Energy Subsidies: Lessons Learned in Assessing their Impact - UNEP

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Energy Subsidies: Lessons Learned in Assessing their Impact and Designing Policy Reforms Table A5: Unit Damage Costs of Air Pollutants from the ExternE Project (1995 €/tonne) Country SO2 NOx Particulates Austria 9,000 16,800 16,800 Belgium 11,388-12,141 11,526-12,296 24,536-24,537 Denmark 2,990-4,216 3,280-4,728 3,390-6,666 Finland 1,027-1,486 852-1,388 1,340-2,611 France 7,500-15,300 10,800-18,000 6,100-57,000 Germany 1,800-13,688 10,945-15,100 19,500-23,415 Greece 1,978-7,832 1,240-7,798 2,014-8,278 Ireland 2,800-5,300 2,750-3,000 2,800-5,415 Italy 5,700-12,000 4,600-13,567 5,700-20,700 Netherlands 6,205-7,581 5,480-6,085 15,006-16,830 Portugal 4,960-5,242 5,975-6,562 5,565-6,955 Spain 4,219-9,583 4,651-12,056 4,418-20,250 Sweden 2,357-2,810 1,957-2,340 2,732-3,840 United Kingdom 6,027-10,025 5,736-9,612 8,000-22,917 Source: De Nocker, Saez and Linares (1999). Some recent studies have examined the local benefits associated with a reduction in air pollution brought about as a result of action to meet a target for reducing climate-destabilising greenhouse gas emissions. A 2000 study on China by Garbaccio and Jorgensen estimated that reductions in carbon emissions of 5% per annum, compared with a base case, would cut premature deaths by around 4% and reduce hospital visits and days lost from sickness. Using standard valuation methods, these benefits were converted into a gain in gross domestic product of 0.2% per year, equivalent to about $2 billion in 2000. A 1995 study by Larsen and Shah estimates that removing subsidies to energy production in China would reduce carbon emissions by about 7%. Therefore, energy-subsidy removal would be expected to yield an environmental health benefit of around 0.3% of GDP. The results for China can be applied to the world as a whole to give a rough figure on the potential local environmental gain from energy-subsidy removal. Larsen and Shah estimated that global subsidy removal would reduce carbon emissions by 5%. That equates to local air quality benefits of roughly 0.2% of world GDP, or $56 billion for 2000. These estimates, however, depend critically on the assumptions made about the monetary value of health improvements. A 1995 IEA study estimated that eliminating all subsidies in Russia would reduce NOx emissions by 40% over 20 years compared with 1990 levels. SO2 emissions would fall by 65% and total suspended particulates by 75%. These would generate substantial air-quality benefits. 166
Annex: Methodological Approaches to Analysing Energy Subsidy Reform A2.2 Global Climate Change Modelling For global pollutants such as greenhouse gases from energy combustion processes, the overall impact of energy-subsidy policies on emissions can be assessed using global climate integrated assessment modelling. This approach may draw on the results of economic modelling. 118 Two major studies estimated the effect of fossil-fuel subsidies on global carbon levels. In both cases, the effects are expressed in terms of physical units. The 1992 study by Larsen and Shah, described in Table A3, estimated the size of fuel subsidies in every country by comparing the domestic price of each type of fuel with its world price. The impact of the removal of subsidies on greenhouse gases was estimated using the relationship between energy prices and energy consumption and carbon-emission factors for each fuel. The study concludes that subsidy removal would reduce emissions by around 9% of global emissions. Because unsubsidised fuel prices on international markets would fall as consumption in countries with subsidies falls, consumption would rise in other countries. The net reductions in global emissions would therefore be lower, at around 5%. The bulk of the reductions would come from countries that consume large quantities of subsidised coal, notably the former Soviet Union, China, Poland, South Africa, the former Czechoslovakia and India. A 1998 study by the OECD shows that the methodology employed and assumptions made crucially affect the results of analyses of the potential for reducing carbon emissions. The study reviews two studies, one by Anderson and McKibbin in 1997 and the 1994 DRI study. Anderson and McKibbin conclude that subsidy removal in the countries considered would reduce coal production, but that coal imports would rise. This would drive up the world price of coal, resulting in lower coal use in all countries. The resulting falls in carbon emissions would be substantial, at around 13% from the baseline. The DRI study also predicted increased coal imports in the countries that remove their subsidies, but no significant increase in world prices. As a result, global carbon emissions would be hardly affected, falling by a mere 0.3%. The large differences in the results of these two studies are explained by different assumptions about the price elasticities of supply 119 and the amount of subsidy removed 120 , and by different methodologies. 121 Using a slightly different approach, Steenblik and Coroyannakis (1995) showed that, even assuming a one-for-one substitution of imported for domestically produced coal, elimination of subsidies to coal production in Europe could result in fewer emissions in greenhouse gases. For example, methane emissions from Europe’s deep, underground coal mines are much greater than from the mines from which imports would be sourced. And because imported coal tends to be lower in sulphur, emissions of CO2 would be saved through reduced scrubbing requirements. However, the authors suggest that reform could lead to reduced consumption of coal in Europe — at least in the medium term — as many old, inefficient coal-fired power plants were being kept in operation simply to meet obligations to consume domestic coal. Once those obligations are removed (as happened in the UK), much of this capacity would be decommissioned and not all of it would be replaced by new coal-fired capacity. 118 A detailed description of this methodology can be found in Tol (1996). 119 DRI assumed a very flat or elastic supply curve compared with Anderson and McKibbin. 120 The level of subsidy removal in the DRI study was only half that of the level in the Anderson and McKibbin study. 121 DRI used partial equilibrium techniques, while Anderson and McKibbin employed a multi-country dynamic 167
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© Copyright 2003 UNEP This publica
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Acknowledgements Acknowledgements T
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United Nations Environment Programm
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Contents Contents Foreword 1 Acknow
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Contents 8.2.3 Renewable Energy Sou
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Executive Summary Executive Summary
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Executive Summary Summary of Findin
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Executive Summary employment in dom
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Abbreviations and Acronyms Abbrevia
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Energy Subsidies: Lessons Learned i
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Energy Subsidies in OECD Countries
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Energy Subsidies in the Czech and S
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Energy Subsidies in Russia: The Cas
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Electricity Subsidies in India 6. E
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Electricity Subsidies in India (SEB
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Electricity Subsidies in India rura
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Electricity Subsidies in India Usin
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Electricity Subsidies in India and
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Electricity Subsidies in India For
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Oil Subsidies in Indonesia 7. Oil S
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Oil Subsidies in Indonesia Table 7.
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Oil Subsidies in Indonesia 7.4 Econ
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Energy Subsidies in Korea 8. Energy
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Energy Subsidies in Korea been used
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Energy Subsidy Reform in Iran 9. En
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Energy Subsidy Reform in Iran Table
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Energy Subsidy Reform in Iran Figur
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Energy Subsidy Reform in Iran The e
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Energy Subsidies: Lessons Learned in Assessing their Impact - UNEP

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