1. Removing fossil fuel subsidies – yes but how? Henning Wuester, IRENA REN21 Academy Bonn, 10 November 2014

2. Contents 1.Introduction 2.Fossil fuel subsidies: state of the debate 3.The reality in selected MENA countries 4.Elements of successful subsidy reform 5.The way forward: linking subsidy reform to renewables 6.Concluding points 2

3. INTRODUCTION IRENA study on Energy Pricing in the MENA region Work initiated at MENAREC5 for presentation at MENAREC6 Supported by the German Ministry of Economic Affairs (BMWi) In cooperation with RCREEE and IISD 3

4. Fossil fuel subsidies – state of the debate Pro subsidy Stimulate economic growth and employment Help fight poverty; ensure energy access for all Share the natural wealth of a country (for energy exporting countries) Contra subsidy Generate large public budget deficits Inefficiencies created slow down of economic and job growth Regressive nature – helps the rich more then the poor Exacerbates climate and environmental externalities 4

5. THE REALITY IN SELECTED MENA COUNTRIES 5

6. RE targets in MENA 6 Source: REN21

7. Subsidies in electricity sector Egypt’s costs of delivered electricity, retail revenues and subsidies (including opportunity costs) in 2012 7

8. Budget pressures Share of government expenditure on energy-related subsidies (blue), education (red), and health (green) in Egypt, Yemen and Syria in 2008. (UNDP, 2012) 8

9. ELEMENTS OF SUCCESSFUL SUBSIDY REFORM 9

10. Drivers for subsidy reform Budgetary impacts of subsidies Pressure to maintain social cohesion Resumption of high oil and gas prices Serious reform efforts in oil- importing countries, in particular in: Egypt, Jordan, Mauritania, Morocco, and Tunisia Some discussion in oil- exporting countries 10

11. Some features of successful subsidy reforms 1.Objectives are clearly stated and impact analyses are performed. 2.Transparency is high, all communication is clear and public and energy pricing is de-politicized. 3.Reforms are clearly targeted and impacts are effectively mitigated. 4.Reforms are carefully paced and timed. 5.Effective substitute energy sources can be introduced. 11

12. THE WAY FORWARD: LINKING SUBSIDY REFORM TO RENEWABLES 12

13. Renewables are an alternative Egypt’s current costs of delivered electricity (including subsidies at international fuel prices) compared to the levelised costs of solar and wind technologies 13

14. Energy pricing reformRE strategy Basis: 20/20 RE programme (12% wind, 6% hydro, 2% solar) and 2012 solar target (3.5 GW by 2027) Different development schemes: public procurement, private bidding, FiT 2014 FiT for 4.3 GW - lower than current generation costs 14 Phasing out energy and electricity subsidies until 2020 (cost-reflective tariffs) 25-30% annual electricity price increases Removing barriers for renewable energy Egypt’s RE strategy in context of energy pricing reform

15. Potential for and benefits of renewables in the MENA region:  Renewable energy potentials in the MENA region are amongst the highest in the world, particularly for solar technologies  Renewable power installations create more jobs than conventional fossil fuels  RE will support energy and economic security by requiring fewer market-linked fuel imports or increasing fossil fuel export potential  A fast-growing sector that could generate significant future export industries (and therefore jobs) in the MENA region  Renewable energy will stabilise electricity generation costs (with declining costs)  Dramatically lower local and global environmental impacts (and concomitant public health benefits) 15

16. Concluding points 1.No ‘one size fits all’ – look at the specific country situations. 2.Take arguments for subsidies serious. 3.Let the facts speak for themselves. 4.Focus on efficient energy pricing and the link to energy policy objectives – positive agenda. 5.Low-cost renewables as an alternative to high-cost fossil fuels will help successful subsidy reform. 16

17. Thank you! www.irena.org 17