Global Fossil Fuel Subsidies Remain Large: An Update Based on Country-Level Estimates
This paper provides an updated assessment of global and regional energy subsidies based on comprehensive country-level estimates for 191 countries. It finds, among others, that globally fossil fuels are being subsidized $5.2 trillion annually. Simply removing those subsidies would have lowered global emissions by 28%—and deaths from air pollution by 46%.
The main findings of the paper can be summarized as follows:
1. Underpricing of fossil fuels remains pervasive and substantial. For example, country-level coal prices were typically well below half of their fully efficient levels in 2015. Undercharging for road fuels is also pervasive with prices frequently falling short of their efficient levels by over 20 percent.
2. At the global level, energy subsidies are estimated at $4.7 trillion (6.3 percent of world GDP) in 2015 and $5.2 trillion (6.5 percent of GDP) in 2017. At the aggregate level, the moderately smaller global figure for 2015 compared to previous estimates is mainly due to lower externality estimates (e.g., lower air pollution emission rates in China) and lower (than previously projected) fuel consumption, reflecting mostly updated data and regulatory policy changes. At the product and country level, there are numerous other, often offsetting, factors significantly changing energy subsidy estimates. The impact of recent energy (and carbon) pricing reform at the global level is limited.
3. In absolute terms, China was still, by far, the largest subsidizer in 2015 (at $1.4 trillion), followed by the United States ($649 billion), Russia ($551 billion), European Union ($289 billion), and India ($209 billion). By region, Emerging/Developing Asia accounts for nearly 40 percent of global energy subsidies, followed by Advanced Economies (27 percent), Commonwealth of Independent States (15 percent), Middle East, North Africa, Afghanistan, and Pakistan (9 percent), Latin America/Caribbean (5 percent), Emerging/Developing Europe (3 percent), and Sub-Sahara Africa (2 percent).
4. By component, underpricing for local air pollution is still the largest source (48 percent in 2015), while that for global warming is similar to earlier estimates (24 percent), followed by broader environmental costs of road fuels (15 percent), undercharging for general consumption taxes (7 percent) and for supply costs (7 percent). Energy pricing reform therefore remains largely in countries own interest, given that about three quarters of the benefits are local.
5. By fuel, coal remains the largest source of subsidies (44 percent), followed by petroleum (41 percent), natural gas (10 percent), and electricity output (4 percent).
6. If fuel prices had been set at fully efficient levels in 2015, estimated global CO2 emissions would have been 28 percent lower, fossil fuel air pollution deaths 46 percent lower, tax revenues higher by 3.8 percent of global GDP, and net economic benefits (environmental benefits less economic costs) would have amounted to 1.7 percent of global GDP.
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