Fossil fuel subsidy removal has less impact on greenhouse gas emissions than hoped for

Fossil fuel subsidies amount to hundreds of billions of dollars worldwide and removing them has been held up as a key answer to climate change mitigation. A recent study by Jessica Jewell (IIASA, Austria) together with colleagues of different institutes, including Detlef van Vuuren and David Gernaat of PBL Netherlands Environmental Assessment Agency and Utrecht University confirms that ending subsidies reduces emissions. The study, however, also concluded that it is not the silver bullet many had hoped.

The research team used five Integrated Assessment Models (IAMs) to evaluate the global and regional effects of removing fossil fuel subsidies on emissions and energy demands. Removing fossil subsidies would slow the reduce global CO₂ emissions by 1-5% in 2030. In order to achieve the Paris Climate targets much stronger reductions are needed.

“The reason for this small overall effect is two-fold,” says IIASA researcher Jessica Jewell, lead author on the paper. “First, these subsidies generally apply only to oil, gas, and electricity. That means that in some cases the removal of subsidies causes a switch to more emissions-intensive coal. Second, while these subsidies add up to substantial sums of money, the rate per unit of energy is not high enough to have a big effect on global energy demand, which would decrease by only 1-7% after subsidies are removed.”

Detlef van Vuuren, project leader of the work at PBL and Utrecht University and co-author of the study adds: “Removing fossil fuel subsidies is still a wise thing to do, as they amount to a very large sum of money that now works in the wrong direction from the perspective of the energy transition. This additional measure could be a helpful addition to the climate policy that are currently pledged, also because it would allow to use these funds in a different way”.

The study shows that the three oil- and gas- exporting regions — the Middle East and North Africa, Russia and Latin America — accounted for about two-thirds of all fossil fuel subsidies worldwide in 2015. Developing and emerging economies (India, China, the rest of Asia and Africa) currently have lower subsidies, but their subsidies may grow faster in the future. Without reform, subsidies in India could become comparable to those in Latin America and Russia by 2030.

Consistent with this finding, the study also shows that subsidy removal would result in the largest CO₂ emission reductions in the oil- and gas-exporting regions. Here, fuel subsidy removal would have more impact on reducing CO₂ emissions than currently proposed climate policy in these regions. In developing and emerging economies, however, possible impacts of removing subsidies on the poor need to be accounted for (which can be achieved by well-designed policies).