Removing fossil fuel subsidies in Morocco
Over a period of three years, Morocco successfully phased out fossil fuel subsidies, thereby promoting sustainable practices such as energy efficiency and renewable energy production. The Government secured cooperation from citizens by informing them and raising consumer awareness before the subsidies were removed. The change has led to more sustainable consumption of energy, and has significantly reduced the cost to the Government.
The challenge:
In 2012, Morocco spent the equivalent of 5% of the nation’s GDP on energy (fossil fuel) subsidies. This long standing policy (whereby the state pays the difference between international commodity market prices and agreed domestic prices) had originally been designed to keep vulnerable groups out of energy poverty. However, by this point around three quarters of the subsidies were being diverted to the richest 20% of society, and the total subsidy bill was ballooning out of control. In general fossil fuel subsidies lead to over consumption of energy and disincentivise investment in renewables and energy efficiency.
The measure:
Over a period of three years, the Government of Morocco gradually phased out its system of fossil fuel subsidies.
During the preparation phase a large communication campaign was launched, raising consumer awareness about the impending changes. Attention was also given to stakeholder engagement and consultation, in order to identify groups which would be adversely affected and design mitigation strategies.
The next phase, in 2013, focused on regulation and standards. Price indexation was introduced for diesel, gasoline and industrial fuel oil. This created fluctuations in the domestic prices, reflecting global markets.
The final removal of subsidies was then carried out. First for gasoline and industrial fuel oil, followed by diesel which was phased out over a period of months.
The measure was supported by international institutions including the World Bank and ESMAP, who provided technical assistance.
Thanks to the measure, the government managed to reduce its spending on subsidies from 56.6 billion dirhams (€5 billion) in 2012 to 32.7 billion dirhams (€2.9 billion) in 2014, and saved a further 12.25 billion dirhams (€1.1 billion) in 2015.The remaining cost relates mostly to gas canister subsidies, which will be removed in the next phase of the policy.
Lessons learnt:
Public awareness campaigns were important for the success of the policy. The incremental nature of the subsidy cuts also helped soften the blow for consumers.
In order to offset the social and economic impact of subsidy removal the government expanded existing social protection programs. The public transport system also received additional support, to compensate for the higher cost of fuel and to limit fare increases.
Further deployment:
A number of countries are taking steps to reduce energy subsidies, however measures must be tailored to the local conditions. GML 8
Links:
http://carnegieendowment.org/sada/64557
https://www.esmap.org/node/140726
http://blogs.worldbank.org/climatechange/new-climate-finance-model-morocco-rewards-low-carbon-policies
