Fossil Fuel Subsidy and Taxation Reform Scenario Modelling for Saint Lucia
The Government of Saint Lucia provides direct subsidies for the use of LPG, diesel, and gasoline; however, these types of price supports can lead to overconsumption of fossil fuels, put pressure on public budgets, and increase emissions of greenhouse gases. In this study, GGGI explored various types of fossil fuel subsidy reform (FFSR) that could be pursued in Saint Lucia in order to create opportunities for increased government revenues, reduced imported oil products, reduced emissions, and increased investments in health, education, and sustainable energy.
Through a series of workshops with relevant stakeholders and departments of the Government of Saint Lucia, feasible policy options for modelling scenarios were explored and analysed. GGGI, along with partner organization IISD, utilized the Green Economy Model and the GSI-IF model to develop different scenarios of fossil fuel subsidy and taxation reform. The models estimated the impact of fossil fuel subsidy reform scenarios on fiscal savings from subsidy reductions and increased taxations, explored the impacts on GHG emissions, and evaluated the reallocation of subsidy savings and tax revenues on other programs including energy efficiency and renewable energy. Another study done in parallel looked at effects of various segments of the population to ensure that the scenarios did not result in inequitable impacts on vulnerable persons.
Based on the analysis of the various scenarios and close consultation with stakeholders through workshops and interviews, the scenario representing a gradual linear removal and reallocation of the subsidy and price cap over ten years was deemed to be the most preferable. Under this scenario, the subsidy on LPG 20lbs and 22lbs and the price cap on gasoline and diesel would be gradually removed over the course of five years starting in 2022, while the increased annual revenues will be reallocated to debt reduction, investment in renewable energy, and energy efficiency, and compensation to low-income households. In ten years, the total national energy bill would decrease by an estimated 3.5% compared to a business-as-usual scenario, the annual Gross Domestic Product would increase by 1.9%, and the CO2 emissions would decrease by 16.4%. By 2050, the cumulative savings from eliminating the subsidies would reach approximately EC$ 3,777 million.
This report was developed by the Global Green Growth Institute as part of Climate Action Enhancement Package (CAEP) program, supported by the NDC Partnership and the donors listed in the document.