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World fossil fuel subsidies and global carbon emissions

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  • Larsen, Bjorn
  • Shah, Anwar
  • DEC

Abstract

Larsen and Shah present evidence on the level of fossil fuel subsidies and their implications for carbon dioxide emissions. They conclude that substantial fossil fuel subsidies prevail in a handful of large, carbon-emitting countries. Removing such subsidies could substantially reduce national carbon emissions in some countries. Global carbon emissions could be reduced by 9 percent, assuming no change in world fossil fuel prices, and by 5 percent when accounting for estimated changes in world prices. Larsen and Shah estimate world energy subsidies to be more than US$230 billion. The welfare costs of these subsidies are more than US$20 billion, not including the cost of greenhouse gas and local pollution from fossil fuel consumption. Net fossil fuel importers in Japan, the United States, and Western Europe are estimated to experience welfare gains of about US$14 billion, while welfare effects would be negative in exporting countries in the event of a dampening effect on world fossil fuel prices associated with the removal of subsidies. Eliminating these subsidies would translate into an average 21 percent reduction in carbon emissions in the subsidizing countries, or 20 percent of OECD emissions. To achieve an equivalent reduction in tons of emissions in the OECD countries would require imposing a carbon tax of $60-$70 per ton of carbon, even when accounting for estimated changes in world fossil fuel prices.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1002.

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Date of creation: 31 Oct 1992
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Handle: RePEc:wbk:wbrwps:1002

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Related research

Keywords: Environmental Economics&Policies; Carbon Policy and Trading; Energy and Environment; Economic Theory&Research; Access to Markets;

References

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  1. Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-37, July.
  2. Anwar Shah & Bjorn Larsen, 2008. "Carbon taxes, the greenhouse effect, and developing countries," CEMA Working Papers 583, China Economics and Management Academy, Central University of Finance and Economics.
  3. Thomas Sterner, 1989. "Oil Products in Latin America: The Politics of Energy Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 25-46.
  4. Burgess, Joanne C., 1990. "The contribution of efficient energy pricing to reducing carbon dioxide emissions," Energy Policy, Elsevier, vol. 18(5), pages 449-455, June.
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Citations

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Cited by:
  1. Hossein Mirshojaeian Hosseini & Shinji Kaneko, 2012. "A general equilibrium analysis of the inflationary impact of energy subsidies reform in Iran," IDEC DP2 Series 2-8, Hiroshima University, Graduate School for International Development and Cooperation (IDEC).
  2. Shreekant Gupta, 2000. "Incentive-Based Approaches for Mitigating Greenhouse Gas Emissions: Issues and Prospects for India," Working papers 85, Centre for Development Economics, Delhi School of Economics.
  3. Ian Parry, 1998. "A Second-Best Analysis of Environmental Subsidies," International Tax and Public Finance, Springer, vol. 5(2), pages 153-170, May.
  4. Krause, Florentin, 1996. "The costs of mitigating carbon emissions : A review of methods and findings from European studies," Energy Policy, Elsevier, vol. 24(10-11), pages 899-915.
  5. Zhang, Zhong Xiang, 1995. "Energy conservation in China : An international perspective," Energy Policy, Elsevier, vol. 23(2), pages 159-166, February.
  6. Khanna, Madhu & Zilberman, David, 1997. "Incentives, precision technology and environmental protection," Ecological Economics, Elsevier, vol. 23(1), pages 25-43, October.
  7. Rout, Ullash K. & Akimoto, Keigo & Sano, Fuminori & Tomoda, Toshimasa, 2010. "Introduction of subsidisation in nascent climate-friendly learning technologies and evaluation of its effectiveness," Energy Policy, Elsevier, vol. 38(1), pages 520-532, January.
  8. Levine, Mark D & Price, Lynn & Martin, Nathan, 1996. "Mitigation options for carbon dioxide emissions from buildings : A global analysis," Energy Policy, Elsevier, vol. 24(10-11), pages 937-949.
  9. Blackman, Allen & Harrington, Winston, 1999. "The Use of Economic Incentives in Developing Countries: Lessons from International Experience with Industrial Air Pollution," Discussion Papers dp-99-39, Resources For the Future.
  10. Peter Bohm & Bjorn Larsen, 1994. "Fairness in a tradeable-permit treaty for carbon emissions reductions in Europe and the former Soviet Union," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 4(3), pages 219-239, June.
  11. Shreekant Gupta, 2010. "Incentive Based Approaches for Mitigating Greenhouse Gas Emmissions : Issues And Prospects for India," Working Papers id:2638, eSocialSciences.
  12. L. Schipper & R. Haas & C. Sheinbaum, 1996. "Recent Trends in Residential Energy Use in OECD Countries and their Impact on Carbon Dioxide Emissions: A Comparative Analysis of the Period 1973–1992," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 1(2), pages 167-196, December.
  13. Larsen, Bjorn, 1994. "World fossil fuel subsidies and global carbon emissions in a model with interfuel substitution," Policy Research Working Paper Series 1256, The World Bank.
  14. Wie, Jiegen & Wennlock, Magnus & Johansson, Daniel J.A. & Sterner, Thomas, 2011. "The Fossil Endgame: Strategic Oil Price Discrimination and Carbon Taxation," Discussion Papers dp-11-26, Resources For the Future.

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