The Environmental Cost of Global Fuel Subsidies

41 Pages Posted: 21 Mar 2016

See all articles by Lucas W. Davis

Lucas W. Davis

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Date Written: March 2016

Abstract

Despite increasing calls for reform many countries continue to provide subsidies for gasoline and diesel. This paper quantifies the external costs of global fuel subsidies using the latest available data and estimates from the World Bank and International Monetary Fund. Under preferred assumptions about supply and demand elasticities, current subsidies cause $44 billion in external costs annually. This includes $8 billion from carbon dioxide emissions, $7 billion from local pollutants, $12 billion from traffic congestion, and $17 billion from accidents. Government incentives for alternative fuel vehicles are unlikely to cost-effectively reduce these externalities as they do little to address traffic congestion or accidents, and only indirectly address carbon dioxide and local pollutants.

Suggested Citation

Davis, Lucas W., The Environmental Cost of Global Fuel Subsidies (March 2016). NBER Working Paper No. w22105, Available at SSRN: https://ssrn.com/abstract=2752310

Lucas W. Davis (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

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2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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