9 GOVERNANCE AMID THE TRANSITION TO RENEWABLE …
243
argues that the strength of institutions prior to the discovery of extractive resources determines a country’s extraction strategy. 19 Countries
with weak institutions—including those left by problematic colonial legacies—were more likely to develop their natural resources without the
ability to also foster the human capital for a developed, technicallyadvanced economy. By contrast, countries with strong pre-discovery
institutions could invest in natural resource extraction alongside diversified economies. As such, according to Menaldo, the relationship between
the high levels of oil dependence on GDP and bad governance is spurious:
weak institutions are to blame for both.
Concerns Beyond the ‘Curse’
Reliance on fossil fuels is the basis for a multitude of political and
societal ills beyond its effects on accountable government and healthy
labor markets. One that is particularly relevant for the MENA states is
the persistence of fossil fuel consumer subsidies in the form of belowmarket prices for gasoline, diesel, natural gas, and other petroleum
products. Globally, these subsidies are an enormous fiscal burden for the
governments that support them. The World Bank and the International
Monetary Fund estimates for fossil fuel subsidies vary from half a trillion
to two trillion dollars per year, depending on the choice of alternative definitions, assumptions, and methods. 20 In addition, consumer fuel subsidies
are regressive in that the primary beneficiaries are upper-class consumers
who own vehicles, although the removal of subsidies disproportionately
affects the poor. 21
Low prices for gasoline are particularly prevalent in the MENA when
compared to the rest of the world. The average tax on gasoline outside the
MENA across the 2003–2015 period was 58.4 US cents per liter, while
among the MENA countries the average tax was negative, implying a
subsidy of 14.8 cents per liter (Fig. 9.2, top panel). The average is notably
pulled down by the region’s oil exporters, where gasoline is subsidized at
38.6 cents per liter (i.e., taxed at -38.6 cents per liter), compared to the
non-oil-exporters in the MENA, where gasoline is taxed at 34.9 cents
per liter (Fig. 9.2, bottom panel). 22 Indeed, the region’s oil exporters—
Algeria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia,
Syria, the UAE, and Yemen—maintain some of the lowest gasoline prices
in the world. 23 This group of countries are, on average, consistently below
the international market price for gasoline during this period, and remain
243
argues that the strength of institutions prior to the discovery of extractive resources determines a country’s extraction strategy. 19 Countries
with weak institutions—including those left by problematic colonial legacies—were more likely to develop their natural resources without the
ability to also foster the human capital for a developed, technicallyadvanced economy. By contrast, countries with strong pre-discovery
institutions could invest in natural resource extraction alongside diversified economies. As such, according to Menaldo, the relationship between
the high levels of oil dependence on GDP and bad governance is spurious:
weak institutions are to blame for both.
Concerns Beyond the ‘Curse’
Reliance on fossil fuels is the basis for a multitude of political and
societal ills beyond its effects on accountable government and healthy
labor markets. One that is particularly relevant for the MENA states is
the persistence of fossil fuel consumer subsidies in the form of belowmarket prices for gasoline, diesel, natural gas, and other petroleum
products. Globally, these subsidies are an enormous fiscal burden for the
governments that support them. The World Bank and the International
Monetary Fund estimates for fossil fuel subsidies vary from half a trillion
to two trillion dollars per year, depending on the choice of alternative definitions, assumptions, and methods. 20 In addition, consumer fuel subsidies
are regressive in that the primary beneficiaries are upper-class consumers
who own vehicles, although the removal of subsidies disproportionately
affects the poor. 21
Low prices for gasoline are particularly prevalent in the MENA when
compared to the rest of the world. The average tax on gasoline outside the
MENA across the 2003–2015 period was 58.4 US cents per liter, while
among the MENA countries the average tax was negative, implying a
subsidy of 14.8 cents per liter (Fig. 9.2, top panel). The average is notably
pulled down by the region’s oil exporters, where gasoline is subsidized at
38.6 cents per liter (i.e., taxed at -38.6 cents per liter), compared to the
non-oil-exporters in the MENA, where gasoline is taxed at 34.9 cents
per liter (Fig. 9.2, bottom panel). 22 Indeed, the region’s oil exporters—
Algeria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia,
Syria, the UAE, and Yemen—maintain some of the lowest gasoline prices
in the world. 23 This group of countries are, on average, consistently below
the international market price for gasoline during this period, and remain