Distributional and Health Co-Benefits of Fossil Fuel Subsidy Reforms — Evidence from35 Countries

Governments around the world continue to subsidize fossil fuel use, incentivizing unsustainableconsumption levels with consequences for the global climate and human health. However, governments have proven reluctantto reform fossil fuel subsidies (FFS). This is mainly due to concerns over potential adverse effects on poverty andequity; the positive effects on air quality and health are often overlooked. This study offers new insights on thedistributional consumption incidence of FFS reforms and expected benefits through improved air quality and healthoutcomes. Using the World Bank-International Monetary Fund Climate Policy Assessment Tool, we conduct country-levelanalyses of a complete removal of domestic FFS, considering 19 countries for the distributional consumption analysis,and 25 countries for the health benefits analysis. Our findings suggest that across countries, the absoluteconsumption burden of FFS reform on the richest decile would be 13 times larger than on the lowest-income decile,supporting evidence that FFS are an extremely inefficient way of supporting lower-income groups. In relative terms,however, the disparity is much smaller, with the richest decile bearing a relative consumption burden that is just1.1 times larger than that borne by the lowest-income decile. In terms of positive health effects, removing FFS in25 countries could save a total of 360,000 lives by 2035. The magnitude of the health effect depends oncountry-specific factors, such as the size of initial subsidy programs, and the extent to which these cover themost polluting fuels. FFS reforms can be a first step in improving air quality and reducing the burden of diseaseassociated with air pollution.