Tuesday, August 8, 2017

How Large Are Global Fossil Fuel Subsidies? - ScienceDirect

• Fossil fuel subsidies are large, amounting to 6.5% of global GDP in 2015.
• Mispricing from a domestic perspective accounts for the bulk of the subsidy.
• Coal subsidies account for the largest part (about half) of global subsidies.
• In absolute terms, subsidies are highly concentrated in a few large countries.
• The environmental, fiscal, and welfare gains from subsidy reform are substantial.

This paper estimates fossil fuel subsidies and the economic and environmental benefits from reforming them, focusing mostly on a broad notion of subsidies arising when consumer prices are below supply costs plus environmental costs and general consumption taxes.  Estimated subsidies are $4.9 trillion worldwide in 2013 and $5.3 trillion in 2015 (6.5% of global GDP in both years). Undercharging for global warming accounts for 22% of the subsidy in 2013, air pollution 46%, broader vehicle externalities 13%, supply costs 11%, and general consumer taxes 8%. China was the biggest subsidizer in 2013 ($1.8 trillion), followed by the United States ($0.6 trillion), and Russia, the European Union, and India (each with about $0.3 trillion). Eliminating subsidies would have reduced global carbon emissions in 2013 by 21% and fossil fuel air pollution deaths 55%, while raising revenue of 4%, and social welfare by 2.2%, of global GDP. 

A version of this paper is available free of charge at https://www.imf.org/external/pubs/ft/wp/2015/wp15105.pdf

Volume 91, March 2017, Pages 11-27
David Coady 1, Ian Parry, LouisSears 2 and BaopingShang 1
1. International Monetary Fund, Washington, DC, USA
2. University of California, Davis, USA
Keywords: energy subsidies global warming air pollution efficient taxation deadweight loss revenue

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