Building Public Support for Energy Subsidy Reforms What Will it Take? 1 Executive Summary M any governments around the world subsidize the energy consumption of their citizens. Despite the negative economic and social consequences of providing these subsidies, embarking on meaningful reforms has been challenging for policymakers, especially in the face of rising costs of living. Even when crises or other pressures have prompted action, attempts at reforms have often failed outright or have had to undergo major reversals. Yet, growing debt distress in many parts of the world and the need to address climate change by curbing greenhouse gas (GHG) emissions from the burning of fossil fuels has redoubled the urgency to address energy subsidies. This study used tools from experimental economics and a novel data collection method to survey 37,000 respondents in 12 middle-income countries that provided over US$ 750 billion in explicit and implicit fossil fuel subsidies in 2022. It represents the largest cross-country study covering middle income countries on this issue, presenting unique, bottom-up insights on how knowledge and beliefs influence views on energy subsidy reform and how attitudes can shift. 2 Five main messages emerge from the make the case for reforms and could be an under- analysis. exploited instrument in efforts to build more support. The shift in views was strongest among First, baseline support for subsidy reforms is low. respondents who perceive themselves to be Without anything offered in return, less than a third middle class—which forms a large and important of respondents in our cross-country sample were part of the electorate—in countries where fuel is willing to support a reduction in fuel or electricity the predominant form of subsidized energy. subsidies which would lead to an increase in prices. This finding confirms what has been reported Finally, as the reform process unfolds, open and in the existing literature on the topic and is also iterative communication with the public can consistent with practitioner experience. foster a better understanding of their diverse and evolving policy preferences. The written answers Second, support for reforms can increase when the to an open-ended question in the survey, where reform proposition is packaged with compensatory respondents could freely express their opinion, policies. In our sample, support for reform showed that better education and health were the doubled, and even tripled in some instances, when most salient demands. Still, they also unveiled a respondents were offered alternative policies in much more detailed list of priorities. The latter not return which could be financed using the subsidy only varied by demographic characteristics but is savings. Further, when presented with a menu also likely to be dynamic in the face of changing of options for reinvesting savings from energy economic circumstances. subsidies, there was a clear preference among the survey respondents for spending to be directed While subsidy reforms are difficult to implement, toward better schools, hospitals and roads over they have become an urgent need for many cash transfers and tax cuts. It is noteworthy, countries. Findings of this cross-country study however, that even the least popular choice – suggest that it may be possible to garner public universal cash transfers – was favored by over 60 support for energy subsidy reforms by making percent of respondents. them part of a broader reform campaign. That strategy specifically includes elements of Third, deeply held beliefs about subsidies, such compensatory packages that are negotiated quid as believing that citizens are entitled to them or pro quo within societies. In addition to ensuring doubts about the government’s ability to implement their commitments to reinvesting the savings reforms pose obstacles to reforms—however, these from diverted subsidies are credible, governments challenges can be overcome. For example, when could deploy iterative communication strategies compensatory policies were offered, respondents to help raise the general level of awareness around who believed they have a right to subsidies were reforms. That would include appealing to concerns just as likely to lend support to reform as those who for climate change, fairness, and efficiency in the did not share the same belief. The government’s use of public resources, which are shown to have capacity to deliver on the conditional offers would wide traction in the population. In addition to be critical to the realization of the reform package, customizing the compensatory packages to best suggesting that efforts to put in place commitment suit their circumstances, countries could consider devices to signal credibility of the counteroffer deploying rapid data collection instruments, could bolster reform efforts. Respondents who including opinion surveys, to build awareness trust the government were consistently more likely about subsidies and at the same time track to be supportive of subsidy reforms, regardless of evolving public sentiment and identify gaps in the whether compensatory policies were offered or not. rollout of any short-run compensatory measures. This would enable governments to forestall Fourth, providing information about the negative resistance from a vocal minority who may not consequences of energy subsidies, particularly in need government assistance, while doing what it terms of the environmental externalities caused can to ensure that those who need support are not by the overconsumption of fossil fuels, helped left worse off. 3 The Challenge of Energy Subsidy Reforms M any governments around the world subsidize the energy consumption of their citizens. The direct costs of energy subsidies soared to a record US$1.3 trillion in 2022,1 mostly on account of elevated fuel prices and an expansion in subsidy schemes. In fact, at least 65 countries introduced or expanded fuel subsidies in the last two years.2 Energy subsidies are associated with several negative economic and social consequences (figure 1). First, energy subsidies are an inefficient use of public funds. They divert significant financial resources that could be better spent on growth-enhancing spending such as education, health, and infrastructure. On average across the 12 study countries, energy subsidies amounted to 3.7 percent of GDP, which was greater than the 2.2 percent of GDP spent on average on health care, for example. Second, the benefits from subsidies accrue disproportionately to the rich who consume more energy. On average, 43 1 Simon Black et al., “IMF Fossil Fuel Subsidies Data: 2023 Update,” IMF Working Paper WP/23/169, International Monetary Fund, 2023. 2 Ugo Gentilini et al., “Tracking Global Social Protection Responses to Inflation,” Living Paper v. 5, Discussion Paper No. 2305, World Bank Group, Washington, DC. 4 percent of subsidy benefits accrued to the richest to global warming, intensifies local air pollution, 20 percent of the population in the countries in and generates transport externalities such as our sample, compared to only 8 percent that congestion, the cost of which the IMF estimates benefited the poorest 20 percent. Finally, there at over US$ 5 trillion annually around the world. It are broader negative externalities associated with has been suggested that the removal of fossil fuel the consumption of fossil fuels, which are typically subsidies alone could help countries achieve their not factored in. Energy subsidies distort prices, so commitments to curtailing greenhouse gas (GHG) that the resulting overconsumption contributes emissions under the Paris climate agreement.3 FIGURE 1. Th ffici nc , quit , nd nvironm nt cons qu nc s of n r subsidi s Efficienc Equit Environment Sourc : St ff illustr tion. 3  Intergovernmental Panel on Climate Change, “Climate Change 2022: Mitigation of Climate Change—Summary for Policymakers,” 2022, https://www.ipcc.ch/report/ar6/wg3/. 5 Despite the many potential benefits from reducing are regarded as part of an implicit social contract energy subsidies, reforms have been historically between citizens and the state, reducing subsidies difficult to undertake. An immediate challenge is without adequate compensation may be regarded that the reduction in subsidies would lead to an as a violation of the social contract.4 Additionally, increase in the cost of living, particularly hurting countries often get entangled in complex the poor and the middle class. This fear has often political challenges in the presence of multiple sparked protests in the past, particularly when stakeholders, some of whom have a vested the reform was attempted amidst economic interest in maintaining the status quo.5 crises. Subsidies have become so entrenched in many Energy subsidies may be inefficient from a public countries that there is a widespread lack of finance perspective, but they are a relatively awareness among citizens that their energy easy way to deliver benefits to its citizens, and consumption is subsidized to begin with. Our sometimes one of few tools which states may cross-country study revealed that on average, have at their disposal. Subsidies could be seen just over half of respondents were aware that fuel as citizens’ rightful share in the country’s natural or electricity subsidies existed in their country. wealth, a form of compensation for hardships Awareness tended to be high in countries such during economic crises, or as a way of receiving as in Indonesia (exceeding 80 percent) that had tangible benefits from the government when gone through multiple, highly publicized reform trust is low or the capacity of the government to episodes in the past, but was at modest levels in deliver better services is weak. Where subsidies most others (figure 2). FIGURE 2. L v l of w r n ss th t n r subsidi s xist in th ir countr (%) Gh n An ol K khst n P kist n Ni ri Bolivi E pt, Ar b R p. Vi t N m B n l d sh Ecu dor Ar ntin Indon si 0 20 40 60 80 100 Share of respondents Sourc : B nk st ff stim tion b s d on onlin surv d t from 12 countri s. S Box 1 for d t ils. Not : This fi ur shows th sh r of r spond nts who w r w r th t n r subsidi s xist in th ir countr . B nk st ff stim tion b s d on onlin surv d t from 12 countri s. Th s mpl is bro dl r pr s nt tiv of th onlin popul tion ccordin to nd nd r. 4  Neil McCulloch, Tom Moerenhout, and Joonseok Yang, “Fuel Subsidy Reform and the Social Contract in Nigeria: A Micro-economic Analysis,” Energy Policy 156 (2021). 5  Gabriela Inchauste and David Victor, The Political Economy of Energy Subsidy Reform (Washington, DC: World Bank, 2017). 6 These factors compound the complexities of Efforts to overcome this trust deficit can help deliver the reform process as people may feel entitled much-needed reform at a time when global debt is to lower energy prices, especially when they at its highest level in decades and countries around are uncertain about what the government can the world are facing tightened fiscal space. But credibly deliver in its place. Much of the public public support is critical for the success of subsidy discourse on energy subsidy reforms tends to reform efforts. The experience from historical be dominated by the need to implement fiscal reform episodes suggests that communication savings, improve allocative efficiency, and make with the public is crucial to increase acceptance public spending more equitable. In fact, reforms of reforms, but also that simple dissemination of are often attempted when countries are facing information is far from sufficient. an imminent fiscal cliff. However, governments often end up abandoning reform attempts due This policy brief presents the key findings from a to widespread public opposition, stemming large, cross-country survey to provide a unique, from the lack of confidence in the government’s bottom-up perspective on energy subsidy reforms. ability to implement alternative programs or due By systematically examining citizen attitudes and to lack of trust that the government will do the preferences toward energy subsidy reforms, we “right” thing. This lack of trust could be related present several novel insights on how people reason to experience with corruption or questions about and how their knowledge and beliefs influence their the government’s capacity to deliver on their policy preferences.6 The methodology underlying promises. the findings in this brief is summarized in Box 1. BOX 1. Methodology The findings presented in this brief are based on an online survey conducted across 12 middle-income countries. These include Angola, Argentina, Bolivia, Ecuador, Indonesia, Kazakhstan, and Nigeria which predominantly subsidize fuel, and Bangladesh, Egypt, Ghana, Pakistan, and Vietnam which predominantly subsidize electricity, according to the latest IMF database on fossil fuel subsidies. These countries were collectively responsible for spending nearly US$200 billion on explicit energy subsidies in 2022. The survey was implemented in June/July 2023 by a leading online global research firm and engaged about 37,000 respondents. The sample of survey respondents is broadly representative of the population with internet access, at least in terms of age and gender. Unweighted results were compared to those that were weighted to match the general population in each country. The results were largely consistent. The survey collected a wide range of information on respondents’ background characteristics, including questions on standard demographics and income; information about their household’s energy consumption; their views about the government, including their beliefs about the government’s capacity to help households deal with the rise in cost-of-living, and their level of trust; information about their knowledge of and beliefs about energy subsidies; and willingness to support an energy subsidy reform. A randomized experiment was carried out that consisted of a simple and factual statement informing respondents about the efficiency, equity, or environment related consequences of energy subsidies. More details on the survey and results from the analysis can be found in an accompanying technical background paper entitled “Building public support for reducing fossil fuel subsidies: evidence across 12 middle-income countries”. 6  The survey instrument is not intended to capture sentiment among all direct or indirect beneficiaries, which could vary across countries depending on the type of energy subsidies provided and the mechanisms through which direct or indirect subsidization takes place. 7 What Can Governments do to Build Public Support for Subsidy Reforms? Message 1: Support for a reduction in energy subsidies is low in the absence of any compensatory measures. The results from our cross-country study establish that subsidy reforms in isolation are not likely to get governments the support needed to implement and sustain them. Given the complex challenges outlined in the previous section, it is unsurprising that our study finds only modest support for a reduction of energy subsidies when it is not accompanied by other mitigating measures. This finding confirms what has been previously reported on the topic and is also consistent with practitioner experience. On average, less than a third of respondents were willing to support a reduction in fuel or electricity subsidies which would lead to an increase in prices, although variation was observed among the respondents across the 12 study countries (figure 3). 8 FIGURE 3. L v l of support for n r subsid r form without n comp ns tor m sur s (%) Vi t N m Gh n K khst n Bolivi Indon si Ecu dor An ol Ar ntin E pt, Ar b R p. P kist n Ni ri B n l d sh 0 20 40 60 80 100 Share of respondents Sourc : B nk st ff stim tion b s d on onlin surv d t from 12 countri s. S Box 1 for d t ils. Not : This fi ur shows th sh r of r spond nts who nsw r d th t th would ith r “stron l support” or “som wh t support” r duction in n r subsidi s which l ds to pric incr s . FIGURE 4. Ch r ct ristics nd b li fs ssoci t d with uncondition l support for n r subsid r form Trust ov rnm nt B li v s subsidi s xist B n fits from subsidi s Us s subsidi d n r Actu l poor Hi hl duc t d B li v s in ov rnm nt c p cit B li v s subsidi s r ri ht P rc iv d poor P rc iv d middl cl ss -0.15 -0.1 -0.05 0 0.05 0.1 0.15 Sourc : B nk st ff stim tion b s d on onlin surv d t from 12 countri s. S Box 1 for d t ils. Not : This b r r ph shows th co ffici nts from n ordin r l st squ r s r r ssion with countr fix d ff cts, stim tin th r l tionship b tw n r spond nt ch r ct ristics nd b li fs nd uncondition l support for n r subsid r form (i. ., support for r form in th bs nc of comp ns tor m sur s). Th blu nd or n colors of th b r r phs indic t th t th stim t d r l tionship is st tistic ll si nific nt t th 5% l v l nd positiv or n tiv , r sp ctiv l . “Actu l poor” is b s d on r port d ctu l incom nd r f rs to r spond nts with hous hold incom in th bottom 40 p rc nt of th incom distribution. “P rc iv d poor” nd “p rc iv d middl cl ss” r b s d on r spond nts’ p rc iv d position in th incom distribution. Th r color indic t s th t th stim t is not st tistic ll si nific nt. 9 People may be worried about the hardship Message 2. A commitment to reinvest imposed by price increases if the reforms are the savings from subsidy reforms to uncompensated—indeed, we find that the fund better schools, hospitals, and respondents who perceived themselves to be roads, for example, can double the level poor or middle class (for whom price increases of public support. will be more salient) were less inclined to support a potential reform. About one-third of A key finding of our cross-country study is that respondents—not a small share—agreed with support for reform can effectively double, or the statement that they have a right to receive even triple in some instances, if it is coupled with subsidies. While there was no obviously clear compensatory policies that are financed using the pattern between their belief and the country’s oil savings from subsidies. As seen in Figure 3, only production capacity, there was less support for a around 30 percent of respondents were willing to reform among respondents that believed subsidies support a reform without compensation. However, are a right. Meanwhile, those who trusted the this figure increased significantly when people government were more likely to support a potential were offered compensatory policies in exchange reform even when no compensatory policies were for subsidies, akin to a quid pro quo. The most offered. Knowledge was also a strong predictor popular alternative to reinvest the funds was in of support—respondents who were aware that better schools, hospitals, and roads. Only a small subsidies exist were much more likely to be in fraction of respondents (less than 10 percent in all favor of price reforms (figure 4). countries) appeared to remain unmoved (figure 5). FIGURE 5. L v ls of uncondition l nd condition l support for n r subsid r form (%) An ol Ar ntin B n l d sh Bolivi Ecu dor E pt, Ar b R p. Gh n Indon si K khst n Ni ri P kist n Vi t N m 0 20 40 60 80 100 Unconditional support Cond. support (spend) Cond. support (other) No support Sourc : B nk st ff stim tion b s d on onlin surv d t from 12 countri s. S Box 1 for d t ils. Not : This fi ur shows th cumul tiv sh r of r spond nts in ch countr th t xpr ss d: “uncondition l support” (includin wh n th would support uncondition ll nd condition ll ), “Cond. support (sp nd)” if th lt rn tiv polic w s b tt r schools, hospit ls, nd ro ds, “Cond. Support (oth r)” if th w r willin to cc pt noth r comp ns tor polic nd “No support” wh n th r w s n ith r uncondition l nor condition l support. 10 While the rankings of the preferences varied across options such as tax cuts or even cash transfers, countries, the common message is that a large though even the least popular choice—universal majority could be won over when compensatory cash transfers—was favored by over 60 percent policies are offered. of respondents (figure 6). When it comes to reinvesting the savings from There are several takeaways from this result. energy subsidies, there was a clear preference for First, there appears to be a clear preference for better services over cash transfers and tax cuts. better services, based on the outcome-oriented The survey probed policy preferences among framing of the polity options, over more cash in seven different choices: (i) cash transfers to all hand. The top-ranked choices were consistent households; (ii) cash transfers to poor households; across countries. Second, while the public debate (iii) a reduction in income taxes; (iv) better related to compensation often revolves around schools, hospitals, and roads; (v) a reduction in cash transfers, these results suggest that this the public debt; (vi) investments to improve the does not always have to be the case. While there environment (like improving air quality); and are clear success stories in the past, cash transfers (vii) more reliable access to electricity and fuel. are not always readily implementable, especially After better schools, hospitals, and roads, which in capacity-constrained countries. Our study garnered an impressive 80 percent support shows that there are other policy alternatives across the countries in our study, followed by beyond cash transfers that can be as or even more more reliable access to energy and investments effective in rallying the public around the reform to improve the environment, such as air quality. while making progress on issues that people care These policies were strongly preferred over other about most. FIGURE 6. L v ls of support for lt rn tiv polic options (%) 100 80 Unconditional Share of respondents support 60 40 20 0 Better schools, Better Investments Cash transfers Tax cuts Reductions Universal hospitals, access to improve the for poor in public cash and roads to energy environment households debt transfers Sourc : B nk st ff stim tion b s d on onlin surv d t from 12 countri s. S Box 1 for d t ils. Not : "Uncondition l support" r f rs to th l v l of support for r form without n comp ns tion. 11 Message 3: Deeply held beliefs about circumstances. For example, the belief that subsidies, such as believing that citizens are entitled to receive energy subsidies is citizens are entitled to them can often pervasive in some countries and often perceived be obstacles to reforms—but they can to be difficult to overcome. Recall from earlier that be changed with a credible commitment people with this belief were less supportive of an to implement a broader reform uncompensated reform. But when compensatory package. policies were offered, respondents who believed subsidies are a right were no less supportive of The consistently high level of support for a potential subsidy reform compared to those compensated energy subsidy reform across all who do not share the same belief (figure 7). This study countries is counterevidence to a popular suggests the potential to shift the prevailing misconception about citizens’ resistance to social contract, with the majority of respondents subsidies. Earlier evidence showed that an prepared to swap energy subsidies in return for uncompensated reduction in subsidies is not likely better schools, hospitals, and roads. to garner the public support needed. However, once compensatory policies were offered, Commitment devices can be put in place to respondents were equally likely to be supportive signal the credibility of reforms, to ensure of reform, irrespective of whether they were likely that promises are delivered even in the face of beneficiaries of energy subsidies or not (figure 7). changing circumstances. Such mechanisms can help bolster the belief that the government can Seemingly deep-rooted beliefs that lead citizens assist households, which is positively and strongly to oppose reforms can change under certain associated with support for reform (figure 7). FIGURE 7. Ch r ct ristics nd b li fs ssoci t d with support for comp ns t d n r subsid r form Trust ov rnm nt B li v s subsidi s xist B li v s in ov rnm nt c p cit B li v s subsidi s r ri ht Us s subsidi d n r Actu l poor Hi hl duc t d B n fits from subsidi s P rc iv d middl cl ss P rc iv d poor -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 Sourc : B nk st ff stim tion b s d on onlin surv d t from 12 countri s. S Box 1 for d t ils. Not : This b r r ph shows th co ffici nts from n ordin r l st squ r s r r ssion with countr fix d ff cts, stim tin th r l tionship b tw n r spond nt ch r ct ristics nd b li fs nd support for n n r subsid r form which is ccomp ni d b comp ns tor polici s. Th blu nd or n colors of th b r r phs indic t th t th stim t d r l tionship is st tistic ll si nific nt t th 5% l v l nd positiv or n tiv , r sp ctiv l . “Actu l poor” is b s d on r port d ctu l incom nd r f rs to r spond nts with hous hold incom in th bottom 40 p rc nt of th incom distribution. “P rc iv d poor” nd “p rc iv d middl cl ss” r b s d on r spond nts’ p rc iv d position in th incom distribution. Th r color indic t s th t th stim t is not st tistic ll si nific nt. 12 A commitment device would be particularly Message 4: Information about the effective where past reforms have failed due negative consequences of energy to lack of trust in the government or concerns subsidies, particularly in terms of about its capacity to implement alternative damaging the environment, has policies. Respondents in our study countries significant potential to raise support who believe that the government can be trusted for reform. were consistently more likely to support subsidy reforms, regardless of the type of compensatory Knowledge has a direct and indirect role to play policy offered, and often by a wide margin (figure when it comes to winning the public campaign. 8). There are different ways that the government People who are aware that subsidies exist are can demonstrate its commitment. For example, more inclined to support the subsidy reform, the government could implement compensatory irrespective of compensatory policies (figure 4, policies before subsidies are removed, so the figure 7). Additionally, knowledge can foster trust alternative policies are visible and tangible in in the government which in turn leads to robust the eyes of citizens. This could be, for example, public support. providing cash in people’s pockets before energy prices are hiked.7 Countries could also consider Providing information can play a significant role in establishing a social welfare fund where the fiscal boosting support for energy subsidy reforms. As savings could be redirected and earmarked for seen earlier, awareness of subsidies is on average alternative spending priorities. modest across the 12 study countries. Meanwhile, FIGURE 8. Diff r nc in l v l of support for subsid r form mon r spond nts who trust th ov rnm nt comp r d to thos who do not (%) 100 80 Sh r of r spond nts 60 40 20 0 Better schools, Better Investments Cash transfers Tax cuts Reductions Universal hospitals, access to improve the for poor in public cash and roads to energy environment households debt transfers Disagree govt. could be trusted Agree govt. could be trusted Sourc : B nk st ff stim tion b s d on onlin surv d t from 12 countri s. S Box 1 for d t ils. 7  D. Guillaume, R. Zytek, and M. Farzin, “Iran: The Chronicles of the Subsidy Reform,” IMF Working Paper WP/11/167, International Monetary Fund, 2011. 13 FIGURE 9. L v l of w r n ss of n tiv nvironm nt l cons qu nc s of n r subsidi s (%) Indon si K khst n Gh n Ar ntin An ol Vi t N m E pt, Ar b R p. P kist n Ecu dor Bolivi Ni ri B n l d sh 0 20 40 60 80 100 Share of respondents Sourc : B nk st ff stim tion b s d on onlin surv d t from 12 countri s. S Box 1 for d t ils. the negative consequences of energy subsidies are The magnitude of the effect ranged between 8-10 even less well-known, particularly in relation to the percent beyond a baseline of around 31 percent. environmental damage. About half of respondents This is not a small effect, considering that providing recognized that subsidy spending was greater information only requires a modest outlay and is than or comparable to healthcare spending in relatively effortless compared to implementing their country, making it an inefficient allocation of compensatory policies. The “information effect” government resources. About 4 in 10 respondents varied relatively little across different population were aware that more well-off households benefit groups based on their prior beliefs and knowledge, disproportionately from energy subsidies compared suggesting that communication campaigns need to poorer households. Only about a third of them not necessarily target specific population groups recognized that subsidies have adverse impacts on and that broad-based campaigns can be similarly the environment (figure 9). effective. It also implies that reform campaigns should emphasize the “what” (campaign messages) Our study finds that communicating this more than the “who” (target audience). information to citizens increases public support for a potential reform, partly due to low levels of In what may have been a more surprising finding, existing knowledge. In a randomized experiment information about the harmful environmental conducted within the cross-country survey, aspects of subsidies proved to be powerful in respondents who received information about shifting people’s views. The effect was at least as either the efficiency, equity, or environment related strong as information about the inefficiency or consequences of energy subsidies were more likely inequity of subsidy spending.8 This suggests that to support a potential reform, even in the absence the environmental objective of subsidy reforms of compensatory measures. This was true mostly could hold a lot of potential for building support in countries that predominantly subsidize fuel. for energy subsidy reforms which have often been 8  The magnitude of the estimate effect was largest for the environment treatment but the difference with either the efficiency or 14 equity treatment effect was not statistically different. FIGURE 10. Environm nt tr tm nt ff ct on uncondition l support b p rc iv d incom roup (%) 50 45 Sh r of r spond nts 40 35 30 25 Perceived poor Perceived middle class Perceived rich Control Environment treatment Sourc : B nk st ff stim tion b s d on onlin surv d t from 12 countri s. S Box 1 for d t ils. Not : “P rc iv d poor”, “p rc iv d middl cl ss”, nd “p rc iv d rich” r f r to r spond nts who p rc iv d th ms lv s to b in th bottom 40 p rc nt, middl 20 p rc nt, nd th top 40 p rc nt, r sp ctiv l , of th incom distribution.. Estim t s r b s d on subs mpl of countri s th t pr domin ntl subsidi fu l. dominated by arguments related to fiscal savings word cloud in Figure 11 is based on a keyword or fairness in the past.9 The shift was largest search analysis using their responses. It shows among respondents who perceived themselves to that better education and health were most be middle class—which forms an important part frequently mentioned by respondents, reaffirming of the electorate—and was apparent in countries the ordering of broad priorities described earlier. where fuel (and not electricity) is the predominant But it also unveiled a much more detailed list of form of subsidized energy (figure 10).10 preferences such as employment and poverty reduction. Moreover, there are notable variations Message 5. Policy preferences vary in the priorities suggested by respondents: for across population groups—and the example, female respondents are more likely reality of the reform process requires to propose childcare, health-related initiatives, a good understanding of these diverse poverty reduction and environmental efforts as priorities. alternative uses for the funds saved from subsidy reforms. In contrast, male respondents were A closer examination of preferences reveals that more inclined to recommend that the funds be the expressed policy priorities are quite diverse, used toward industry and trade initiatives and with important differences across population technology advancements, while also more likely groups. Respondents were asked to give written to persist in advocating for spending related to answers to an open-ended question in the survey electricity and fuel or renewable energy. where they could freely express their opinion. The 9  Rusland Yemtsov and Amr Moubarak, “Good Practice Note 5: Assessing the Readiness of Social Safety Nets to Mitigate the Impact of Reform,” Energy Sector Management Assistance Program (ESMAP), World Bank, Washington, DC, 2018. 10  A large majority of respondents identify themselves as being middle class (about 70 percent on average across the 12 countries). 15 FIGURE 11. Fr qu nc of pr f rr d polic th m s s lt rn tiv s to n r subsidi s Sourc : B nk st ff stim tion b s d on onlin surv d t from 12 countri s. S Box 1 for d t ils. Not : Th bi r nd bold r th word pp rs in th word cloud, th mor fr qu ntl it w s m ntion d in th writt n nsw rs to th op n- nd d qu stion skin bout r spond nts’ pr f r nc s for lt rn tiv polici s th t would l d th m to support n n r subsid r form. The diversity in policy priorities will be useful to and to gather citizens’ preferences to determine understand as policymakers design the actual what it will take for them to accept the proposed policy package as part of the broader reform reform. While convincing the public is one campaign. The details of the compensation important piece of the reform puzzle, dealing package will be country context-dependent and with stakeholders and other organized political would benefit from iterative communication groups may be an additional challenge. The with the public. To this end, opinion surveys can reform campaign can also help keep this on the be used as a quick, two-way communication agenda of the majority citizens who tend to be channel with the public to increase awareness more dispersed and less likely to mobilize in around subsidies, help disseminate information, support of a policy agenda. 16 Conclusion M any countries are in urgent need of subsidy reforms, yet they are difficult to implement. Findings of this cross- country study suggest that it is possible to garner public support for energy subsidy reforms by making them part of a broader reform campaign that specifically includes elements of compensatory packages that are negotiated quid pro quo within societies. Compensatory policies are crucial for building public support and for making progress toward better social outcomes for citizens. When people oppose reforms due to lack of trust, it is difficult to navigate the reform with information alone.11 Formulating a complementary policy package, coupled with a commitment device, is instrumental for the public to believe that the government will follow through on its promises and that the reforms will leave them better off. 11 Tara Moayed, Scott Guggenheim, and Paul von Chamier, “From Regressive Subsidies to Progressive Redistribution: The Role of Redistribution and Recognition in Energy Subsidy Reform,” NYU Center on International Cooperation Research Paper, September 23, 2021. 17 Mitigation efforts targeting the poor and the Our study has underscored that it is possible to vulnerable middle class may still be needed. This make progress on a long-standing and challenging is consistent with the recommendation in the reform agenda. However, the complex institutional policy literature to implement broad-based cash and political realities also mean that reforms need transfers (i.e., to include near-poor groups in to be taken with a longer-term view, especially compensation schemes) to address the concerns in places where subsidies are entrenched and of those most affected by higher prices.12 Direct regarded as part of the implicit social contract— compensation still matters for these groups—as changing that narrative is possible, but it may not seen from the persistently lower levels of support happen immediately. Recognizing when there is a among the poor in our study—and cash or near- window of opportunity and building up coalitions cash mitigation mechanisms can be considered to around the reform agenda will help. It will take offset their immediate hardship. careful preparations to build a reform campaign that communicates with the public not just on the In addition to ensuring that their commitment immediate rationale for reform, but also to help to reinvesting the savings from the removal of envision what the alternative future under the subsidies are credible, governments could deploy reform could look like.13 iterative communication strategies to help raise the general level of awareness around subsidies. They could also appeal to concerns for climate change, fairness, and efficiency in the use of public resources, which are shown to have wide traction in the population. These communication efforts could be designed to help policy makers aggregate the public’s views and policy priorities, and dynamically track progress and gaps in the implementation of compensatory measures as the reform unfolds. This would enable governments to forestall resistance from a vocal minority who may not need government assistance, while doing what it can to ensure those who need support are not left worse off. 12  Benedict Clements et al., “Energy Subsidy Reform: Lessons and Implications,” International Monetary Fund, January 28, 2013. 13  Neil McCulloch, Ending Fossil Fuel Subsidies: The Politics of Saving the Planet (Oxford, UK: Practical Action Publishing, 2023). 18 19