Download:
The effects of fossil-fuel subsidy reform: a review of modelling and empirical studies
Subsidies are powerful instruments. When granted to fossil fuels, which are at the heart of all modern economies, subsidies have impacts throughout the economy, society and environment. When such impacts work against other government objectives, subsidies are often termed perverse.
Elimination of subsidies would remove an immense fiscal burden and liberate public funding for social or other programs. This would be good news for the poor, many of whom are the intended recipients of fossil-fuel subsidies but rarely receive the full benefits. Increased living costs, however, would need to be off-set by retargeting some of the saved subsidy expenditure towards social programs.
The OECD estimates that removing consumer subsidies in the 20 largest subsidising developing countries would also yeild environmental benefits, reducing global greenhouse gas emissions by 10% in 2050. And this only captures some of the world’s subsidies – it excludes consumer subsidies in other countries and subsidies granted to producers of fossil fuels.
In this paper commissioned by the GSI, Jennifer Ellis reviews the impacts of fossil-fuel subsidy reform on the economy, environment and social welfare, drawing on the few studies done to date that model the impacts of removing global subsidies to fossil fuels.
