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The Environmental Cost of Global Fuel Subsidies

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  • Lucas W. Davis

Abstract

Despite increasing calls for reform many countries continue to provide subsidies for gasoline and diesel. This paper quantifies the external costs from global fuel subsidies using the latest available data and estimates from the World Bank and International Monetary Fund. Under preferred assumptions about supply and demand elasticities, current subsidies cause $44 billion in external costs annually. This includes $8 billion from carbon dioxide emissions, $7 billion from local pollutants, $12 billion from traffic congestion, and $17 billion from accidents. These external costs are in addition to conventional deadweight loss, estimated to be $26 billion annually. Government incentives for alternative fuel vehicles are unlikely to cost-effectively reduce these externalities as they do little to address traffic congestion or accidents and only indirectly address carbon dioxide and local pollutants.

Suggested Citation

  • Lucas W. Davis, 2017. "The Environmental Cost of Global Fuel Subsidies," The Energy Journal, International Association for Energy Economics, vol. 0(KAPSARC S).
    • Handle: RePEc:aen:journl:ej38-si1-davis
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    Cited by:

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    4. Jon Sampedro & Iñaki Arto & Mikel González-Eguino, 2017. "Implications of Switching Fossil Fuel Subsidies to Solar: A Case Study for the European Union," Sustainability, MDPI, vol. 10(1), pages 1-12, December.
    5. Gustav Engström & Johan Gars & Niko Jaakkola & Therese Lindahl & Daniel Spiro & Arthur A. van Benthem, 2020. "What Policies Address Both the Coronavirus Crisis and the Climate Crisis?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(4), pages 789-810, August.
    6. Atalla, Tarek N. & Gasim, Anwar A. & Hunt, Lester C., 2018. "Gasoline demand, pricing policy, and social welfare in Saudi Arabia: A quantitative analysis," Energy Policy, Elsevier, vol. 114(C), pages 123-133.
    7. Gasim, Anwar A. & Agnolucci, Paolo & Ekins, Paul & De Lipsis, Vincenzo, 2023. "Modeling final energy demand and the impacts of energy price reform in Saudi Arabia," Energy Economics, Elsevier, vol. 120(C).
    8. Hadi Sasana & F. Salman & Suharnomo Suharnomo & S. B. M. Nugroho & A. G. Edy Yusuf, 2018. "The Impact of Fossil Energy Subsidies on Social Cost in Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 8(2), pages 168-173.
    9. Matthew O. Gidigbi & Kehinde M. Bello & Gbenga F. Babarinde, 2019. "Petroleum subsidy and its impact on tax revenue volatility," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 11(1), pages 24-36, June.
    10. Ghoddusi, Hamed & Morovati, Mohammad & Rafizadeh, Nima, 2022. "Dynamics of fuel demand elasticity: Evidence from Iranian subsidy reforms," Energy Economics, Elsevier, vol. 110(C).
    11. S. Mauricio Medinaceli Monrroy & Marcelo G. Velázquez Bilbao La Vieja, 2023. "Hydrocarbon Prices and Subsidies in Bolivia 1986 - 2025," Development Research Working Paper Series 05/2023, Institute for Advanced Development Studies.

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