Unexpected allies: fossil fuel subsidy reform and education finance

Research reports and studies
November 2016
Laurie van der Burg and Shelagh Whitley

Despite the urgency of transitioning to low-carbon societies, global fossil fuel subsidies are still significant – estimated at $646 billion in 2015. At the same time, governments have made high-level commitments to increase public spending on working towards the Sustainable Development Goals (SDGs), including that on education. The government spending gap to reach universal, good quality education in low and lower-middle income countries by 2030 is estimated at $39 billion a year between 2015 and 2030.

Although the need for subsidy reform and elements of its processes have received extensive attention from the research community, the specific procedures for mitigating the adverse impacts of reform and using the fiscal space created through subsidy phase-out have received less attention. This is particularly important, as removing fossil fuel subsidies is likely to have a negative impact on the purchasing power of low-income households if parallel measures to protect the poorest are not undertaken. These measures include increased public spending on social protection, education and health.

However, few studies have reviewed whether the promitses made in the reform process, including those related to education, have been met, and if so, how. This report therefore evaluates the links between fossil fuel subsidy reforms and promised increases in expenditure on education, in particular in Angola, Ghana, Egypt, Indonesia, Morocco, Niger, Peru and the Philippines. Further, it provides two case studies of experiences that Ghana and Indonesia have had with linking subsidy reforms to increasing expenditure on education and other measures that have had indirect benefits for education, such as (conditional) cash transfers.