According to the International Energy Agency (IEA) global fossil fuel consumption subsidies rose to a record of over US$1trn in 2022. This means the oil subsidies increased by 85% while natural gas and electricity consumption subsidies more than doubled.

The IEA noted that most of the fuel consumption subsidies were in emerging and developing economies. It stated that during an energy crisis, government commitments to phasing out subsidies are overshadowed by the priority to protect consumers.

The agency further pointed out that the resulting government actions reduce hardship but also weaken incentives for consumers to save or switch to alternative sources of energy. IEA added that high fossil fuel prices hit the poor hardest, but subsidies are rarely well-targeted, and as a result, tend to benefit the better off.

It suggested that governments should spend time and money on structural changes, that bring down fossil fuel demand rather than relief when prices go up.” The Nigeria National Petroleum Company Limited, NNPCL recently disclosed that it spends N400bn monthly on fuel subsidy, which has become a major source of revenue leakage in the country.

President-elect Senator Bola Ahmed Tinubu says he will remove the fossil fuel consumption subsidy in Nigeria, which has given the signal of complete deregulation of the petroleum downstream sector. Analysts observe that there is a need for clarity on whether it would be a total removal of fossil fuel subsidies or will be done in phases.

Proshare in its recent ‘Analyst Note’ published on February 20th, 2023 stressed that giving petrol subsidies to domestic marketers diverts government funds, benefits the wealthy over the poor, and promotes increased fossil fuel consumption, which raises greenhouse gas emissions.

It further stated that the more troubling fact was Nigeria’s lack of precise data on the volume of daily petrol consumption and the cost of petrol subsidies.