IDEAS home Printed from https://ideas.repec.org/a/gam/jworld/v4y2023i2p16-240d1122589.html

Emission Reduction via Fossil Fuel Subsidy Removal and Carbon Pricing, Creating Synergies with Revenue Recycling

Author

Listed:
  • Andrea Marcello Bassi

    (KnowlEdge Srl, 21057 Olgiate Olona, Italy
    International Institute for Sustainable Development (IISD), Winnipeg, MB R3B 0T4, Canada)

  • Georg Pallaske

    (KnowlEdge Srl, 21057 Olgiate Olona, Italy)

  • Richard Bridle

    (International Institute for Sustainable Development (IISD), Winnipeg, MB R3B 0T4, Canada)

  • Kavya Bajaj

    (International Institute for Sustainable Development (IISD), Winnipeg, MB R3B 0T4, Canada)

Abstract

The removal of fossil fuel subsidies and the introduction of carbon pricing have been discussed for more than a decade, but their potential contribution to emission reduction is still uncertain, especially in relation to the potential indirect impact of revenue recycling. We have created a simulation model, GSI-IF, designed to assess the emission reduction potential resulting from removing fossil fuel subsidies and recycling part of the avoided subsidy and additional revenue from carbon pricing to renewable energy and energy efficiency. Our results show that emissions could decline by 7.1% in 2030 and up to 19.8% in 2050 compared to a baseline scenario. We find that subsidy removal is most effective in reducing emissions in countries with a high incidence of fossil fuel subsidies and it has stronger impact in the short term. The recycling of carbon pricing is most relevant for larger economies and its impact accumulates over time, generating growing GHG reductions year after year. In the current context (year 2022) with high energy prices, heavy stress on fiscal balances, and the renewed ambition of most governments to reduce emissions toward Net Zero in 2050, subsidy removal and carbon pricing hold promise in the toolbox of decarbonization options while improving fiscal sustainability.

Suggested Citation

  • Andrea Marcello Bassi & Georg Pallaske & Richard Bridle & Kavya Bajaj, 2023. "Emission Reduction via Fossil Fuel Subsidy Removal and Carbon Pricing, Creating Synergies with Revenue Recycling," World, MDPI, vol. 4(2), pages 1-16, April.
    • Handle: RePEc:gam:jworld:v:4:y:2023:i:2:p:16-240:d:1122589
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2673-4060/4/2/16/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2673-4060/4/2/16/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Coady, David & Parry, Ian & Sears, Louis & Shang, Baoping, 2017. "How Large Are Global Fossil Fuel Subsidies?," World Development, Elsevier, vol. 91(C), pages 11-27.
    2. repec:cii:cepiie:2014-q4-140-50 is not listed on IDEAS
    3. 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.
    4. Christophe McGlade & Paul Ekins, 2015. "The geographical distribution of fossil fuels unused when limiting global warming to 2 °C," Nature, Nature, vol. 517(7533), pages 187-190, January.
    5. Jessica Jewell & David McCollum & Johannes Emmerling & Christoph Bertram & David E. H. J. Gernaat & Volker Krey & Leonidas Paroussos & Loïc Berger & Kostas Fragkiadakis & Ilkka Keppo & Nawfal Saadi & , 2018. "Limited emission reductions from fuel subsidy removal except in energy-exporting regions," Nature, Nature, vol. 554(7691), pages 229-233, February.
    6. Monasterolo, Irene & Raberto, Marco, 2019. "The impact of phasing out fossil fuel subsidies on the low-carbon transition," Energy Policy, Elsevier, vol. 124(C), pages 355-370.
    7. Jean-Marc Burniaux & Jean Chateau, 2014. "Greenhouse gases mitigation potential and economic efficiency of phasing-out fossil fuel subsidies," International Economics, CEPII research center, issue 140, pages 71-88.
    8. repec:cii:cepiei:2014-q4-140-5 is not listed on IDEAS
    9. Philipp M. Richter & Roman Mendelevitch & Frank Jotzo, 2018. "Coal taxes as supply-side climate policy: a rationale for major exporters?," Climatic Change, Springer, vol. 150(1), pages 43-56, September.
    10. Julius J. Andersson, 2019. "Carbon Taxes and CO2 Emissions: Sweden as a Case Study," American Economic Journal: Economic Policy, American Economic Association, vol. 11(4), pages 1-30, November.
    11. Nicholas Stern & Anna Valero, 2021. "Innovation, growth and the transition to net-zero emissions," CEP Discussion Papers dp1773, Centre for Economic Performance, LSE.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cosimo Magazzino & Umberto Monarca & Ernesto Cassetta & Alberto Costantiello & Tulia Gattone, 2025. "Uncovering CO 2 Drivers with Machine Learning in High- and Upper-Middle-Income Countries," Energies, MDPI, vol. 18(21), pages 1-21, October.
    2. Kori Blandina Walowe Kori, 2025. "Environmental Conservation and Sustainable Development in Global Businesses," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(10), pages 6766-6776, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Roman Mendelevitch, 2018. "Testing supply-side climate policies for the global steam coal market—can they curb coal consumption?," Climatic Change, Springer, vol. 150(1), pages 57-72, September.
    2. Bergholt, Drago & Røisland, Øistein & Sveen, Tommy & Torvik, Ragnar, 2023. "Monetary policy when export revenues drop," Journal of International Money and Finance, Elsevier, vol. 137(C).
    3. Antimiani, Alessandro & Costantini, Valeria & Paglialunga, Elena, 2023. "Fossil fuels subsidy removal and the EU carbon neutrality policy," Energy Economics, Elsevier, vol. 119(C).
    4. Monasterolo, Irene & Raberto, Marco, 2019. "The impact of phasing out fossil fuel subsidies on the low-carbon transition," Energy Policy, Elsevier, vol. 124(C), pages 355-370.
    5. Irene Monasterolo & Nepomuk Dunz & Andrea Mazzocchetti & Régis Gourdel, 2022. "Derisking the low-carbon transition: investors’ reaction to climate policies, decarbonization and distributive effects," Review of Evolutionary Political Economy, Springer, vol. 3(1), pages 31-71, April.
    6. Matallah, Siham & Boudaoud, Souhila & Matallah, Amal & Ferhaoui, Mustapha, 2023. "The role of fossil fuel subsidies in preventing a jump-start on the transition to renewable energy: Empirical evidence from Algeria," Resources Policy, Elsevier, vol. 86(PB).
    7. Lassi Ahlvik & Jørgen Juel Andersen & Jonas Hveding Hamang & Torfinn Harding, 2022. "Quantifying supply-side climate policies," Working Papers No 01/2022, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    8. 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.
    9. Christian Hauenstein & Franziska Holz & Lennart Rathje & Thomas Mitterecker, 2022. "Stranded Assets in the Coal Export Industry? The Case of the Australian Galilee Basin," Discussion Papers of DIW Berlin 2003, DIW Berlin, German Institute for Economic Research.
    10. de Bruin, Kelly & Monaghan, Eoin & Yakut, Aykut Mert, 2019. "The impacts of removing fossil fuel subsidies and increasing carbon tax in Ireland," Research Series, Economic and Social Research Institute (ESRI), number RS98.
    11. Agarwala, Matthew & Burke, Matt & Klusak, Patrycja & Mohaddes, Kamiar & Volz, Ulrich & Zenghelis, Dimitri, 2021. "Climate Change And Fiscal Sustainability: Risks And Opportunities," National Institute Economic Review, National Institute of Economic and Social Research, vol. 258, pages 28-46, November.
    12. Ante, Lennart, 2024. "The scope of green finance research: Research streams, influential works and future research paths," Ecological Economics, Elsevier, vol. 224(C).
    13. Philippe Le Billon & Berit Kristoffersen, 2020. "Just cuts for fossil fuels? Supply-side carbon constraints and energy transition," Environment and Planning A, , vol. 52(6), pages 1072-1092, September.
    14. Gourdel, Régis & Monasterolo, Irene & Gallagher, Kevin, 2025. "Climate transition spillovers and sovereign risk: Evidence from Indonesia," Energy Economics, Elsevier, vol. 143(C).
    15. Wang, Chao & Hu, Mengyuan & Lu, Jiayi & Liu, Xiaoxing, 2025. "Carbon exposure of credit assets and banking systemic risk caused by climate transition," Research in International Business and Finance, Elsevier, vol. 77(PB).
    16. Arzaghi, Mohammad & Squalli, Jay, 2023. "The environmental impact of fossil fuel subsidy policies," Energy Economics, Elsevier, vol. 126(C).
    17. Henok Asmelash, 2016. "Falling oil prices and sustainable energy transition: Towards a multilateral agreement on fossil-fuel subsidies," WIDER Working Paper Series 013, World Institute for Development Economic Research (UNU-WIDER).
    18. Timilsina, Govinda R. & Deluque Curiel, Ilka Fabiana, 2023. "Subsidy removal, regional trade and CO2 mitigation in the electricity sector in the Middle East and North Africa region," Energy Policy, Elsevier, vol. 177(C).
    19. Harro van Asselt & Kati Kulovesi, 2017. "Seizing the opportunity: tackling fossil fuel subsidies under the UNFCCC," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 17(3), pages 357-370, June.
    20. Rahko, Jaana & Onifade, Stephen Taiwo & Alola, Andrew Adewale, 2025. "How harmful are fossil fuel subsidies to the diffusion of low-carbon energy technologies?," Energy Economics, Elsevier, vol. 147(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jworld:v:4:y:2023:i:2:p:16-240:d:1122589. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.