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How much can CO2 emissions be reduced if fossil fuel subsidies are removed?

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  • Mundaca, Gabriela

Abstract

This paper analyzes consumers' price elasticities of demand for fossil fuels, and how a reduction of fossil fuel subsidies can lead to important reduction in CO2 emissions for various groups of countries that have relatively high fossil fuel subsidies and notably on diesel, including countries in the Middle East and North Africa (MENA). These countries continue to maintain significant levels of fuel subsidies, with Iran and Saudi Arabia being the largest contributors to CO2 emissions. This paper illustrates that fuel price policy reforms by these countries would be an important instrument for both climate and economic policies. We estimate that a reduction in subsidies to both gasoline and diesel by about 20 US$ cents per liter will lead to significant decreases in CO2 emissions, both in the MENA region and globally. In Iran, for example, the reductions could be up to 90% and 50% of current emissions generated from diesel and gasoline consumption, respectively, and for Saudi Arabia, approximately 70% and 40%, respectively.

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  • Mundaca, Gabriela, 2017. "How much can CO2 emissions be reduced if fossil fuel subsidies are removed?," Energy Economics, Elsevier, vol. 64(C), pages 91-104.
    • Handle: RePEc:eee:eneeco:v:64:y:2017:i:c:p:91-104
    DOI: 10.1016/j.eneco.2017.03.014
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    13. Aryanpur, V. & Ghahremani, M. & Mamipour, S. & Fattahi, M. & Ó Gallachóir, B. & Bazilian, M.D. & Glynn, J., 2022. "Ex-post analysis of energy subsidy removal through integrated energy systems modelling," Renewable and Sustainable Energy Reviews, Elsevier, vol. 158(C).
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    17. Su, Chi-Wei & Yuan, Xi & Tao, Ran & Shao, Xuefeng, 2022. "Time and frequency domain connectedness analysis of the energy transformation under climate policy," Technological Forecasting and Social Change, Elsevier, vol. 184(C).
    18. Xu, Shang & Zhang, Jun, 2023. "The welfare impacts of removing coal subsidies in rural China," Energy Economics, Elsevier, vol. 118(C).
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    More about this item

    Keywords

    Energy subsidies; CO2 emissions; Fossil fuel price elasticities;
    All these keywords.

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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