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Estimating the Size of External Effects of Energy Subsidies

Author

Listed:
  • Commander, Simon

    (IE Business School, Altura Partners)

  • Nikoloski, Zlatko

    (London School of Economics)

  • Vagliasindi, Maria

    (World Bank)

Abstract

It is widely accepted that the costs of under-pricing energy are large, whether in advanced or developing countries. This paper explores how large these costs can be by focussing on the size of the external effects that energy subsidies in particular generate in two important sectors – transport and agriculture – in two MENA countries, Egypt (transport) and Yemen (agriculture). Our focus is mainly on the costs associated with congestion and pollution as well the impact of under-priced energy for depletion of scarce water resources including through crop selection. Quantifying the size of external effects in developing countries has received relatively little analytical attention, although there is a significant body of literature for the advanced world. By building on earlier research, as well as employing the UN ForFITS model we are able to provide indicative estimates of the external costs of energy subsidies, as manifested in congestion and pollution. Our estimates using simulations indicate that these costs could be materially reduced by elimination or reduction of energy subsidies. We are also able to describe the impact of energy subsidies on water consumption in a region where water resources are particularly limited. As such, our findings provide further evidence of the adverse and significant consequences of subsidising energy.

Suggested Citation

  • Commander, Simon & Nikoloski, Zlatko & Vagliasindi, Maria, 2015. "Estimating the Size of External Effects of Energy Subsidies," IZA Discussion Papers 8865, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp8865
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    References listed on IDEAS

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    Cited by:

    1. Jun Rentschler & Raimund Bleischwitz & Florian Flachenecker, 2018. "On imperfect competition and market distortions: the causes of corporate under-investment in energy and material efficiency," International Economics and Economic Policy, Springer, vol. 15(1), pages 159-183, January.
    2. Menezes, Esther & Maia, Alexandre Gori & de Carvalho, Cristiane Silva, 2017. "Effectiveness of low-carbon development strategies: Evaluation of policy scenarios for the urban transport sector in a Brazilian megacity," Technological Forecasting and Social Change, Elsevier, vol. 114(C), pages 226-241.
    3. Jun Rentschler & Morgan Bazilian, 2017. "Policy Monitor—Principles for Designing Effective Fossil Fuel Subsidy Reforms," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 11(1), pages 138-155.

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    More about this item

    Keywords

    energy subsidies; pollution; congestion; health effects of energy subsidies;
    All these keywords.

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development

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