The Trade Effects of Phasing Out Fossil-Fuel Consumption Subsidies
AbstractQuoting a joint analysis undertaken by the OECD and the IEA, G-20 leaders committed in September 2009 to “rationalize and phase out over the medium term inefficient fossil-fuel subsidies that encourage wasteful consumption.” This report draws on previous OECD work to assess the impact on international trade of phasing out fossil-fuel consumption subsidies provided mainly by developing and emerging economies. The analysis employed the OECD’s ENV-Linkages General-Equilibrium model and used the IEA’s estimates of consumer subsidies, which measure the gap existing between the domestic prices of fossil fuels and an international reference benchmark. It shows that a co-ordinated multilateral removal of fossil-fuel consumption subsidies over the 2013-2020 period would increase global trade volumes by a very small amount (0.1%) by 2020. While seemingly negligible, this increase hides the large disparities that are observed across countries (or regions) and products. Under the central scenario, which assumes a multilateral subsidy removal over the 2013-2020 period, trade in natural gas would be most affected, with a 6% decrease by 2020. A reduction in the volume of both imports and exports from oil-exporting countries would be partly compensated by an expansion of trade flows (both imports and exports) involving OECD countries. This reallocation of trade flows would be most prevalent in products of energy-intensive industries. Looking beyond 2020, the contribution of oil-exporting countries to total world trade volumes would continue to be lower in 2050 than under the reference scenario.
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Bibliographic InfoPaper provided by OECD Publishing in its series OECD Trade and Environment Working Papers with number 2011/5.
Date of creation: 26 Aug 2011
Date of revision:
trade and environment; fossil-fuel subsidies; climate change; greenhouse gas emissions; general equilibrium models;
Find related papers by JEL classification:
- F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
- F18 - International Economics - - Trade - - - Trade and Environment
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
- Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-09-05 (All new papers)
- NEP-CWA-2011-09-05 (Central & Western Asia)
- NEP-ENE-2011-09-05 (Energy Economics)
- NEP-ENV-2011-09-05 (Environmental Economics)
- NEP-INT-2011-09-05 (International Trade)
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