Implementing carbon pricing is a key component of any climate mitigation strategy. Yet, many countries around the world do not have an explicit price on carbon and substantially subsidise fossil fuels, implying a negative carbon price. Moreover, in many developing countries, fossil fuel subsidies tend to be regressive, because only wealthy households take advantage of them in full. Hence, while scrapping these subsidies tends to be both progressive and effective in reducing greenhouse gas emissions, the lack of compensatory measures to maintain people’s purchasing power means that attempts to remove them meet strong public opposition. This project aims to investigate the effectiveness of a potential solution: replacing fossil fuel subsidies with cash payments. This may allow greenhouse gas emissions to decrease along with inequality and poverty, and health and education outcomes to potentially increase as well as entrepreneurial activities.
To test this hypothesis, the researchers will run a pilot intervention in Ghana, within the context of the Premix Fuel Programme – a very large “conditional” and digitised programme subsidising a large portion of fuel use among fishermen along the country’s coastal communities. The research design aims to randomise a fraction of beneficiaries across localities that currently receive conditional digital transfers for premix fuel to receive equivalent “unconditional” digital transfers in a way that allows for clean measurement of relevant outcomes, including public support and aggregate and general equilibrium impacts. The focus will be on 10 small communities with roughly 50 fishermen where 100% of programme beneficiaries will be treated for about three months. The researchers will carry out baseline and end-line surveys of the treated communities as well as of 10 similar communities as control group, to compare response and attrition rates. The success of this pilot intervention will lead to a full-scale randomised controlled trial (RCT).
This study will provide crucial policy lessons for the governments of low-income countries, where fossil fuel subsidies are popular but regressive and environmentally harmful, by incentivising the use of fossil fuel and, as in the case of Ghana, contributing to overfishing. The intervention will address the underlying causes of the demand for fossil fuel subsidies, test the viability of a cash for subsidy reform in a controlled context, and examine what other benefits providing cash instead of in-kind support generates among fishermen and their localities.
