Regional: Assessment and Implications of Rationalizing and Phasing Out Fossil-Fuel Subsidies

Sovereign Project | 45077-001

Summary

The TA will develop a theoretical and empirical framework to define and measure fossil-fuel subsidies and assess the socioeconomic impact of its elimination in selected ADB developing member countries (DMCs). The first component will constitute a discussion and clarification of suitable definition of fossil-fuel subsidy and its estimation across selected DMCs. Both consumer and producer subsidies will be considered to the extent that relevant data are available. The second component will evaluate household-specific impacts from the elimination of subsidies and the consequent short to medium-term rise in energy prices, and discuss the design of social safety nets to mitigate these impacts on the poor, considering gender equity.

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Project Name Assessment and Implications of Rationalizing and Phasing Out Fossil-Fuel Subsidies
Project Number 45077-001
Country Regional
Project Status Approved
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 7834-REG: Assessment and Implications of Rationalizing and Phasing Out Fossil-Fuel Subsidies
Technical Assistance Special Fund US$ 1.00 million
Strategic Agendas Environmentally sustainable growth
Inclusive economic growth
Drivers of Change Governance and capacity development
Sector / Subsector

Energy - Energy sector development and institutional reform

Industry and trade - Industry and trade sector development

Public sector management - Public expenditure and fiscal management - Social protection initiatives

Gender Equity and Mainstreaming Some gender elements
Description The TA will develop a theoretical and empirical framework to define and measure fossil-fuel subsidies and assess the socioeconomic impact of its elimination in selected ADB developing member countries (DMCs). The first component will constitute a discussion and clarification of suitable definition of fossil-fuel subsidy and its estimation across selected DMCs. Both consumer and producer subsidies will be considered to the extent that relevant data are available. The second component will evaluate household-specific impacts from the elimination of subsidies and the consequent short to medium-term rise in energy prices, and discuss the design of social safety nets to mitigate these impacts on the poor, considering gender equity.
Project Rationale and Linkage to Country/Regional Strategy The contextual analysis of the reform of inefficient energy subsidies will help policy makers design energy subsidies in an environmentally, socially, and economically sound manner. With rising energy prices in recent past, low-income countries have been confronted with a strong and consistent increase in the fiscal cost of energy subsidies, undermining their development efforts. Subsidizing fossil-fuel consumption leads to increased demand for the highly scarce energy source. Higher domestic demand puts pressure on energy imports for importing countries and lowers export of energy products from exporting countries, both of which worsen the trade balance. Subsidies to fossil-fuel producers also create excessive supply, which may lead to an early depletion of reserves that in some countries represent the main or only source of foreign exchange earnings. This incentive to fossil-fuels has created a disincentive for the development and rapid deployment of renewable energy and therefore, stunted the pursuit of countries for low-carbon growth.
Impact More efficient use of energy, less environmental pollution, and better safety nets to protect the poor
Project Outcome
Description of Outcome Target DMCs have better understanding of fossil-fuel subsidies and the implications of phasing it out for poor households
Progress Toward Outcome
Implementation Progress
Description of Project Outputs

Theoretical and empirical framework to define and estimate fossil-fuel subsidies

A report on the definition and estimates of existing fossil-fuel subsidies; assessment of the microeconomic (household-level) impact of phasing out fossil-fuel subsidies in selected ADB DMCs; and options for targeted subsidy to protect the poor households

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation

Workshops, country seminars and conferences will be organized to consult with governments and other stakeholders and to disseminate the findings of the research study. The inception workshop, to which high-caliber resource persons and economists will be invited, will refine the research problems to be tackled, the analytical framework to be used, and the study methodology to be applied by the project. Representatives from the government, the private sector, academe, and multilateral organizations will be invited to country seminars and conferences to exchange ideas, take stock of the lessons learned from the project, examine its contributions, and chart the way forward.

Analytical papers produced under the project will be published in different formats such as working papers, policy notes/briefs, and journal articles. The final findings from the project would be published in a form that could be used as guidelines by DMCs in reforming their energy sectors and instituting mechanisms to protect the poor from the resulting economic changes. The output will not be designed as a policy prescription but as a guidepost to policy making.

Business Opportunities
Consulting Services The TA wil require the services of nine international consultants for a total of 27 person-months and 12 national consultants for a total of 54 person-months. The consulting team will comprise (i) an international energy economist (lead consultant); (ii) an international public finance and energy specialist; (iii) 6 international resource persons; (iv) an international copy editor, (v) 10 national economists; (vi) a national logistics coordinator; and (vii) a national research analyst. The logistics coordinator will manage day-to-day communications and logistics among all stakeholders and keep track of implementation. The research analyst will support the development of a complete database on all information collected during TA implementation to generate longer-term benefits from the TA for ADB and the DMCs. ADB will recruit the consultants in accordance with its Guidelines on the Use of Consultants (2010, as amended from time to time). A consulting firm will be selected to provide specialists (i), (ii) and (v) according to quality-and-cost-based selection procedures. As the contract budgets from this component are less than $1,000,000, simplified technical proposals will be requested from short-listed firms. The standard quality-cost ratio of 80:20 will be applied. The remaining consultants will be recruited as individual consultants.
Responsible ADB Officer Shikha Jha
Responsible ADB Department Economic Research and Regional Cooperation Department
Responsible ADB Division ERMR
Executing Agencies
Asian Development Bank6 ADB Avenue, Mandaluyong
Metro Manila, Philippines
P.O. Box 789, 1099 Manila,
Philippines
Timetable
Concept Clearance 25 Feb 2011
Fact Finding -
MRM -
Approval 21 Jul 2011
Last Review Mission -
Last PDS Update 05 Aug 2011

TA 7834-REG

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
21 Jul 2011 - 21 Jul 2011 31 Jan 2013 30 Sep 2015 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
1,000,000.00 0.00 0.00 0.00 0.00 0.00 1,000,000.00 21 Jul 2011 687,546.64

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