Fuel subsidies and how they affect the planet’s health
IT is heartening to see that Malaysia is engaged in some vigorous discussions on phasing out fuel subsidies, starting with diesel, as confirmed in May 2024 by Prime Minister Datuk Seri Anwar Ibrahim.

We are at a very difficult crossroads with our energy policy, and need to make sure that the conversation is clear on why action on fuel subsidies is urgent. We are currently the 14th highest fossil fuel subsidiser per capita in the world and second highest in Asean, after Singapore.

Curtailing fuel subsidies isn’t just a matter of economic pragmatism. It is a pressing necessity to protect planetary and human health, and sustainable development. While fuel subsidies have historically been used to ease the cost burden on citizens, their continuation poses significant economic, environmental, social, and of course, health challenges that we must confront.

Firstly, fuel subsidies in Malaysia are a substantial drain on public finances, eating up 19.5% of our gross domestic product (GDP) in 2022 according to the International Monetary Fund. This money, which could be otherwise allocated towards critical areas such as health and social care, education, and infrastructure, is instead used to artificially suppress fuel prices. This isn’t sustainable, especially given current global economic uncertainties and Malaysia’s need to ensure long-term fiscal health.

The World Bank tells us that fuel subsidies disproportionately benefit higher-income households. In Malaysia, the top 20% of income earners consume 42% of the fuel subsidies, while the bottom 20% only receive about 4% of the subsidy benefits.

Apart from being very unfair, this regressive nature of fuel subsidies undermines efforts to promote social equity and exacerbates income inequality.

But it is the environmental consequences of continuing fuel subsidies that are really alarming. Artificially cheap fuel encourages us to be less aware of the damage caused by our excessive consumption of fossil fuels and consequent carbon emissions, the repercussions of which we are seeing and experiencing all too frequently nowadays.

Malaysia, as a signatory to the Paris Agreement, has committed to reducing its carbon footprint and transitioning towards a more sustainable energy future. Maintaining fuel subsidies would be in direct conflict with these commitments.

The government set the price of diesel in the peninsula at RM3.35 per litre starting June 10, 2024, in line with the diesel subsidy rationalisation exercise. — CHAN BOON KAI/The StarCurtailing fuel subsidies drives economic diversification and innovation. Malaysia is reliant on its oil and gas sector for a significant portion of government revenue. However, as the world accelerates towards renewable energy, this dependence poses a long-term risk.

Reducing fuel subsidies now can accelerate investments in renewable energy sources, such as solar, wind, and biomass; sectors in which Malaysia has significant potential and which will decrease emissions and protect our health and the health of our environment.

But clear signals are needed to ensure that the oil and gas sector also accelerates support to renewable energy – using money from the profits of oil and gas companies to accelerate this transition makes sense, but it needs to be done at scale.

Here PETRONAS can lead by example, building on accelerating and far more clearly communicating its “Pathway to Net Zero” commitments. Its ongoing investment in new oil and gas exploration is strange given the plethora of evidence presented by science, and indeed by the industry itself, indicating that current known global reserves are only sufficient for the next 52 years.

Reallocating funds from fuel subsidies to research in and development of green technologies, and more actively pushing the private sector to partner on innovation must be key priorities for this government so that Malaysia can become a leader in the renewable energy market, not a straggler. This strategic pivot can create new industries and job opportunities, fostering a more resilient and diversified economy.

Here we can look at some international examples. Indonesia and India have successfully implemented subsidy reforms. In Indonesia, fuel subsidy reforms in 2015 led to a significant reduction in government expenditure, freeing up resources for social programmes and infrastructure development. Similarly, India’s direct benefit transfer scheme for LPG subsidies has improved subsidy targeting and reduced fiscal burdens.

Of course, while the strategic, longer-term arguments for reducing fuel subsidies are compelling, the potential short-term impact on the rakyat must be carefully managed. Targeted assistance programmes can be implemented to protect vulnerable groups from the immediate effects of subsidy removal. For example, Malaysia can enhance its cash transfer programmes, such as Bantuan Sara Hidup, to provide direct financial support to low-income families.

Accelerated investment in public transportation can mitigate the impact of rising fuel prices. By improving the accessibility and efficiency of public transit systems, Malaysia can offer affordable alternatives to private vehicle use, reducing overall fuel consumption, reducing emissions, and thereby benefiting the environment.

But, like everything I write about each month, the success of subsidy reform depends heavily on our support – yours and mine. And here transparent communication about the long-term benefits of subsidy reduction and the measures taken to protect vulnerable populations is crucial so that we have a clear understanding of this issue and the action that we can take.

The media needs to play a responsible role, remembering that its duties as the Fourth Estate include informing, acting as a watchdog, providing space for debate, serving as a liaison between government and citizens, shaping public opinion, educating, and promoting accountability.

Dr Jemilah Mahmood, a physician and experienced crisis leader, was appointed the executive director of the Sunway Centre for Planetary Health at Sunway University in August 2021. She is the founder of aid organisation Mercy Malaysia and has served in leadership roles internationally with the United Nations and Red Cross for the last decade. She writes on Planetary Health Matters once a month in Ecowatch. The views expressed here are entirely the writer’s own.
Environment,Climate,Dr Jemilah Mahmood,Planetary Health Matters,climate crisis,subsidies,fossil fuels
The longer-term arguments for reducing fuel subsidies are compelling.