The curse of fuel and fertiliser subsidies: Global report warns of worsening climate crisis

In the far right corner of Florence  Kawira’s kitchen, half-hidden beneath a peeling cupboard stands a weathered plastic bottle. Its once-bright label has long since faded into a murky, brownish hue, the plastic itself warped and cracked from years of handling. It's been there as long as anyone can remember, she mentions. 

Every other month, when they run out of kerosene,  Kawira—or sometimes one of her two school-going children—carries the bottle to a nearby kiosk and refills it with a litre of kerosene. With her unstable income from casual labour, this is the most practical option despite the drawbacks that come with it including smoke and stings in her eyes from the fumes.

She considers it cheaper than liquefied petroleum gas, touted as an alternative to solid fuel and a cleaner option for cooking.  “We are currently purchasing a litre of kerosene at Sh 160. This can last us up to one week because I only use it to prepare tea in the morning and supper.

During weeks that I have made food, enough for two suppers, it can stretch to almost two weeks. But even this cost has been rising over time. About a year ago, it was at least Sh50 cheaper,” she says.

Then, the government offered fuel subsidies to cushion the consumers from high fuel prices. It wasn’t the first time that thousands of Kenyans who rely on fuel were benefiting from fuel subsidies. Kenya has had different phases of fuel subsidies.

In October 2021, former President Uhuru Kenyatta directed the treasury and the Ministry of Petroleum and Mining to set up a long-term fuel subsidy scheme, even though it was in breach of the subsidy scheme, in a quest to cushion Kenyans from the high cost of fuels at the time and the cost of living. Notably, many households had enjoyed the privilege since April that year.

Upon assuming office, President William Ruto faulted the scheme saying that it was better to subside production instead of consumption. He took a bold move to scrap it but later reinstated the fuel subsidies after violent anti-government protests erupted before scrapping it again.

However, farmers still benefit from reduced cost of fertiliser with the government allocating Sh2.5 billion to the fertiliser subsidy programme in July for the 2024/2025 financial year.

With the fuel subsidy scrapped, Florence  Kawira—like countless others across Kenya—now finds herself at the mercy of the global fuel market. Climate experts, however, have framed this as a win for Kenya. With the subsidy gone, there’s less incentive to rely on fossil fuels like kerosene—fuels that contribute to the carbon emissions driving climate change.

They argue that this is a step toward a greener future, a necessary pivot to renewable energy sources that will ultimately benefit the country by reducing its carbon footprint and fostering sustainable development.

A new report released by ActionAid shows that there is some form of treachery from fossil fuel companies, as they benefit from countries through subsidies.

The report is called; How the Finance Flows: Corporate Capture of Public Finance Fuelling the Climate Crisis in the Global South. 

It shows that the amount that corporations get every year is almost 3.5 times the cost of primary school education for all children in sub-Saharan Africa. This is about Sh87 trillion (USD 677 billion).

“The world’s money is flowing in the wrong direction. Far more finance is flowing to the cause of climate change, than to the solutions,” they say.

Multinational corporations such as Shell (for fossil fuels) and Bayer (for agrochemicals) have been mentioned as those receiving most of the subsidy money from governments.

“Overall, environmentally harmful subsidies exceed 7 trillion US dollars annually, affecting air, land, and oceans While subsidy reform is widely advocated, some researchers caution that neoliberal approaches to energy transition may have unintended consequences,” shows the report.

In the country, the report shows two stark sides of the coin. On one hand, they praise Kenya for being on the front row championing renewable energy use, on the other hand, Kenya is lambasted for the outspending public money on fossil fuels and agrochemicals subsidies.

Teresa Anderson, Global Lead on Climate Justice at ActionAid International and one of the report’s authors, says, “It seems that money is the root of all climate upheaval.

Climate-destructive industries are bleeding the Global South of the public funds they should be using to deal with the climate crisis.

“The lack of public and climate finance for solutions means that in climate-vulnerable countries, renewable energy is receiving 40 times less public finance than the fossil fuel sector. It’s time for the Global South to stand up to the industries that are draining their finances and wrecking the climate. We need to fix the finance flows that are fuelling the climate crisis,” she adds.

The report also debunks the false narrative that fossil fuel and industrial agriculture expansion in the Global South is necessary to address food insecurity and energy poverty and to provide livelihoods and public revenue in the Global South.

The analysis shows that celebrating for getting subsidies only dents the public coffers even more, at the expense of acting on real climate change mitigation and adaptation issues. This, they say, was worsened by the Russia versus Ukraine war started about two years ago.

“The true cost to the public purse is far greater than the cost of these direct subsidies, however. When the cost of recovering from devastating climate impacts, as well as addressing the extensive environmental and social harm caused by fossil fuels is also included as the “implicit” accounting of fossil fuel subsidies, these total fossil fuel subsidies were found to amount to a staggering 7 trillion US dollars globally in 2022,” explains the report.

This is even as the Kenyan economy mostly relies on fossil fuels with manufacturers, farmers, and service providers factoring in the cost of fuel in setting prices for their goods and services.

A 2021 report by the UN’s Food and Agriculture Organisation (FAO), the UN Development Programme (UNDP) and the UN Environment Programme (UNEP) shows that almost nine in every 10 fuel subsidies given by governments on agriculture are harmful to the environment.

“While the use of public subsidies to strengthen communities’ access to food and energy can often be motivated in the public interest, the unquestioning public financing of climate-destructive fossil fuel and industrial agribusiness instead of people-centred climate solutions for food and energy, is short-sighted and self-defeating,” shows the Action Aid report.

The International Monetary Fund criticised Kenya for the fuel subsidies, and in the ActionAid new report, they say that fossil fuel subsidies are “fuel to the fire” of the climate crisis.

The report advises that there is a need for including women when there is a shift in public financing. 

“It must be carefully sequenced to protect the rights of people – especially women – living in poverty. Any reductions in fossil fuel subsidies should target wealthy corporations first. Only once accessible and democratic alternatives and comprehensive social protections are available to people on low incomes, should progressive policies be shifted,” they explain. 

The report shows that renewable energy does not only provide mitigation and energy access benefits, but it can also make a major contribution towards adaptation strategies in a warming world, such as irrigation, food processing and storage, transport and cooling.

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