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Fuel Subsidies, the Oil Market and the World Economy

Nathan S. Balke, Michael Plante, and Mine Yücel

Year: 2015
Volume: Volume 36
Number: Adelman Special Issue
DOI: 10.5547/01956574.36.SI1.nbal
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Abstract:
This paper studies the effects of oil producing countries' fuel subsidies on the oil market and the world economy. We identify 24 oil-producing countries with fuel subsidies with retail fuel prices that are about 34 percent of the world price. We construct a two-country model where one country represents the oil-exporting subsidizers and the second the oil-importing bloc, and calibrate the model to match recent data. We find that the removal of subsidies would reduce the world price of oil by six percent. The removal of subsidies is unambiguously welfare enhancing for the oil-importing countries. Removal of subsidies is welfare improving for the oil-exporting countries as well, in the baseline calibration. However, the optimal subsidy from the point of view of oil exporters is not zero, in general.



Export Growth - Fuel Price Nexus in Developing Countries: Real or False Concern?

Kangni Kpodar, Stefania Fabrizio, and Kodjovi Eklou

Year: 2022
Volume: Volume 43
Number: Number 3
DOI: 10.5547/01956574.43.3.kkpo
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Abstract:
This paper investigates the impact of domestic fuel price increases on export growth in a sample of 77 developing countries over the period 2000-2014. Using a fixed-effect estimator and the local projection approach, we find that an increase in domestic gasoline or diesel price adversely affects real non-fuel export growth, with the impact phasing out within two years after the shock. The impact is mainly noticeable in countries with a high-energy dependency ratio and where access to electricity is limited. Further, large fuel price shocks do not seem to lead to disproportionately large changes in exports, suggesting that neither the gradualism nor the shock therapy approach in fuel subsidy reforms dominates. In countries where the export sector is vulnerable to fuel price shocks, appropriate mitigating measures should be designed to smooth the transition to higher fuel prices.



What Are the Benefits of Government Assistance with Household Energy Bills? Evidence from Ukraine

Anna Alberini and Nithin Umapathi

Year: 2024
Volume: Volume 45
Number: Number 3
DOI: 10.5547/01956574.45.3.aalb
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Abstract:
On February 24, 2022, Russian Federation troops invaded Ukraine. Ukraine was previously at war with Russia in 2014, and in April 2015, the government abruptly raised the natural gas tariffs to residential customers. It also scaled up its energy assistance program, the HUS. We examine the welfare effects of the HUS. Using Ukraine's Household Budget Survey, we find that after the tariff hike, the average household that did not receive the HUS spends 11% of its income on electricity, gas, and fuels, meeting the definition of "fuel poor." The average share among households that do receive the subsidy is 6–8%. The HUS cuts the rate of fuel poverty in half and brings considerable consumer surplus gains (6% of income), at a price tag of 1–2.5% of GDP. Meaningful savings would be achieved with only a moderate loss of consumer surplus if the HUS was cut in half. Social tariffs or replacing the HUS with a one-time energy efficiency subsidy would be sustainable and entail modest or no welfare losses.



Fossil Fuel Subsidy Inventories vs. Net Carbon Prices

Jens Böhm and Sonja Peterson

Year: 2024
Volume: Volume 45
Number: Number 4
DOI: 10.5547/01956574.45.4.jboh
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Abstract:
Price incentives for reducing fossil fuel related carbon emissions are an important component of effective and efficient climate policy. Current incentives stem from a mixture of energy taxes and carbon pricing (incentivizing less emissions) and diverse support measures for fossil fuels (incentivizing more emissions). We develop a net carbon price indicator that complements existing subsidy and carbon pricing indicators. It can be calculated on different aggregation levels and compared across countries. We calculate the different components and our aggregate indicator for the year 2018 and for eight countries including the worlds' six largest emitters. Our analysis reveals large differences in net carbon prices across countries and across sectors within countries. We argue that the sectoral differences can inform about adequate national policy reforms while the aggregate national indicator can be useful for international negotiations about comparable national efforts.





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