Reallocating Morocco’s fuel subsidies for renewable energy acceleration

After decades of fuel subsidies, Morocco launched a policy reform that helped saved and reallocate up to $5 billion of fiscal budget to invest in reenwabe energy, creating 12,500 jobs in the process.

Sector
Finance Energy
Region
Africa
Affected Stakeholder
Consumers

Problem

Morocco has a Nationally Determined Contribution (NDC) target to reduce emissions by 42% by 2030 and to reach 52% renewable capacity by 2030. Morocco is endowed with very few fossil fuel resources and has long relied on imports to meet 90% of its energy needs, which has increased in recent decades as a result of growing population, urbanisation, and socio-economic development.

In the early 2010s, subsidies for fossil fuels consumed a large and growing share of the Government budget, making the country vulnerable to fluctuations in global energy markets. In 2014, the Government of Morocco decided to reform its fossil fuel subsidies.

Direct transfers to the national electric utility continued, but electricity prices for consumers were raised, igniting public protests.


Responses

The Government continued to subsidise butane to avoid a disproportionate burden on poor and rural populations, who disproportionately use it for cooking, lighting and agricultural irrigation — meaning that an increase in butane prices would have also raised food prices. Some electricity subsidies were also maintained to help address public concerns. As a result, in 2016, the poorest 40% of households needed to spend only 4.6% of their monthly income to consume the average household level of electricity. 

The policy reportedly contributed greatly to both Morocco's GHG emissions reduction goal and its fiscal burden. As a result of the reforms, the Government of Morocco reduced fossil fuel subsidy spending by about US$3.68 billion in 2014 and US$1.26 billion in 2015, from a previous US$6.5 billion, freeing up fiscal space for investments in renewable energy. By 2019, the country had 2,696 MW of renewable electricity capacity, 34% of its total installed capacity. The renewable energy sector in Morocco accounted for 12,500 jobs in 2021, and has been projected to generate between 267,000 and 482,000 by 2024. 

In 2024, the Government is set to start phasing out direct butane subsidies to reduce its budgetary allocation. Subsidies for wheat, sugar and cooking gas will continued to be provided for poorer households.


Find out more: World Resources Institute, European Training Foundation, Reuters