Global Energy Subsidies Reform: Inclusive Approaches to Welfare Assessment

For several decades energy subsidies remain on the top of international policy agenda, serving as one of the most widely used policy tools. Several major international organizations have attempted to quantify global energy subsidies and provide assessment of their potential reform. This includes studies by Organization for Economic Co-operation and Development (OECD), International Energy Agency (IEA) and International Monetary Fund (IMF). While most of these contributions provide estimates of wide economic effects they lack consistent assessment of environmental co-benefits of subsidies elimination, which can potentially have a significant influence on aggregate results and their regional distribution. In this paper, we apply a multistep framework to analyze two global energy subsidies scenarios, which include elimination of pre-tax consumer and post-tax local pollution subsidies. Computable general equilibrium GTAP-E-Power model is used to implement energy subsidy policies, quantify economic impacts, estimate energy use changes and CO2 emissions. Energy use changes are linked to emissions of air pollutants (SO2, NOx and PM2.5) and pollution-mortality impacts are estimated based on the population exposed by pollution and corresponding mortality risks for chronic obstructive pulmonary disease, lung cancer, ischemic heart disease and stroke. Finally, welfare benefits related to reduced mortality rates using country-adjusted willingness-to-pay measure from direct valuation studies.