The Myths and Facts of Fossil Fuel Subsidies: A Critique of Existing Studies

26 Pages Posted: 8 Oct 2011

See all articles by Kenneth J. McKenzie

Kenneth J. McKenzie

University of Calgary - Department of Economics; University of Calgary - The School of Public Policy

Jack Mintz

University of Calgary - The School of Public Policy; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: October 4, 2011

Abstract

Fossil fuel subsidies are of enormous import to policy-makers and public opinion, making it critical to properly define them. However, traditional methodologies tend to place subsidies in the realm of tax expenditure analysis, presenting a flawed picture. A recent report on government subsidies to the Canadian energy sector prepared for the International Institute for Sustainable Development exemplifies this flawed approach along several dimensions: it is not based on a robust underlying economic framework, it fails to account for complex interactions between tax and royalty systems in existing fiscal policy, and it uses a definition of subsidies that was created for a different purpose. The authors of this paper propose an alternative “economic view,” based on economic rents, which provides a neutral benchmark against which subsidies, royalties and other energy-focused fiscal measures can be measured. Using marginal effective tax rate (METR) analysis, the authors show that it is possible to obtain a more accurate picture of energy subsidies and their impact on resource allocation and economic activity. This improved schema will ideally allow governments to better understand subsidies and devise sound policies, leading to less waste and distorted investment choices.

Suggested Citation

McKenzie, Kenneth and Mintz, Jack, The Myths and Facts of Fossil Fuel Subsidies: A Critique of Existing Studies (October 4, 2011). SPP Research Paper No. 11-14. Available at SSRN: https://ssrn.com/abstract=1940535 or http://dx.doi.org/10.2139/ssrn.1940535

Kenneth McKenzie (Contact Author)

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

University of Calgary - The School of Public Policy

Calgary, Alberta
Canada

Jack Mintz

University of Calgary - The School of Public Policy ( email )

Calgary, Alberta
Canada
403-220-7661 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
398
rank
71,540
Abstract Views
2,214
PlumX Metrics