Climate Change 2001:
Working Group III: Mitigation
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Table 9.3: Summary results from case studies on energy subsidy removal (note that subsidies are defined in various ways and are not comparable)
Study Subsidy or group of
subsidies removed
Monetary equivalent
of distortion (US$
million, various
years, 1988 –to 1995)
Decrease in annual
CO2 emissions relative
to reference scenarios
resulting from reforms
by 2010 million tonnes
Other economic effects
of removing subsidies
Larsen and
Shah (1995)
Global price subsidies to consumers of fossil fuels
(difference between domestic
and world prices)b
215,000 1366a Enhanced economic growth.
GREEN Global price subsidies to consumers of fossil fuels (difference between domestic and world prices)b 235,000 1,800 in 2000
1,5000 in 2050
Enhanced economic growth in
most regions, largest in CIS.
Improved terms-of-trade for
non-OECD countries.
DRI
(1994)
Coal PSEs in Europe and Japan 5,800 10 (DRI estimate)
>50 (OECD estimate)
Job loss in coal industry,
increased coal trade.
Böhringer Coal in Germany 6,700 NQ Nearly 1% GDP increase. Job loss
in coal industry, increased coal
trade. Cost of using subsidies to
maintain jobs is 94–145,000 DM
per job/year. Reduces cost
of meeting CO2 target.
Australia State procurement/planning

Barriers to gas and electricity
trade
Below-market cost financing
133

1,400

NQ
0.3

0.8

NQ
Reduces cost of meeting CO2 target.
Reduces cost of meeting CO2 target.
Italy Net budgetary subsidies to the
electricity supply industry (ESI)
VAT below market rate
Subsidies to capital
Excise tax exemption for
fossil fuels use by ESI
Total net and cross-subsidies
4,000

300
1,500
700

10,000
12.5

0.6
3.3
5.9

19.2
Reduces cost of meeting CO2 target/makes CO2 tax more effective.
Norway Barriers to trade NQ 8 for Nordic region  
Russia Direct subsidies and price
control for coal
Price control/debt forgiveness
for electricity consumers
3,600

6,000
120

(about half caused by shift from coal to other fuels, half to reduced
final energy demand)
1% drop in employment

(but note that model included no
subsidy recycling mechanism).
UK Grants and price supports for
coal and nuclear producers
VAT on electricity below
general rate

2,500

1,200

0 to 40

0.2
 
USA DFI (1993) analysis of federal
subsidies
DJA (1994) analysis of federal
subsidies
8,500c

15,400c
10

64


GNP increased 0.2% if revenue
used to reduce capital taxes.
Source: OECD (1997c)
a The model used is comparative static: emission reduction is calculated using mostly 1991 market data.
b This measure of “subsidies” is a crude one, and does not necessarily indicate the existence of any particular government policy.
c The two studies analyze different sets of energy supports and use slightly different estimates for some of them: these figures are not a reliable indication of
total US federal energy subsidies. See Appendix A, Table 14, OECD (1997c) for details. Results are sensitive to assumptions regarding the future structure
of the US electricity supply industry.
NQ = not quantified



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