Arab countries have a long history of subsidising energy (fossil fuels or electricity) for public consumption. In many resource-rich countries such as the Kingdom of Saudi Arabia, low energy prices are used as a tool to distribute state benefits to the population without the need for extensive administrative capabilities and income testing. Under such circumstances, is there a place for alternative fuels in the Arab world?
More than 10 years ago, MVW Lechtenberg presented a paper on ‘Alternative Fuels for the Cement Industry’ at the Arab International Cement Conference. At that time, most of the participants could not understand how waste-derived fuels could be used in a cement plant. Energy prices during this period were even lower than today, accompanied by high cement prices and required cement production capacities. A Libyan delegate, Rajab El Mahmoudi, noted: “You made a very interesting presentation, but maybe 10 years too early. However, this will be the future!”
In the Arab Human Development Report ‘Energy Subsidies in the Arab World’, published in 2012, the authors predicted the energy situation currently developing in some Arab countries, such as Egypt, Saudi Arabia and Tunisia.1
Energy subsidies, prices and the Arab Spring
Energy subsidies can cause a number of economic inefficiencies,1 which are experienced throughout the Arab world. They can result in the misallocation of resources, preventing the country from optimising the use of its reserves. They can incentivise over-usage of energy, leading to exceptionally high consumption growth rates for energy in many parts of the Arab world. They can lower incentives for productivity improvements and investments in more energy-efficient technology. They can distort pricing signals to customers, leading to energy waste, unwanted inter-fuel substitution effects and a lack of incentives for investment in alternative energies.
Energy subsidies can also have severe implications, including insufficient access to food and healthy nutrition, education and basic health services, as well as a lack of energy access itself.1 While energy subsidies constitute an important social safety net for the poor, they are regressive in nature as, in many instances, richer households tend to capture the bulk of subsidies, skewing the existing income distribution. Furthermore, in many cases, fuel subsidies can remove substantial resources from ‘pro-poor’ sectors such as health and education, and from social and infrastructure projects that are more beneficial to households in low-income brackets. Subsidies can lead to higher energy use or reduce the incentive to conserve energy, with potential adverse environmental consequences such as increasing airborne emissions and greenhouse gases. Fuel subsidies can also hinder the development of renewable and clean energy technologies, such as solar and wind, which find it difficult to compete with subsidised fossil fuels.
The world – especially the Arab world – has changed dramatically since the Arab Spring, which forced governments to rethink their policies and actions for different reasons. The new Egyptian government is not able to continue the former policies for providing cheap energy, while in the Kingdom of Saudi Arabia the government is preparing the pathway for less oil exploration with lower environmental impact using more renewable energy.
Read part 2 here.
Written by Dirk Lechtenberg, MVW Lechtenberg, Germany. This is an abridged version of the full article, which appeared in the May 2015 issue of World Cement. Subscribers can read the full article by logging in. They can also read the magazine on smart phones and tablets by downloading World Cement’s app.
- Bassam Fattou, Laura El-Katiri, ‘Energy Subsidies in the Arab World’, United Nations Development Programme, Regional Bureau for Arab States, Arab Human Development Report, Research Paper Series (2012).
- Aljazira Capital, ‘Alternative Fuels in Saudi Cement Industry’, Thematic Report (December 2014).
- Heba Saleh, ‘Egypt Sharply Raises Energy Prices’ (July 2014). Available at: http://www.ft.com/cms/s/0/08576d00-043f-11e4-ab6a-00144feab7de.html#axzz3QDu7n0mt
- Partial Fuel Switching to Agricultural Wastes, Sewage Sludge & Refuse Derived Fuel (RDF) at Arabian cement plant. Project Design Document Form for CDM Project Activities, Version 07 (22 December 2012).
- Current Experience of Alternative Fuels Utilization in Egypt, CementUAE.
- When Oil Prices Drop, Some Countries Lose. Stratfor Global Intelligence (November 2014). Available at: http://www.stratfor.com/analysis/when-oil-prices-drop-some-countries-lose#axzz3QE3TeSm6
Read the article online at: https://www.worldcement.com/africa-middle-east/06052015/alternative-fuels-in-the-arab-world-part-1-790/