Aldy on true cost of fossil fuel subsidies
Hundreds of billions of dollars in the developing world are funding subsidies for fossil fuel energy, including petroleum, electricity, and natural gas. Joseph Aldy, assistant professor of public policy, is currently research the economic and environmental impacts of these subsidies. He presented a snapshot of his latest research during an Energy Policy Seminar on Monday (March 25).
As Aldy explained, fossil fuel subsidies often take the form of price controls, with governments stepping in to absorb or to make up for lost revenues. Often, the largest subsidy programs are found in oil exporting countries. In some cases, the increased oil demand resulting from subsidies has turned former net oil exporting countries into oil importers. The amount of money attributed to oil subsidies can be significant, Aldy said. In the most extreme cases, the value of subsidies can reach 30% of GDP, with expenditures on such programs claiming up to 20% of government budgets.
These subsidies, which are estimated to have a significant impact on increasing the consumption of energy, have recently become the focus of international “phase out” efforts. It is estimated that a successful phase-out of these subsidies could lead to roughly a 4% decline in world energy demand, Aldy explained, with corresponding reductions in emissions of carbon and other pollutants. However, these subsidies can be difficult to reduce for a number of reasons: they are seen as a way of helping low-income people by keeping energy costs low, or as a way of letting all residents of oil-producing countries access some of the benefits of oil revenues, or as a way of supporting social and political stability.
Read more about the event
Read Aldy's Hamilton Project paper "Eliminating Fossil Fuel Subsidies"
