Journal Article

Limited emission reductions from fuel subsidy removal except in energy-exporting regions

Riahi, Keywan, Emmerling, Johannes, McCollum, David, Keppo, Ilkka, Krey, Volker, Fragkiadakis, Kostas, Gernaat, David E. H. J., Berger, Loïc, Saadi, Nawfal, Bertram, Christoph, Paroussos, Leonidas, Jewell, Jessica, Tavoni, Massimo, van Vuuren, Detlef, Vinichenko, Vadim

2018

Overview

Contrary to the hopes of policymakers, fossil fuel subsidy removal would have only a small impact on global energy demand and carbon dioxide emissions and would not increase renewable energy use by 2030. Limited benefits from banishing fuel subsidies Many governments use subsidies for fossil fuels to reduce the cost of energy for domestic consumption. This has led to the frequent argument that removing subsidies could play an important part in mitigating climate change. Now, Jessica Jewel and colleagues show that subsidy removal would indeed substantially lower emissions in fossil-fuel-exporting countries, but would reduce global carbon dioxide emissions by only a few per cent by 2030. This small reduction would largely be due to offsetting effects from international trade and fuel substitution. The authors also find that subsidy removal would not dramatically increase the use of renewable energy, adding to the suggestion that extensive revisions of subsidy policies would not produce a major benefit for climate mitigation. Hopes are high that removing fossil fuel subsidies could help to mitigate climate change by discouraging inefficient energy consumption and levelling the playing field for renewable energy 1 , 2 , 3 . In September 2016, the G20 countries re-affirmed their 2009 commitment (at the G20 Leaders’ Summit) to phase out fossil fuel subsidies 4 , 5 and many national governments are using today’s low oil prices as an opportunity to do so 6 , 7 , 8 , 9 . In practical terms, this means abandoning policies that decrease the price of fossil fuels and electricity generated from fossil fuels to below normal market prices 10 , 11 . However, whether the removal of subsidies, even if implemented worldwide, would have a large impact on climate change mitigation has not been systematically explored. Here we show that removing fossil fuel subsidies would have an unexpectedly small impact on global energy demand and carbon dioxide emissions and would not increase renewable energy use by 2030. Subsidy removal would reduce the carbon price necessary to stabilize greenhouse gas concentration at 550 parts per million by only 2–12 per cent under low oil prices. Removing subsidies in most regions would deliver smaller emission reductions than the Paris Agreement (2015) climate pledges and in some regions global subsidy removal may actually lead to an increase in emissions, owing to either coal replacing subsidized oil and natural gas or natural-gas use shifting from subsidizing, energy-exporting regions to non-subsidizing, importing regions. Our results show that subsidy removal would result in the largest CO 2 emission reductions in high-income oil- and gas-exporting regions, where the reductions would exceed the climate pledges of these regions and where subsidy removal would affect fewer people living below the poverty line than in lower-income regions.

• Publisher: Nature Publishing Group UK,Nature Publishing Group,Federal Reserve Bank of St. Louis
• Subject: 704/844/2175 / 704/844/682 / Carbon dioxide / Carbon Dioxide - analysis / Carbon dioxide emissions / Climate change / Climate change mitigation / Commerce - economics / Commerce - statistics & numerical data / Control / Economics and Finance / Electricity / Electricity pricing / Emissions / Emissions (Pollution) / Emissions control / Energy consumption / Energy demand / Environmental aspects / Exports / Financing, Government - economics / Financing, Government - legislation & jurisprudence / Financing, Government - trends / Fossil fuels / Fossil Fuels - economics / Fossil Fuels - statistics & numerical data / Global Warming - legislation & jurisprudence / Global Warming - prevention & control / Government finance / Greenhouse effect / Greenhouse gases / Humanities and Social Sciences / Income - statistics & numerical data / International Cooperation / letter / multidisciplinary / Natural gas / Oil / Paris Agreement / Poverty / Poverty - economics / Poverty - statistics & numerical data / Renewable energy / Science / Subsidies