OECD Economics Department Working Papers

ISSN :
1815-1973 (online)
DOI :
10.1787/18151973
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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
 

Mitigation Potential of Removing Fossil Fuel Subsidies

A General Equilibrium Assessment You or your institution have access to this content

Authors:
Jean-Marc Burniaux, Jean Chateau1
Author Affiliations
  • 1: OECD, France

Publication Date
08 Apr 2011
Bibliographic information
No.:
853
Pages
29
DOI
10.1787/5kgdx1jr2plp-en

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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.
Keywords:
fossil-fuel subsidies, general equilibrium models, GHGs emissions
JEL Classification:
  • H23: Public Economics / Taxation, Subsidies, and Revenue / Externalities; Redistributive Effects; Environmental Taxes and Subsidies
  • O41: Economic Development, 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