The impact of phasing out energy subsidies on developing countries: "a case study on Egypt"

Abstract

Energy policy in general and energy subsidies in particular have direct and indirect impact on the sustainable development path in both developed and developing countries. The need to reform energy subsidies was one of the major issues addressed at the World Summit on Sustainable Development held in Johannesburg in September 2002\. While a proven long list of both environmental benefits and economic gains from reforming or phasing out subsidies was affirmed both in theory and through international experience, still social and political consequences especially in developing countries is surrounded by uncertainty. This fact is clearly reflected in the case of Egypt as one of the developing countries. Where despite clear evidence of the negative implications on the environmental and economic dimensions, energy subsidies was growing in both absolute and relative terms until 2010. Recently many developing countries - among which is Egypt- has either announced or initiated energy price reforms, this trend was called for by and is expected to be welcomed by the international community. This paper argues that phasing out fossil fuel subsidies by developing countries is economically motivated, especially in the light of budget deficits accumulated after the global economic crisis. Consequently price reform policies and strategies may be biased towards the economic dimension of sustainable development with no or even negative impact on the social and environmental dimensions. In light of the above the primary objective of this paper is evaluates the relative weight of the energy sector in Egypt sustainable development path. The secondary objective is to evaluate the possible impacts of phasing out fossil fuel subsidies on the three dimensions of sustainable development in Egypt as one of the "developing countries" with special emphasis on the social and environmental dimensions. The final objective is to develop policy recommendations for phasing out fossil fuel subsidies to have a balanced impact on the three dimensions of sustainable development in Egypt.