Ecuador's Fuel Protests Show The Risks Of Removing Fossil Fuel Subsidies Too Fast

Ecuador's Fuel Protests Show The Risks Of Removing Fossil Fuel Subsidies Too Fast Soldiers enforce a curfew in Quito, Ecuador during weeks of protests over higher fuel prices. (AP Photo/Fernando Vergara)

In early October, the city centre near the House of Ecuadorian Culture in Quito, Ecuador, hummed with the sounds of uniformed school children, foreign tourists, civil servants and commuters. Some stopped to relax or eat in the groomed parks nearby.

Within the week, the area was engulfed in violent chaos. Police fired tear gas into crowds of angry marchers that had taken over the culture museum. “It just keeps getting worse and worse,” said Maria Fernanda Sanchez, a Quito resident and bystander to the protests.

 Get The Latest By Email

Weekly Magazine Daily Inspiration

The protests started on Oct. 2 in response to the federal government’s “Decreto 883,” a packet of economic adjustments that eliminated a government fuel subsidy worth close to US$1.4 billion per year. The package was designed to help meet the US$4.2 billion loan requirements from the International Monetary Fund (IMF), but resulted in civil unrest as energy prices rose across the country.

This recent upheaval in Ecuador has important lessons for Canadian climate change policy. The mass protests shine a spotlight on the tension that can arise between policies that raise energy prices and day-to-day energy affordability.

The Ecuadorian experience

Ecuador’s removal of the 40-year-old fuel subsidy saw gas and diesel prices rise sharply. The price of gasoline rose to $0.80 per litre (US$2.30/gallon) from $0.64 per litre (US$1.85/gallon) and the cost of diesel more than doubled.

Ecuador's Fuel Protests Show The Risks Of Removing Fossil Fuel Subsidies Too Fast Demonstrators scale a residence in Quito, Ecuador on Oct. 11, 2019. (AP Photo/Dolores Ochoa)

A violent storm of protests followed, led by lower-income earners, including Indigenous, student and labour unions. After 11 days of unrest and hundreds of millions of dollars in economic damages, Ecuadorian President Lenín Moreno backed down and reversed the policy.

Moreno’s backtrack highlight the risks that come when fossil fuel subsidy reform (or broader fiscal climate policy) is implemented in a difficult political, social, and economic context. Fossil fuel subsidy reforms save governments money, but they are also a key ingredient to tackling climate change.

Fossil fuel subsidies and climate change

Fossil fuel subsidies artificially lower prices on oil, gasoline and other petroleum products for consumers and producers to below market levels, and encourage their use over climate-friendly alternatives.

The International Energy Agency (IEA) estimates that global subsidies to consumers alone were US$400 billion in 2018, and this does not include subsidies to oil and gas producers where poor transparency clouds estimates. Together, the G20 subsidizes the production and consumption of coal, oil and gas by at least US$150 billion annually.

The UN Secretary General António Guterres, the IEA and others emphasise that fossil fuel subsides are hindering efforts to reduce global greenhouse gas emissions. “The continued prevalence of [global fossil fuel] subsidies — more than double the estimated subsidies to renewables — greatly complicates the task,” the IEA reported in June.

Canada has already made significant strides in using fiscal policy such as carbon pricing to tackle climate change, but additional monetary and regulatory policies are needed to hit the 2030 Paris target and the 2050 net-zero pledge.

And Canada and the provinces continue to support fossil fuels with billions of dollars domestically. Canada, along with its G20 peers, has reaffirmed its commitment to remove any “inefficient” federal fossil fuel subsidies every year since 2009. Canada went one step further and committed to a 2025 deadline. As part of Canada’s commitment, the federal government is currently identifying inefficient programs with a view to reforms.

Lessons from Ecuador

Fossil fuel subsidy reform, carbon pricing and regulations, can all lead to a period of economic adjustment that sees prices rise — at least in the short-term — while technology and innovation catch up.

Ecuador’s response is not unique. France saw the escalation of the yellow vest movement in 2018 after President Emmanuel Macron and his government increased a carbon tax that raised fuel prices.

Moreno’s reforms were not directly linked to environmental policy — the IMF loan agreement and desire to stop smuggling of fuel to neighbouring countries were the principle motivations. Yet they offer sharp lessons in what could go wrong when subsidy reform and fiscal policy is poorly implemented.

Too fast, too furious

Ecuador raised its fuel prices too quickly. Gradual, predictable, incremental roll-out is nearly universally recommended by experts.

Government programs that support viable alternatives can also play a role. For example, governments could invest in improving public transport or making low-carbon vehicles more accessible. Innovation can be spurred by necessity, but governments need to act cautiously when causing change themselves.

Ecuador's Fuel Protests Show The Risks Of Removing Fossil Fuel Subsidies Too Fast A mural, inspired by Eugene Delacroix’s painting ‘La Liberté guidant le peuple’ by artist PBOY depicts France’s yellow vest protestors. (AP Photo/Christophe Ena)

Adverse impacts on the poor

At first glance, fuel subsidies keep energy affordable for vulnerable populations. However, Ecuador’s blanket approach means that its scarce government revenue is subsidizing the driving habits of the middle and upper classes instead of targeting the lower-income residents.

These policies can also exacerbate existing social tensions. “The Indigenous peoples of Ecuador have long been repressed, and what happened aggravated deep social divides,” said Grace Jaramillo, a postdoctoral researcher of Latin American Political Economy at the University of British Columbia. Existing inequalities in income distribution can inflame mistrust in this type of policy, she said.

To counter these concerns, environmental fiscal policies can be coupled with increased social programming, rebates, refunds and tax credits to maintain consumers’ overall spending power. The money saved on subsidies can also be used to fund climate-friendly programs that boost energy efficiency or renewable energy.

Even when people receive rebates or other benefits, they still have reasons to switch to cleaner alternatives when fossil fuel prices rise — maintaining the environmental effectiveness of the policy. At the same time, incentives help with equity issues and increase the popularity of the program. Without widespread buy-in, good public policy may be pushed into retreat. Slow but steady action is better than no action at all.

Poor explanations, no negotiations

With little explanation on the reasons behind the subsidy reform, and no prior consultation with affected communities or social groups, the Ecuadorian policy was poorly understood and had gained very little support.

Complex technical policy will fail if the costs are obvious but the benefits are not. In the case of climate change policy, governments must target their explanations about the policy, its rebates and its intended outcomes to muster support. The costs of inaction on climate change should be made clear but so should the multiple benefits that accompany climate policy, including cleaner air, energy efficiency, more liveable cities and so on.

As Canada ratchets up its ambition to decarbonize the economy by 2050, Ecuador’s experience shows that without careful policy implementation the local and immediate needs and fears of citizens could trump the global, long-term, critical concerns of fighting global warming.

About The Author

Katherine Monahan, Fellow in Global Journalism at the University of Toronto, and Senior Research Associate at the Smart Prosperity Institute, L’Université d’Ottawa/University of Ottawa

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Related Books

Drawdown: The Most Comprehensive Plan Ever Proposed to Reverse Global Warming

by Paul Hawken and Tom Steyer
9780143130444In the face of widespread fear and apathy, an international coalition of researchers, professionals, and scientists have come together to offer a set of realistic and bold solutions to climate change. One hundred techniques and practices are described here—some are well known; some you may have never heard of. They range from clean energy to educating girls in lower-income countries to land use practices that pull carbon out of the air. The solutions exist, are economically viable, and communities throughout the world are currently enacting them with skill and determination. Available On Amazon

Designing Climate Solutions: A Policy Guide for Low-Carbon Energy

by Hal Harvey, Robbie Orvis, Jeffrey Rissman
1610919564With the effects of climate change already upon us, the need to cut global greenhouse gas emissions is nothing less than urgent. It’s a daunting challenge, but the technologies and strategies to meet it exist today. A small set of energy policies, designed and implemented well, can put us on the path to a low carbon future. Energy systems are large and complex, so energy policy must be focused and cost-effective. One-size-fits-all approaches simply won’t get the job done. Policymakers need a clear, comprehensive resource that outlines the energy policies that will have the biggest impact on our climate future, and describes how to design these policies well. Available On Amazon

This Changes Everything: Capitalism vs. The Climate

by Naomi Klein
1451697392In This Changes Everything Naomi Klein argues that climate change isn’t just another issue to be neatly filed between taxes and health care. It’s an alarm that calls us to fix an economic system that is already failing us in many ways. Klein meticulously builds the case for how massively reducing our greenhouse emissions is our best chance to simultaneously reduce gaping inequalities, re-imagine our broken democracies, and rebuild our gutted local economies. She exposes the ideological desperation of the climate-change deniers, the messianic delusions of the would-be geoengineers, and the tragic defeatism of too many mainstream green initiatives. And she demonstrates precisely why the market has not—and cannot—fix the climate crisis but will instead make things worse, with ever more extreme and ecologically damaging extraction methods, accompanied by rampant disaster capitalism. Available On Amazon

From The Publisher:
Purchases on Amazon go to defray the cost of bringing you,, and at no cost and without advertisers that track your browsing habits. Even if you click on a link but don't buy these selected products, anything else you buy in that same visit on Amazon pays us a small commission. There is no additional cost to you, so please contribute to the effort. You can also use this link to use to Amazon at any time so you can help support our efforts.



No Visits and Barely Any Calls: The Pandemic and People with a Family Member In Prison
No Visits and Barely Any Calls: The Pandemic and People with a Family Member In Prison
by Alexander Testa and Chantal Fahmy, The University of Texas at San Antonio
The US Electric Power Sector Is Halfway To Zero Carbon Emissions
The US Electric Power Sector Is Halfway To Zero Carbon Emissions
by Bentham Paulos, Lawrence Berkeley National Laboratory et al
Why QAnon Hasn't Gone Away
Why QAnon Hasn't Gone Away
by Sophie Bjork-James, Vanderbilt University
The Long Term Benefit Of Lifting Children Out Of Poverty Today
The Long Term Benefit of Lifting Children Out of Poverty Today
by Diane Whitmore Schanzenbach, Northwestern University et al
What’s The Difference Between Misinformation, Disinformation and Hoaxes?
What’s The Difference Between Misinformation, Disinformation and Hoaxes?
by Michael J. O'Brien and Izzat Alsmadi, Texas A&M
Why Not Make Paper Out Of Something Other Than Trees?
Why Not Make Paper Out Of Something Other Than Trees?
by Beverly Law, Oregon State University
Why Do People Believe In Conspiracies?
Why Do People Believe In Conspiracies?
by Mathew Marques, La Trobe University et al
How to Meet the Ambitious Target of Conserving 30% of Earth by 2030
How to Meet the Ambitious Target of Conserving 30% of Earth by 2030
by Matthew Mitchell, University of British Columbia

New Attitudes - New Possibilities | |
Copyright ©1985 - 2021 InnerSelf Publications. All Rights Reserved.