The benefits of eliminating consumer
subsidies to fossil fuels: results of the
OECD-IEA modelling exercise
Jean-Marc Burniaux,
Environment Directorate,
OECD.
Motivation
• Existing environmentally-harmful energy subsidies amount to a
negative carbon price
• Hence, an obvious initial step in pricing carbon worldwide is to
remove these subsidies
• In addition, removing these subsidies would lower the overall
economic costs of achieving a given mitigation target
• Price Gap approach in collaboration with the IEA: 20 nonOECD countries.
• Analysis based on a worldwide multi-sectoral, multi-regional
General Equilibrium model : ENV-Linkages
Energy subsidies are high in some non-OECD
countries (2007)
Country/region
Energy
% deviation relative to
reference price (2007)
China
Coal
Gas
Refined oil
Electricity
-18.1
-27.0
-7.1
-22.3
India
Coal
Gas
Refined oil
Electricity
0.0
-53.6
-51.8
-19.6
Brazil
Coal
Gas
Refined oil
Electricity
-40.4
0.0
-14.4
0.0
Russia
Coal
Gas
Refined oil
Electricity
-51.6
-84.7
-23.6
-48.9
Oil producing countries
Coal
Gas
Refined oil
Electricity
0.0
-18.9
-29.2
-21.9
World
EU27 plus EFTA
Japan
United States
Canada
Australia and
New Zealand
-30
Brazil
10
Rest of
the World
China
India
Oil-producing
countries *
Russia
Rest of Annex I
% deviation from baseline
Removing energy subsidies could reduce
world GHG emissions by 10%
15
2050
5
0
-5
-10
-15
-20
-25
High carbon leakage : 20%
-35
-40
Brazil
Rest of
the world
China
2.5
Oilproducing
countries **
India
Russia
% deviation relative to the baseline
Unilateral removals of energy
subsidies bring real income gains …
2050
2.0
1.5
1.0
0.5
0.0
-5
Rest of
Annex I
Oil-producing
countries **
Russia
Canada
Australia and
New Zealand
Income
WORLD
-3
Rest of
the World
4
United States
GDP
Brazil
-2
China
Japan
EU27 plus
EFTA
India
% deviation relative to the baseline
… but, in case of multilateral
removals, not everybody will gain
2050
3
2
1
0
-1
-4
-9.3 -15.2
Removing energy subsidies reduces
mitigation costs but not for everybody
Figure. Impact of multilateral removal of energy subsidies on global income (550 ppm
GHG concentration stabilisation scenario) 1, 2
2050
% deviation relative to the baseline
0
-5
-10
-15
With energy
subsidies removal
-20
Without energy
subsidies removal
-25
Japan
EU27 plus
EFTA
United States
Rest of
the World
Brazil
India
WORLD
Australia and
New Zealand
Canada
China
Oil-producing
countries *
Russia
Rest of
Annex I
-30
1. The pathway of emissions corresponds to a stabilisation concentration below 550ppm (all gases) identical to the "550 ppmbase" case described in Burniaux et al.(2008), Table 3.1.
Main conclusions
• Removing energy subsidies will reduce GHG emissions
…
… although binding caps in OECD countries are
needed to get the full environmental benefit.
• Removing energy subsidies as part of a global mitigation
effort will reduce the economic costs
… although not by a large extent,
… and not for every country/region.
• One obvious extension: quantify the impact of removing
agricultural subsidies.
Thank You !
For further information : see www.oecd.org/env/cc
P
Subsidies generate
deadweight losses
p
A
p-s
Q
Mitigation action on top of existing subsidies
generates second-best gains
Subsidy: A+D+E
-A-D-E-B-C-F
C tax: -D-E
+D+E+F+C
P
p
A
B
C
P-s+tc
D
E
F
p-s
Q