Raising Ambition Through Fossil Fuel Subsidy Reform: Greenhouse gas emissions results modelling from 26 countries

Key Messages

• Modelling across 26 countries finds a simple national average of 6 per cent greenhouse gas (GHG) emission reductions when subsidies to fossil fuels are removed. This average reduction improves to 13.2 per cent with a modest fossil fuel tax and a switch from savings and revenues into renewables and energy efficiency.
• Global GHG emission reductions from fossil fuel subsidy reform (FFSR) range between 6.4 and 8.2 per cent by 2050 according to a review of 60 papers concerned with FFSR and fossil fuel and carbon taxation.
• Countries can consider FFSR or fossil fuel taxation, with swaps toward sustainable energy within second-generation Nationally Determined Contributions.

This working paper models the impact of the removal of fossil fuel subsidies on greenhouse gas (GHG) emission reductions for the following countries: Algeria, Bangladesh, Brazil, China, Egypt, Germany, Ghana, India, Indonesia, Iran, Iraq, Mexico, Morocco, Myanmar, Nigeria, Pakistan, Russia, Saudi Arabia, South Africa, Sri Lanka, Tunisia, United Arab Emirates, the United States, Venezuela, Vietnam and Zambia. The research found simple country average GHG emission reductions of 6 per cent from 2018 until 2025, compared to business as usual. With an additional 10 per cent energy tax from 2025 until 2030 and a shift of 30 per cent of the savings from reforms and of revenues from taxation into investments in renewable energy and energy efficiency (i.e., a swap), GHG emission reductions improve to an average of 13.2 per cent by 2030. Cumulative fiscal savings from fossil fuel subsidy reform (FFSR)  alone by 2030 total USD 2.56 trillion across the countries analyzed, with total cumulative GHG emissions abated from FFSR of 4.8 GtCO₂e by 2030. For every tonne of CO₂e removed through FFSR, governments save an average of USD 93.

This study also includes a literature review of 60 pieces of research on global GHG emission reductions stemming from negative and positive carbon pricing. We reviewed 40 papers concerned with FFSR and 20 papers focused on fossil fuel energy or carbon taxation. Our review found that global studies of fossil fuel subsidy removal result in emission reductions of between 1 and 10 per cent by 2030 and between 6.4 and 8.2 per cent by 2050. Removing fossil fuel subsidies and applying appropriate taxation could reduce emissions by a much larger 28 per cent globally. Fossil fuel subsidies act as a negative carbon price and could also be considered along with carbon pricing discussions. Furthermore, governments could consider the co-benefits of GHG emission reductions from FFSR and taxation, and include these policies within second-generation Nationally Determined Contributions.