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World fossil fuel subsidies and global carbon emissions

  • Larsen, Bjorn
  • Shah, Anwar
  • DEC

Larsen and Shah present evidence on the level of fossil fuel subsidies and their implications for carbon dioxide emissions. They conclude that substantial fossil fuel subsidies prevail in a handful of large, carbon-emitting countries. Removing such subsidies could substantially reduce national carbon emissions in some countries. Global carbon emissions could be reduced by 9 percent, assuming no change in world fossil fuel prices, and by 5 percent when accounting for estimated changes in world prices. Larsen and Shah estimate world energy subsidies to be more than US$230 billion. The welfare costs of these subsidies are more than US$20 billion, not including the cost of greenhouse gas and local pollution from fossil fuel consumption. Net fossil fuel importers in Japan, the United States, and Western Europe are estimated to experience welfare gains of about US$14 billion, while welfare effects would be negative in exporting countries in the event of a dampening effect on world fossil fuel prices associated with the removal of subsidies. Eliminating these subsidies would translate into an average 21 percent reduction in carbon emissions in the subsidizing countries, or 20 percent of OECD emissions. To achieve an equivalent reduction in tons of emissions in the OECD countries would require imposing a carbon tax of $60-$70 per ton of carbon, even when accounting for estimated changes in world fossil fuel prices.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1002.

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Date of creation: 31 Oct 1992
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Handle: RePEc:wbk:wbrwps:1002
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  1. Thomas Sterner, 1989. "Oil Products in Latin America: The Politics of Energy Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 25-46.
  2. Shah, Anwar & Larsen, Bjorn, 1992. "Carbon taxes, the greenhouse effect, and developing countries," Policy Research Working Paper Series 957, The World Bank.
  3. Summers, Lawrence H., 1991. "The Case for Corrective Taxation," National Tax Journal, National Tax Association, vol. 44(3), pages 289-92, September.
  4. Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-37, July.
  5. Peter Hoeller & Markku Wallin, 1991. "Energy Prices, Taxes and Carbon Dioxide Emissions," OECD Economics Department Working Papers 106, OECD Publishing.
  6. Burgess, Joanne C., 1990. "The contribution of efficient energy pricing to reducing carbon dioxide emissions," Energy Policy, Elsevier, vol. 18(5), pages 449-455, June.
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