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GTAP Resource #3526

"Mitigation potential and Trade Effects of removing fossil fuel subsidies: a general equilibrium assessment"
by Chateau, Jean and Jean-Marc Burniaux

This paper discusses the assumptions, data and both environmental and economic implications of removing inefficient fossil fuel subsidies. It shows that, though removing these subsidies would amount to roughly a seventh of the effort needed to stabilize GHG concentration at a level of 450ppm or below 2°C, the full environmental benefit of this policy option can only be achieved if, in parallel, emissions are also capped in OECD countries. Finally, though removing these subsidies qualifies as being a “win-win” option at the global level in terms of environmental and economic benefits, this is not true for all countries/regions. The removal of fossil-fuel subsidies in non-OECD countries would have almost no impact on the total trade volumes at the world level although it would generate compositional changes both across traded goods and services and trading areas. Trade in fossil fuels, especially coal and natural gas, would be reduced, but these fuels account for a relatively small segment of total world trade and would be compensated, at least in the medium term, by an expansion of trade in energy-intensive goods. As for effects among different trading areas, the reform of fossil-fuel subsidies would increase the contribution of OECD countries in total world trade at the expense of a reduction of oil-exporting countries’ imports and exports. This evolution results from the loss of competitiveness incurred by producers of energy-intensive goods in oil-exporting countries that remove their subsidies and, at least in the medium term, by the corresponding gain of competitiveness reported by energy-intensive industries in OECD countries due to the fall of international fossil-fuel prices.The paper also provides some discussion about the robustness of these results.

Resource Details (Export Citation) GTAP Keywords
Category: 2011 Conference Paper
Status: Published
By/In: Presented at the 14th Annual Conference on Global Economic Analysis, Venice, Italy
Date: 2011
Created: Chateau, J. (4/12/2011)
Updated: Batta, G. (4/15/2011)
Visits: 1,162
- Domestic policy analysis
- Trade and the environment
- European Union
- Commonwealth of Independent States

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