NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Environmental Cost of Global Fuel Subsidies

Lucas W. Davis

NBER Working Paper No. 22105
Issued in March 2016
NBER Program(s):Environment and Energy Economics

Despite increasing calls for reform many countries continue to provide subsidies for gasoline and diesel. This paper quantifies the external costs of 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.

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Document Object Identifier (DOI): 10.3386/w22105

Published: Lucas W. Davis, 2017. "The Environmental Cost of Global Fuel Subsidies," The Energy Journal, International Association for Energy Economics, vol. 0(KAPSARC S). citation courtesy of

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