Into the mire: A closer look at fossil fuel subsidies

Authors

  • Radoslaw (Radek) Stefanski University of St Andrews

DOI:

https://doi.org/10.11575/sppp.v9i0.42575

Abstract

Threatened by climate change, governments the world over are attempting to nudge markets in the direction of less carbon-intensive energy. Perversely, many of these governments continue to subsidize fossil fuels, distorting markets and raising emissions. Determining how much money is involved is difficult, as neither the providers nor the recipients of those subsidies want to own up to them. This paper builds on a unique method to extract fossil fuel subsidies from patterns in countries’ carbon emission-to-GDP ratios. This approach is useful since it: 1) overcomes the problem of scarce data; 2) derives a wider and more comparable measure of subsidies than existing measures and 3) allows for the performance of counterfactuals which help measure the impact of subsidies on emissions and growth. The resultant 170-country, 30-year database finds that the financial and the environmental costs of such subsidies are enormous, especially in China and the U.S. The overwhelming majority of the world’s fossil fuel subsidies stem from China, the U.S. and the ex-USSR; as of 2010, this figure was $712 billion or nearly 80 per cent of the total world value of subsidies. For its part, Canada has been subsidizing rather than taxing fossil fuels since 1998. By 2010, Canadian subsidies sat at $13 billion, or 1.4 per cent of GDP. In that same year, the total global direct and indirect financial costs of all such subsidies amounted to $1.82 trillion, or 3.8 per cent of global GDP. Aside from the money saved, in 2010 a world without subsidies would have had carbon emissions 36 per cent lower than they actually were. Any government looking to ease strained budgets and make a significant (and cheap) contribution to the fight against climate change must consider slashing fossil fuel subsidies. As the data show, this is a sound decision – fiscally and environmentally.

References

Aghion, P. and P. Howitt, (1998). Endogenous Growth Theory, MIT Press.

Alberta Energy Regulator, (2014). Alberta’s Energy Reserves 2014 and Supply/Demand Outlook 2015.

Andreoni, James and Arik Levinson, (2001). “The Simple Analytics of the Environmental Kuznets Curve,” Journal of Public Economics, 80(2), 269–286.

Andres, R.J., D.J. Fielding, G. Marland, T.A. Boden, and N. Kumar, (1999). “Carbon dioxide emissions from fossil fuel use, 1751-1950,” Tellus B, 51:4, 759–765.

Bartoletto, S. and M. Rubio, (2008). “Energy Transition and CO2 Emissions in Southern Europe: Italy and Spain (1861-2000),” Global Environment, 2, 46–81.

Boden, T.A., G. Marland, and R.J. Andres, (1995). Estimates of global, regional, and national annual CO2 emissions from fossil fuel burning, hydraulic cement production, and gas flaring: 1950-1992, Oak Ridge National Laboratory, U.S. Department of Energy, Oak Ridge, Tennessee.: ORNL/CDIAC-90, NDP-30/R6..

Boden, T.A., G. Marland, and R.J. Andres, (2014). Global, Regional, and National Fossil Fuel CO2 Emissions, Carbon Dioxide Information Analysis Center. BP, (2014). BP Statistical Review of World Energy June 2014.

Brock, W. and M.S. Taylor, (2010). “The Green Solow Model,” Journal of Economic Growth, 15(2), 127–153.

Coady, D., R. Gillingham, R. Ossowski, J. Piotrowski, S. Tareq, and J. Tyson, (2010a). Petroleum Product Subsidies: Costly, Inequitable, and Rising, IMF.

Coady, David, Robert Gillingham, Rolando Ossowski, John Piotrowski, Shamsuddin Tareq, and Justin Tyson, (2010b). “Petroleum Product Subsidies: Costly, Inequitable and Rising,” IMF Staff Position Note, SPN/10/05.

Coady, David, Ian Parry, Louis Sears and Baoping Shang, (2015). How Large Are Global Energy Subsidies? International Monetary Fund.

Copeland, B. R. and M. S. Taylor, (1994). “North-South trade and the global environment,” Quarterly Journal of Economics, 109, 755–787.

Copeland, B. R. and M. S. Taylor, (2003). Trade and the environment: Theory and evidence, Princeton University Press.

Corden, M., (1952). “The calculation of the cost of protection,” Economic Record, 33, 29–51.

DUKES, (2012). Digest of United Kingdom Energy Statistics, Department of Energy and Climate Change.

Energy Information Administration, (2001). Emissions of Greenhouse Gases in the United States 2000 USA EIA, November 2001.

Etemad, B., J. Luciani, P. Bairoch, and J.-C. Toutain., (1991). World Energy Production 1800-1985, Switzerland: Librarie DROZ.

Gollin, Douglas, Stephen Parente, and Richard Rogerson, (2002). “The Role of Agriculture in Development,” American Economic Review, 92(2), 160–164.

Global Subsidies Initiative, (2010). Relative subsidies to energy sources: GSI estimates.

Heston, Alan, Robert Summers, and Bettina Aten, (2012). Penn World Table Version 7.1, Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania.

Institute for Fiscal Studies, (2013). “Institute for Fiscal Studies, Composition of Revenue,” http://www.ifs.org.uk/fiscalFacts/taxTables

International Energy Agency, (2006). World Energy Outlook OECD.

International Energy Agency, (2008). World Energy Outlook.

International Energy Agency, (2010). Analysis of the scope of energy subsidies and suggestions for the G-20 Initiative. IEA, OPEC, OECD, World Bank Joint Report, June 2010.

International Energy Agency, (2012). World Energy Outlook IEA analysis of fossil fuel subsidies.

International Monetary Fund, (2013). Energy Subsidy Reform: Lessons and Implications.

Jones, Darryl and Ronald Steenblik, (2010). Subsidy Estimation: A survey of current practice, The Global Subsidies Initiative (GSI) of the International Institute for Sustainable Development (IISD), June 2010.

Jones, L.E. and R.E. Manuelli, (2001). “Endogenous policy choice: The case of pollution and growth,” Review of Economic Dynamics, 4(2), 245–517. Koplow, D., (2009).

Measuring Energy Subsidies Using the Price-Gap Approach: What does it leave out? International Institute for Sustainable Development, August 2009.

Lin, B. and Z. Jiang, (2011). “Estimates of energy subsidies in China and the impact of energy subsidy reform,” Energy Economics, 33, 273–283.

Lopez, R., (1994). “The environment as a factor of production: Economic growth and trade liberalization,” Journal of Environmental Economics and Management, 27, 163–184.

Lucas, Robert E., (2004). “The Industrial Revolution: Past and Future,” The Region, May, 2004.

Maddison, Angus, (2007). “Historical Statistics for the World Economy: 1-2003 AD”.

Marland, G. and R. M. Rotty, (1984). “Carbon Dioxide Emissions from Fossil Fuels: A Procedure for Estimation and Results for 1950–1982,” Tellus B, 36, 232–261.

McCrone, G., (1962). The Economics of Subsidizing Agriculture: A Study of British Policy, University of Toronto Press, Toronto.

McKenzie, K and J. Mintz., (2011). The Tricky Art of Measuring Fossil Fuel Subsidies: A Critique of Existing Studies, SPP Research Papers, 2011, 4(14).

Mitchell, B.R., (1983). International Historical Statistics: The Americas and Australasia 1750-1988, Detroit, United States: Gale Research Company.

Mitchell, B.R., (1992). International Historical Statistics: Europe 1750-1988, New York, United States: Stockton Press.

Mitchell, B.R., (1993). International Historical Statistics: The Americas 1750-1988, New York, United States: Stockton Press.

Mitchell, B.R., (1995). International Historical Statistics: Africa, Asia and Oceania 17501988, New York, United States: Stockton Press.

Mitchell, B. R., (2011). British Historical Statistics, Cambridge University Press.

Organization for Economic Cooperation and Development, (1998). Improving the Environment through Reducing Subsidies.

Organization for Economic Cooperation and Development, (2008). Environmental Performance of Agriculture in OECD countries since 1990.

Organization for Economic Cooperation and Development, (2009). Agricultural Policies in OECD Countries: Monitoring and Evaluation OECD Publications.

Organization for Economic Cooperation and Development, (2013a). Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels 2013 OECD Publishing.

Organization for Economic Cooperation and Development, (2013b). Energy prices in national currency per toe.

Schimel, D., D. Alves, I. Enting, M. Heimann, F. Joos, D. Raynaud, and T. Wigley, (1996). Climate Change 1995: The Science of Climate Change., Cambridge University Press,

Sloan, Bruce, (2012). Report of the Commissioner of the Environment and Sustainable Development: A Study of Federal Support to the Fossil Fuel Sector, (Chapter 4). Office of the Auditor General of Canada.

Solow, R., (1973). “Is the end of the world at hand?,” Challenge 2, March-April, 39–50.

Steenblik, Ronald, Jens Lundsgaard, Stephen Matthews, and Olga Melyukhina, (2010). Measuring Support to Energy — Version 1.0 OECD Secretariat May 2010.

Stefanski, Radoslaw, (2013). “On the Mechanics of the Green Solow Model,” OxCarre Working Papers, 47.

Stefanski, Radoslaw, (2014). “Dirty Little Secrets: Inferring Fossil Fuel Subsidies from Patterns in Emission Intensities,” OxCarre Working Papers, 134.

Stokey, N., (1998). “Are there limits to growth?,” International Economic Review, 39(1), 1–31.

United Nations, (2006). 2004 Energy Statistics Yearbook, United Nations, New York: United Nations Department for Economic and Social Information and Policy Analysis, Statistics Division.

WDI, (2013) World Development Indicators, World Bank Group.

Downloads

Published

2016-03-11

Issue

Section

Research Papers