Academic journal article International Journal of Labour Research

A Case for Socially Sustainable Petroleum Product Pricing in Ghana

Academic journal article International Journal of Labour Research

A Case for Socially Sustainable Petroleum Product Pricing in Ghana

Article excerpt

The growing relevance of "just transitions" in both developed and developing countries reflects the importance the world attaches to issues of sustainable development - development that meets the needs of the current generation without jeopardizing those of the future. Human consumption of carbon-based fuels, a primary factor behind the increase of greenhouse gases, is now widely seen as a threat to the livelihood of those future generations. Over the past 20 years, the imposition of a carbon tax has gained in credibility as a policy option to reduce fuel consumption. However, any government tempted to tinker with fuel prices has learned at its own expense the sensitivity of the public to such measures. A fuel price increase has an immediate impact on any household's bottom line, and that impact is likely to be felt disproportionately by the poorest segment of society. To be socially sustainable and effective, a just transition policy has to take full account of these economic and distributional impacts of policies to tax carbon emissions. In this endeavour, much can be learned from the actual experience of countries that have had to reduce subsidies to petroleum products.

This article examines Ghanas transition policies towards socially sustainable pricing of petroleum products following the introduction of the deregulation policy in 2005. It provides an analysis of measures including macroeconomic, industrial, sectoral and labour policies, investment mobilization, social dialogue, social protection, and active labour market policies that were taken to address the transitional needs linked to the implementation of the socially sustainable petroleum pricing case. The article also provides an analysis of eventual transition towards cleaner energies.

The analyses further reflect the just transition framework proposed by the Conclusions concerning achieving sustainable development, decent work and green jobs adopted by the 102nd Session (2013) of the International Labour Conference. The conclusions set out a common vision and underscore the critical role of governments, employers and workers as agents of change - both individually and collectively.

Ghana's experience with just transition policies began during the period of the Structural Adjustment Programme, which was dominated by prescriptions for removing subsidies from petroleum products. However, it was not until 2005 that the Government demonstrated its strongest commitment to implementing policies that reduced subsidies as well as promoting the development of clean energy sources to protect the environment. This was due to the rising cost of subsidies on major petroleum products.

The National Petroleum Authority estimates that the cost of petroleum consumption subsidies between 2009 and 2012 was over 1.5 billion Ghanaian cedi (GHS) (about US$500 million). This implies that the Government was not only intervening in petroleum prices but was also committing substantial public funds to finance these subsidies. This had negative implications for macroeconomic indicators and overall national development, as petroleum subsidies competed with other urgent development projects for the Governments limited resources.

The deregulation policy in the downstream petroleum sector1 started in 2001 with the introduction of the automatic adjustment pricing mechanism, which was expected to adjust petroleum product prices to international crude oil prices, exchange rates and other market conditions including profit margins for dealers and marketers; and to remove subsidies from some petroleum products. The formula was applied in an ad hoc manner, however, as it was not fully followed until 2005.

The implications of removing subsidies for the poor in Ghana and elsewhere are well-documented. There are empirical studies by Kpodar (2006) on the way international oil prices were transferred to household expenditures in Mali; by Coady and Newhouse (2006) on the distributional impact of an increase in the price of oil in Mozambique and Ghana, respectively; and by Coady et al. …

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