RAWALPINDI, Aug 27: While the government in Pakistan was gradually withdrawing subsidy on energy and raising power rates to put additional burden on the inflation-hit people, worldwide energy subsidies was touching the figure of $300 billion per year, or around 0.7 per cent of world GDP, most of which to fossil fuel.

The lion’s share is being used to artificially lower or reduce the real price of fuels like oil, coal and gas or electricity generated from such fossil fuels. Cancelling these subsidies might reduce greenhouse gas emissions by as much as six per cent a year while contributing 0.1 per cent to global GDP, says a report on “Reforming energy subsidies” released by the United Nations Environment Programme (UNEP) on Tuesday.

The report called for scrapping fossil fuel subsidies, which it says could play an important role in cutting greenhouse gases, while giving a small but not insignificant boost to the global economy.

It challenges the widely- held view that such subsidies assist the poor arguing that many of these price support systems benefit the wealthier sections of society rather than those on low incomes. The report estimates that some $6.4 billion is also spent on bio-fuels assuming global production of 40 billion litres.

Pakistan currently subsidises only natural gas and oil products; the share of subsidy in gas is much more than oil products. After withdrawing subsidy on electricity, the government was constantly increasing the cost of electricity. For a consumer, electricity bill was increasing every month despite the scheduled and unscheduled load-shedding.

With Ramazan only a few days away, Water and Power Minister Raja Pervez Ashraf announced that people would get electricity only for 8 hours out of 24 hours and that the government has no other option except to increase the price of electricity. The UNEP report says governments like to keep subsidies ‘off-budget’ for political reasons, since ‘on-budget’ subsidies are an easy target for pressure groups interested in reducing the overall tax burden. For this reason, subsidies often take the form of price controls that set prices below full cost, especially where the energy company is state-owned, or of a requirement on energy buyers to take minimum volumes from a specific, usually domestic, supply source.

The report estimated that 1.6 billion people in the world have no access to electricity, while more than two billion people rely on traditional fuels for cooking and heating. Raising their living standards and productivity depends on improving their access to modern energy services.

Lack of access to reliable and affordable modern energy is holding back economic and social development in many parts of the world today, the report says.

Although most energy subsidies still go to fossil fuels, support for so-called “clean” energy technology is growing. Another recent UN report estimates that direct government support to the deployment of low-carbon energy sources worldwide is currently of the order of $26 billion per year: $10 billion on deploying renewable sources of electricity and around $16 billion on supporting existing nuclear power.

Fossil fuels account for 84 per cent of the increase in energy use. As a result, energy-related emissions of carbon dioxide rise by 57 per cent. Most of the increase in energy demand and resulting emissions is projected to occur in developing countries, especially in the emerging economies of China and India.

Burning fossil fuels also causes urban smog and acid rain, while producing them can pollute water supplies. In many towns and cities, local pollution caused by burning oil, gas and coal in houses, factories, cars and power stations is a leading cause of human health problems.

Concentrations of the main local air pollutants – particularly sulphur dioxide and nitrogen oxides – in the big cities of many developing countries are well above World Health Organisation maximum guideline levels. Acidification of lakes and soils is also a big problem in many parts of the world.