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Mitigation Potential of Removing Fossil Fuel Subsidies: A General Equilibrium Assessment


  • Jean-Marc Burniaux


  • Jean Château



Quoting a joint analysis made by the OECD and the IEA, G20 Leaders committed in September 2009 to ?rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption?. This analysis was based on the OECD ENV-Linkages General Equilibrium model and shows that removing fossil fuel subsidies in a number of non-OECD countries could reduce world Greenhouse Gas (GHG) emissions by 10% in 2050 (OECD, 2009). Indeed, these subsidies are huge. IEA estimates indicate that total subsidies to fossil fuel consumption in 37 non-OECD countries in 2008 amounted to USD 557 billions (IEA, OPEC, OECD, World Bank, 2010). This represents almost five times the yearly bilateral aid flows to developing countries as defined by the Official Development Assistance (ODA). This paper discusses the assumptions, data and both environmental and economic implications of removing these subsidies. It shows that, though removing these subsidies would amount to roughly a seventh of the effort needed to stabilize GHG concentration at a level of 450ppm or below 2°C, the full environmental benefit of this policy option can only be achieved if, in parallel, emissions are also capped in OECD countries. Finally, though removing these subsidies qualifies as being a ?win-win? option at the global level in terms of environmental and economic benefits, this is not true for all countries/regions. The paper also provides some discussion about the robustness of these results. Impact potentiel de l'élimination des subsides à la consommation des énergies fossiles sur les émissions de gaz à effet de serre : une évaluation en équilibre général Se réfèrant à une analyse entreprise conjointement par l'OCDE et l'AIE, les dirigeants du G20 se sont engagés en Septembre 2009 à "rationaliser et éliminer dans le moyen terme les subsides inefficaces des énergies fossiles qui encouragent un gaspillage de leur consommation". Cette analyse, fondée sur les résultats du modèle d'équilibre général ENV-Linkages de l'OCDE, montre que l'élimination des subsides à la consommation d'énergies fossiles dans un certain nombre de pays non-OCDE pourrait réduire les émissions mondiales de gaz à effet de serre (GES) de 10% en 2050 (OECD, 2009). Ces subsides sont, en effet, très importants. Les estimations de l'AIE indiquent que les subsides à la consommation d'énergies fossiles dans 37 pays non-OCDE correspondaient à 557 milliards de dollars US en 2008 (IEA, OPEC, OECD, World Bank, 2010). Ceci représente presque cinq fois la somme totale de l'aide bilatérale annuelle aux pays en développement telle que définie par le Comité d'aide au Développement de l'OCDE. Ce document décrit les hypothèses, les données et les conséquences tant environnementales qu'économiques de l'élimination de ces subsides. Il montre que, bien que l'élimination de ces subsides ne compterait que pour un septième environ de l'effort total requis pour stabiliser les concentrations de GES dans l'atmosphère à un niveau de 450 ppm, correspondant à une hausse de la température inférieure à 2°C, la totalité du bénéfice environnemental de cette option ne pourrait être atteint qu'à condition que les émissions dans les pays de l'OCDE soient simultanément sous contrainte. Enfin, malgré le fait que l'élimination de ces subsides implique des bénéfices au niveau mondial à la fois sur le plan environnemental et économique, ceci n'est pas nécessairement le cas au niveau des pays ou des régions. Le document contient aussi une analyse de la robustesse de ces résultats.

Suggested Citation

  • Jean-Marc Burniaux & Jean Château, 2011. "Mitigation Potential of Removing Fossil Fuel Subsidies: A General Equilibrium Assessment," OECD Economics Department Working Papers 853, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:853-en

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    References listed on IDEAS

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    Blog mentions

    As found by, the blog aggregator for Economics research:
    1. 265 – Fossil fuel subsidies
      by David Pannell in Pannell Discussions on 2014-04-21 20:00:38


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    Cited by:

    1. Nugumanova, Lyazzat, 2013. "Analysis of Fossil Fuel Subsidies in Kazakhstan," International Conference and Young Researchers Forum - Natural Resource Use in Central Asia: Institutional Challenges and the Contribution of Capacity Building 159103, University of Giessen (JLU Giessen), Center for International Development and Environmental Research.
    2. Gottschamer, L. & Zhang, Q., 2016. "Interactions of factors impacting implementation and sustainability of renewable energy sourced electricity," Renewable and Sustainable Energy Reviews, Elsevier, vol. 65(C), pages 164-174.
    3. Ye Li & Lei Bao & Wenxiang Li & Haopeng Deng, 2016. "Inventory and Policy Reduction Potential of Greenhouse Gas and Pollutant Emissions of Road Transportation Industry in China," Sustainability, MDPI, Open Access Journal, vol. 8(12), pages 1-19, November.
    4. Steinbuks, Jevgenijs & Narayanan, Badri G., 2015. "Fossil fuel producing economies have greater potential for industrial interfuel substitution," Energy Economics, Elsevier, vol. 47(C), pages 168-177.
    5. Schwanitz, Valeria Jana & Piontek, Franziska & Bertram, Christoph & Luderer, Gunnar, 2014. "Long-term climate policy implications of phasing out fossil fuel subsidies," Energy Policy, Elsevier, vol. 67(C), pages 882-894.
    6. Bertrand Magné & Jean Chateau & Rob Dellink, 2014. "Global implications of joint fossil fuel subsidy reform and nuclear phase-out: an economic analysis," Climatic Change, Springer, vol. 123(3), pages 677-690, April.
    7. repec:eee:enepol:v:110:y:2017:i:c:p:51-61 is not listed on IDEAS
    8. Orlov, Anton, 2016. "Effects of higher domestic gas prices in Russia on the European gas market: A game theoretical Hotelling model," Applied Energy, Elsevier, vol. 164(C), pages 188-199.

    More about this item


    fossil-fuel subsidies; general equilibrium models; GHGs emissions; modèles d'équilibre général; Subsides des énergies fossiles; émissions des GES;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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