Research

Energy Institute at Haas

Research

EI @ Haas Working Paper WP-267 Abstract

Lucas W. Davis, "The Environmental Cost of Global Fuel Subsidies" (Revised September 2016) (Forthcoming in The Energy Journal) Full Paper

Abstract:
Despite increasing calls for reform many countries continue to provide subsidies for gasoline and diesel. This paper quantifies the external costs from global fuel subsidies using the latest available data and estimates from the World Bank and International Monetary Fund. Under preferred assumptions about supply and demand elasticities, current subsidies cause $44 billion in external costs annually. This includes $8 billion from carbon dioxide emissions, $7 billion from local pollutants, $12 billion from traffic congestion, and $17 billion from accidents. Government incentives for alternative fuel vehicles are unlikely to cost-effectively reduce these externalities as they do little to address traffic congestion or accidents and only indirectly address carbon dioxide and local pollutants.