World fuel subsidies could fall, reform likely - IEA

A motorist prepares to put fuel into her car at a petrol station in Melbourne July 3, 2008.

MELUN, France (Reuters) - World fuel subsidies probably fell last year, and some of the countries with the cheapest fuel are poised for reform, the International Energy Agency (IEA) said on Wednesday.

Last year's expected fall, follows a near doubling of subsidises prices in 2008 from 2007 because of higher energy prices and stronger demand, the IEA said. This is the first time it had given a figure for 2008 fossil fuel subsidies.

Governments in several G20 countries, including China and Russia, subsidise fuels such as coal and oil to keep prices artificially low for consumers, boosting energy demand and increasing emissions.

The IEA's chief economist Fatih Birol told Reuters he expected substantial price reforms in countries with the largest subsidies, which include Russia and China, and that discussions were taking place in Iran.

"We are hearing positive signals," he said.

Eliminating the subsidies would cut greenhouse gasses blamed for global warming and help the world reach a target to prevent temperatures from rising by over 2 degrees Celsius by 2030.

The goal would be met if phasing out subsidies were combined with implementing pledges made by 70 countries to cut CO2 emissions under a UN-led agreement in December 2009, the IEA said.

Fuel subsidies in 2008 jumped to $557 billion in 2008, up from $340 billion in 2007, the Paris-based agency, which advises 28 industrialised nations, said.

"There are two aspects behind the increase, one is that oil prices are higher and the second is energy consumed is higher," Birol said on the sidelines of a seminar.

"Subsidies could be lower in 2009 because the energy prices are lower and some countries are making major efforts (to phase out subsidies), such as in India, Russia and China," he added.

"In any case it's a huge amount of money and a burden on governments," he said.

(Editing by Sue Thomas)