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Fossil fuel subsidies and environmental constraints

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  • Christoph Böhringer

Abstract

Fossil fuel subsidies are applied in many countries for different policy reasons such as maintaining jobs in fossil fuel sectors, securing national energy supply or lowering the energy costs of selected industries to strengthen competitiveness. The current economic costs of fossil fuel subsidy policies can be substantially increased by future environmental constraints. We illustrate this point in the framework of a general equilibrium analysis for Germany where we quantify the economic costs of alternative hard coal subsidy policies at different CO 2 reduction levels. Our calculations show that German hard coal subsidies as a means of retaining jobs can get very expensive with additional specific costs of up to annual 70 000 DM per job for a given CO 2 reduction target of 35%. Though the empirical analysis is focused on Germany the general conclusion that current subsidy policies of fossil fuels must be fundamentally reconsidered in view of forthcoming environmental constraints is also relevant for other countries. Copyright Kluwer Academic Publishers 1996

Suggested Citation

  • Christoph Böhringer, 1996. "Fossil fuel subsidies and environmental constraints," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 8(3), pages 331-349, October.
    • Handle: RePEc:kap:enreec:v:8:y:1996:i:3:p:331-349
    DOI: 10.1007/BF00339081
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    References listed on IDEAS

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    1. Rutherford, Thomas F., 1995. "Extension of GAMS for complementarity problems arising in applied economic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1299-1324, November.
    2. Perroni, Carlo & Rutherford, Thomas F., 1995. "Regular flexibility of nested CES functions," European Economic Review, Elsevier, vol. 39(2), pages 335-343, February.
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    1. repec:rri:wpaper:200802 is not listed on IDEAS
    2. Perrels, Adriaan, 2000. "Greenhouse Gas Policy Questions and Socio-economic Research Implications for Finland in a National and International Context," Discussion Papers 222, VATT Institute for Economic Research.
    3. Hodjat Ghadimi, 2008. "Energy in a Resource-based Regional Economy: A Dynamic General Equilibrium Analysis," Working Papers Working Paper 2008-02, Regional Research Institute, West Virginia University.
    4. Grzegorz Peszko & Tomasz Żylicz*, 1998. "Environmental Financing in European Economies in Transition," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 11(3), pages 521-538, April.

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