Egypt’s fuel subsidy cuts a big step in climate change battle

Although perhaps not good news for many living in Egypt, especially those reliant on transport for a living, the news that Egypt is to massively cut fuel subsidies has received an extremely positive reaction throughout the climate change community.

The percentage increase is no marginal thing either, with fuel now costing 78% more than previous levels - almost overnight. The decision has angered many, with teargas being used on protesting taxi drivers in Cairo. The main reason given for the decision was the inability to maintain the cost, the major impact, however, could be far more extensive than simple economics.

The International Energy Agency (IEA) has been exploring the extent of fuel subsidies for many years, with the latest estimates suggesting that an incredible $500 billion is spent annually for this purpose. The largest provider of such subsidies is Iran, who are incidentally also looking to make changes in their approach - targeting poor people as opposed to the entire population.

The ironic thing is that whilst many countries add tax onto fossil fuels and subsidise green energy initiatives, numerous other states are making it more affordable to purchase the very thing we are striving to wean ourselves off. The IEA, along with many other experts in the industry, have pinpointed this as a major hurdle in reducing carbon emissions.

With over a quarter of Egypt's 82 million people living in poverty, the move is a brave one from a recently elected President. This is especially true considering that similar increases have also recently been placed on both food and electricity, and with such a modern history of revolt.

A recent report by Shalagh Whitley of the Overseas Devlopment Institute (ODI), entitled "Time to change the game - Fossil fuel subsidies and climate", focuses on the role that such subsidies have both on renewable energy efforts and government budgets. The latter of these two points is particularly relevant given that Capital Economics - an economic research consultancy based in London - has recently stated that the North African country's current budget deficit raises serious concerns about the sustainability of public finances.

Within the ODI report, it is suggested that cuts in such subsidies would "eliminate the perverse incentives that drive up carbon emissions, create price signals for investment in a low-carbon transition and reduce pressure on public finances". The G20, responsible for over three quarters of carbon emissions has already agreed in principle to removing fuel subsidies, and the latest move by Egypt, and also Iran, could be a huge step in the right direction.