Fuel Subsidy Reform and Green Taxes: Can Digital Technologies Improve State Capacity and Effectiveness?

Reforming inefficient and inequitable energy subsidies continues to be an important priority for policymakers as does instituting “green taxes” to reduce carbon emissions. Simply increasing energy prices will have adverse impact on poorer consumers, who may spend substantial budget shares on energy and energy-intensive products even though the rich typically appropriate more of the price subsidy. Equitable pricing reforms therefore need to be accompanied by programs to transfer compensation: depending on the situation, this can be targeted or universal. Successful reforms require measures to raise awareness-of the subsidies and the problems they cause, effective dissemination of the reform to the population, and rapid feedback loops to facilitate mid-course corrections. Digital technology, including for unique identification and payments, as well as general communications, can help build government capacity to undertake such reforms and respond to changes in fuel markets. The paper outlines the use of digital technology, drawing on four country cases. The technology is only a mechanism; it does not, in itself, create the political drive and constituency to push reform forward. However, it can be employed in a number of ways to increase the prospects for successful and sustainable reform.