9 GOVERNANCE AMID THE TRANSITION TO RENEWABLE …
245
so even after several subsidy reforms in the 2015–2017 period of low oil
prices. 24 Meanwhile, the region’s oil importers—Egypt, Israel, Jordan,
Lebanon, Morocco, and Tunisia—maintain relatively low gasoline taxes,
especially when compared to European and East Asian states, though are
on par with gasoline prices in North America and in emerging markets in
Latin America and Sub-Saharan Africa. 25
The negative fiscal impacts of subsidies vary for countries that are able
to produce petroleum and other energy sources at below-market costs,
though the net fiscal effects are nonetheless quite impactful. In Saudi
Arabia, for instance, the cost of refining gasoline from local oil is far below
the international market price for refined gasoline given local oil production costs in the range of $3 to $10 per barrel (compared to market prices
at $55 to $75 per barrel). The effective subsidy is nevertheless large if we
compare local prices to the opportunity cost of selling domestic oil on the
international market, despite a low marginal cost of supply that masks the
true fiscal cost of the subsidy, holding production fixed. 26
Implications for Renewable Energy
In the late 1980s, at the height of the ‘oil glut,’ oil prices were at
their lowest levels since before the Arab Oil Embargo and oil-producers
around the world were suffering from severe fiscal (and existential) crises.
Governments were suddenly unable to deliver on their spending commitments, facing rising pressure from elite supporters and the broader public.
Outside the MENA, once mighty oil-financed regimes collapsed and
ushered in more democratic governments. The sustained period of low
oil prices in the 1980s and lingering into the 1990s is argued to be a
key driver in regime collapses from the Soviet Union to Mexico. Indeed,
this spurred broader claims derived from the political resource curse
whereby as the price of oil sinks lower, the more resilient is representative
government. 27
MENA leaders by and large escaped this fate, but still suffered from
worsening economic conditions, mounting fiscal deficits, and weakening
legitimacy in their ability to maintain their end of the rentier social
contract. When these leaders ultimately went to the IMF for financial
rescue, the consensus advice was that these countries needed to reduce
dependency on fossil fuels because of the severe volatility of oil markets. 28
Leaders of the MENA petro-states saw this not as a means to reduce
fiscal dependence on these commodities, but rather as a call to establish
245
so even after several subsidy reforms in the 2015–2017 period of low oil
prices. 24 Meanwhile, the region’s oil importers—Egypt, Israel, Jordan,
Lebanon, Morocco, and Tunisia—maintain relatively low gasoline taxes,
especially when compared to European and East Asian states, though are
on par with gasoline prices in North America and in emerging markets in
Latin America and Sub-Saharan Africa. 25
The negative fiscal impacts of subsidies vary for countries that are able
to produce petroleum and other energy sources at below-market costs,
though the net fiscal effects are nonetheless quite impactful. In Saudi
Arabia, for instance, the cost of refining gasoline from local oil is far below
the international market price for refined gasoline given local oil production costs in the range of $3 to $10 per barrel (compared to market prices
at $55 to $75 per barrel). The effective subsidy is nevertheless large if we
compare local prices to the opportunity cost of selling domestic oil on the
international market, despite a low marginal cost of supply that masks the
true fiscal cost of the subsidy, holding production fixed. 26
Implications for Renewable Energy
In the late 1980s, at the height of the ‘oil glut,’ oil prices were at
their lowest levels since before the Arab Oil Embargo and oil-producers
around the world were suffering from severe fiscal (and existential) crises.
Governments were suddenly unable to deliver on their spending commitments, facing rising pressure from elite supporters and the broader public.
Outside the MENA, once mighty oil-financed regimes collapsed and
ushered in more democratic governments. The sustained period of low
oil prices in the 1980s and lingering into the 1990s is argued to be a
key driver in regime collapses from the Soviet Union to Mexico. Indeed,
this spurred broader claims derived from the political resource curse
whereby as the price of oil sinks lower, the more resilient is representative
government. 27
MENA leaders by and large escaped this fate, but still suffered from
worsening economic conditions, mounting fiscal deficits, and weakening
legitimacy in their ability to maintain their end of the rentier social
contract. When these leaders ultimately went to the IMF for financial
rescue, the consensus advice was that these countries needed to reduce
dependency on fossil fuels because of the severe volatility of oil markets. 28
Leaders of the MENA petro-states saw this not as a means to reduce
fiscal dependence on these commodities, but rather as a call to establish