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Subsidies to the Energy Sector in Venezuela: the effects of their removal considering inter-fuel substitution

Author

Listed:
  • Ramón E. Key-Hernández
  • Claudina Villarroel

Abstract

According to the International Energy Agency (2015) Venezuela is the country with the highest energy - subsidy rate in the world. Subsidies in the energy sector have been linked to CO2 emissions (Global Subsidies Initiative, 2010). According to figures of the IMF (WEO 2016), the Venezuelan economy was de third largest economy in South America. This is in line with figures from United Nations that pointed out that the country was in 2007 the third largest CO2 emitter in the region. However it ranks first in both energy consumption and CO2 emissions per capita. The objective of this paper is to evaluate the possible impacts of the removal of the energy subsidies in Venezuela including the effects on CO2 emissions. The paper considers interfuel-substitution in the production function of different sectors. In this work a general equilibrium model of 15 sectors is developed to study the effects of subsidy removal considering inter-fuel substitution. It considers four energy sectors (crude oil, gas, refining and electricity) which are considered factors of productions. The model also considers multiple households to quantify redistributive effects of the removal of the subsidies. It is expected that in the long run subsidy removal will cause a reduction in CO2 emissions greater than 3%.

Suggested Citation

  • Ramón E. Key-Hernández & Claudina Villarroel, 2017. "Subsidies to the Energy Sector in Venezuela: the effects of their removal considering inter-fuel substitution," EcoMod2017 10422, EcoMod.
    • Handle: RePEc:ekd:010027:10422
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    References listed on IDEAS

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