Why so controversial? The dilemma of trying to assess energy subsidies

Energy subsidies are a controversial policy tool, and assessing them confronts an analyst with an even greater dilemma. A lot of this is due to the nature of subsidies: they are by default elusive as a concept, and invite starkly differing views on which benchmark price to assess them against. Subsidies can be implicit or off-budget, and as such raise doubts by some as to whether they should indeed be considered subsidies at all. Subsidies are also intended to fulfil very legitimate policy concerns such as welfare and development objectives, with diverging views on the effectiveness of subsidies in delivering on these policy goals. Finally, adverse experience with failed reform, and the political cost of popular protest against energy price rises renders the reform of energy subsidies in the eyes of many policymakers too costly. What is needed is a more constructive approach towards energy subsidies – with the acknowledgement that subsidies may achieve some of the intended objectives but also have important unintended consequences