monetary Fund working paper that said the price increases removed $50 to $60 billion in fuel subsidies, distributed at least $30 billion in cash to citizens, and freed $10 to $15 billion for investment in energy efficiency.
(Related: "Iran's Undisputed Weapon: Power to Block the Strait of Hormuz")
Pictures: Eleven Nations With Large Fossil-Fuel Subsidies
Governments spend billions of dollars each year to keep the price of fossil fuels low, burdening state finances and encouraging wasteful energy consumption.