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World fossil fuel subsidies and global carbon emissions

Author

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  • Larsen, Bjorn
  • Shah, Anwar
  • DEC

Abstract

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.

Suggested Citation

  • Larsen, Bjorn & Shah, Anwar & DEC, 1992. "World fossil fuel subsidies and global carbon emissions," Policy Research Working Paper Series 1002, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1002
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    References listed on IDEAS

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    Cited by:

    1. Aune, Finn Roar & Grimsrud, Kristine & Lindholt, Lars & Rosendahl, Knut Einar & Storrøsten, Halvor Briseid, 2017. "Oil consumption subsidy removal in OPEC and other Non-OECD countries: Oil market impacts and welfare effects," Energy Economics, Elsevier, vol. 68(C), pages 395-409.
    2. Plante, Michael, 2014. "The long-run macroeconomic impacts of fuel subsidies," Journal of Development Economics, Elsevier, vol. 107(C), pages 129-143.
    3. Khanna, Madhu & Zilberman, David, 1997. "Incentives, precision technology and environmental protection," Ecological Economics, Elsevier, vol. 23(1), pages 25-43, October.
    4. Rout, Ullash K. & Akimoto, Keigo & Sano, Fuminori & Tomoda, Toshimasa, 2010. "Introduction of subsidisation in nascent climate-friendly learning technologies and evaluation of its effectiveness," Energy Policy, Elsevier, vol. 38(1), pages 520-532, January.
    5. Blackman, Allen & Harrington, Winston, 1999. "The Use of Economic Incentives in Developing Countries: Lessons from International Experience with Industrial Air Pollution," Discussion Papers dp-99-39, Resources For the Future.
    6. Wesseh, Presley K. & Lin, Boqiang & Atsagli, Philip, 2016. "Environmental and welfare assessment of fossil-fuels subsidies removal: A computable general equilibrium analysis for Ghana," Energy, Elsevier, vol. 116(P1), pages 1172-1179.
    7. L. Schipper & R. Haas & C. Sheinbaum, 1996. "Recent Trends in Residential Energy Use in OECD Countries and their Impact on Carbon Dioxide Emissions: A Comparative Analysis of the Period 1973–1992," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 1(2), pages 167-196, December.
    8. Wang, Qiang & Li, Rongrong, 2015. "Cheaper oil: A turning point in Paris climate talk?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 52(C), pages 1186-1192.
    9. Henok Asmelash, 2016. "Falling oil prices and sustainable energy transition: Towards a multilateral agreement on fossil-fuel subsidies," WIDER Working Paper Series 013, World Institute for Development Economic Research (UNU-WIDER).
    10. Levine, Mark D & Price, Lynn & Martin, Nathan, 1996. "Mitigation options for carbon dioxide emissions from buildings : A global analysis," Energy Policy, Elsevier, vol. 24(10-11), pages 937-949.
    11. repec:eee:enepol:v:110:y:2017:i:c:p:51-61 is not listed on IDEAS
    12. Ju, Keyi & Su, Bin & Zhou, Dequn & Wu, Junmin, 2017. "Does energy-price regulation benefit China's economy and environment? Evidence from energy-price distortions," Energy Policy, Elsevier, vol. 105(C), pages 108-119.
    13. Shreekant Gupta, 2010. "Incentive Based Approaches for Mitigating Greenhouse Gas Emmissions : Issues And Prospects for India," Working Papers id:2638, eSocialSciences.
    14. Ian Parry, 1998. "A Second-Best Analysis of Environmental Subsidies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(2), pages 153-170, May.
    15. Zhang, Zhong Xiang, 1995. "Energy conservation in China : An international perspective," Energy Policy, Elsevier, vol. 23(2), pages 159-166, February.
    16. Li, Ke & Lin, Boqiang, 2015. "How does administrative pricing affect energy consumption and CO2 emissions in China?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 42(C), pages 952-962.
    17. Sovacool, Benjamin K., 2017. "Reviewing, Reforming, and Rethinking Global Energy Subsidies: Towards a Political Economy Research Agenda," Ecological Economics, Elsevier, vol. 135(C), pages 150-163.
    18. Larsen, Bjorn, 1994. "World fossil fuel subsidies and global carbon emissions in a model with interfuel substitution," Policy Research Working Paper Series 1256, The World Bank.
    19. Hossein Mirshojaeian Hosseini & Shinji Kaneko, 2012. "A general equilibrium analysis of the inflationary impact of energy subsidies reform in Iran," IDEC DP2 Series 2-8, Hiroshima University, Graduate School for International Development and Cooperation (IDEC).
    20. Shreekant Gupta, 2000. "Incentive-Based Approaches for Mitigating Greenhouse Gas Emissions: Issues and Prospects for India," Working papers 85, Centre for Development Economics, Delhi School of Economics.
    21. Krause, Florentin, 1996. "The costs of mitigating carbon emissions : A review of methods and findings from European studies," Energy Policy, Elsevier, vol. 24(10-11), pages 899-915.
    22. Peter Bohm & Bjorn Larsen, 1994. "Fairness in a tradeable-permit treaty for carbon emissions reductions in Europe and the former Soviet Union," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 4(3), pages 219-239, June.
    23. Wie, Jiegen & Wennlock, Magnus & Johansson, Daniel J.A. & Sterner, Thomas, 2011. "The Fossil Endgame: Strategic Oil Price Discrimination and Carbon Taxation," Discussion Papers dp-11-26, Resources For the Future.

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