The Effects of Fossil-Fuel Subsidy Reform: A Review of Modelling and Empirical Studies

Abstract

Understanding the complex trade-offs between the economic, environmental and social impacts of subsidy reform is a challenge for any government considering phasing out fossil-fuel subsidies. Jennifer Ellis provides a detailed literature review, focusing on the six modeling studies in the last 20 years that have attempted to analyze global impacts for all fuels. The studies mostly considered effects on greenhouse gas emissions and gross domestic product, but very little of the work has considered other environmental impacts or social impacts. The paper highlights a number of areas where further research should be undertaken but concludes that there is already enough evidence to demonstrate the significant environmental and economic benefits of phasing out fossil-fuel subsidies, and recommends that policy-makers do not delay in beginning the reform process.

Keywords: energy subsidies, climate change, emissions reduction, reform, fossil fuels, economic impacts, environmental impacts, social impacts, modeling, modelling, gross domestic product, GDP, trade

JEL Classification: H7