The typical daily traffic of Jakarta, Indonesia. In Jakarta as in many cities, massive fuel subsidies encourage driving.
In the poorest areas around cities in the developing world, many families can’t afford cars and reliant on mass transit systems. In countries like Indonesia, public spending is much smaller on mass transit than on fuel subsidies. Fuel subsidies encourage driving, making Jakarta’s, and many other cities’, terrible traffic worse, and leave most stuck in traffic, relying on an underfunded transit system, and arriving late to school.
Indonesia, and as nations such as Iran, India, China, Nigeria, Venezuela, Mexico, and the US, spends about 15 percent of its entire budget, USD $18.5 billion, subsidizing fuel prices. That’s more than Indonesia’s government spends on infrastructure, the military, or public health and education together. This does not include the costs incurred by pollution, congestion, accidents, infrastructure, or the funding lost to more equitable transportation modes like bus rapid transit or cycling.
According to the International Energy Agency, 37 nations in 2010 spent $409 billion artificially lowering the price of fossil fuels. These massive subsidies boost oil and gas consumption and impede investment in more efficient, environmentally conscious and equitable modes, which benefit the poor. Only eight percent of fossil fuel subsidies go to the poorest 20 percent of the population , and ending fuel subsidies would promote efficiency as well as equity. The IEA estimates that phasing out fossil fuel subsidies alone would reduce carbon dioxide emissions by 4.7 percent by 2020.
For the past three years, the G-20 has been calling for the phase out of fossil fuel subsidies, but political will on a national level remains a significant barrier. In Indonesia, the government made a big adjustment in fuel prices following a rapid rise in the world crude oil price and put reduction of the fuel subsidy as a top agenda. However, the public feared that the rise in fuel prices would cause a rise in other commodities and reform was slowed. Similar situations have emerged in other countries that have attempted to reduce subsidies.
Investments in sustainable transportation, such as TransJakarta, the city’s bus rapid transit system, are a far more equitable and sustainable use of resources than fuel subsidies.
There is a politically feasible way to break the world’s addiction to fuel subsidies: shift of subsidies of fossil fuels to sustainable substitutes like mass transit and targeted poverty alleviation programs which may include subsidies for food, transit, or heating for low-income households. Carried out correctly, this approach can be used to fund sustainable transport networks and provide viable alternatives to the people affected by fuel price changes. With economists predicting that fuel subsidy expenditures in countries like Indonesia may jump 60 percent, governments will have little choice but to cut such subsidies. The only question remaining is whether they will be made in a way that benefits the population or continues to hurt them.
The time to end fuel subsidies and invest in sustainable transportation is now.