Fuel subsidies, oil markets and the global economy

IMF Staff Position Notes, 2010

Environmental and Resource Economics, 2019

Fuel subsidies distort end-use prices below cost, resulting in overconsumption and huge environmental cost. On the other hand, the markup over cost due to the exercise of market power results in the social loss of consumer surplus. We open a new line of inquiry into the potential for a market-based solution from these two countervailing forces: can the two offsetting distortions conceivably achieve a second-best optimum? Relying on dynamic panel techniques and gasoline market data for 68 developing countries, we uncover an excessive second-best subsidy offset to market power markup on the order of 4.5. Our results indicate that the potential for policy failure strongly exceeds the potential for market failure in our model, and gasoline prices across our sample may not be aligned with vigorous anticlimate change policy.

2015

Many oil exporter countries choose to subsidy energy prices to maximize the benefits of low income countries, but the problem is that this subsidy policy in the fact is in the benefit of all groups in the society both high income group and low income group. Further, this kind of policy lead to different costs in the economy that affect negatively the development of economic activity. These effects suggest that the policy makers should go to reform this kind of subsidy policy and hence improve the economic efficiency and incentives in economic activity. But the reform process faces many barries that make the process so difficult and put many challenges for policymakers. ………………………………………………………………………………………………………..

OECD Trade and Environment Working Papers, 2011

IMF Working Papers, 2021

This paper provides a comprehensive global, regional, and country-level update of: (i) efficient fossil fuel prices to reflect supply and environmental costs; and (ii) subsidies implied by charging below efficient fuel prices. The methodology improves over previous IMF analyses through more sophisticated estimation of costs and impacts of reform. Globally, fossil fuel subsidies were $5.9 trillion in 2020 or about 6.8 percent of GDP and are expected to rise to 7.4 percent of GDP in 2025. Just 8 percent of the 2020 subsidy reflects undercharging for supply costs (explicit subsidies) and 92 percent for undercharging for environmental costs and foregone consumption taxes (implicit subsidies). Efficient fuel pricing in 2025 would reduce global carbon dioxide global carbon dioxide emissions 36 percent below baseline levels, which is in line with keeping global warming to 1.5 degrees, while raising revenues worth 3.8 percent of global GDP and preventing 0.9 million local air pollution deaths per year. Accompanying spreadsheets provide detailed results for 191 countries.

Resources Policy, 2019

Using a sample of 828 oil-user firms from 14 net oil-producing countries spanning from January 2004 to December 2015, we show that stock returns of oil-user companies increase with lagged oil price returns and decrease with lagged oil price volatility. Furthermore, the evidence suggests that oil-user stocks operating in countries with larger fuel subsidies tend to be more exposed to oil returns but not oil volatility. Intuitively, when the oil price increases (decreases), oil-user stocks that operate in countries with larger oil subsidies gain (lose) more than oil-user stocks in countries with smaller fuel subsidies. However, both types of stocks experience losses when the oil market becomes more volatile, with no statistically significant difference between their losses. Our evidence implies a diversification benefit for international investors to reduce their exposure to oil risk. Our results are robust because of the use of alternative proxies, econometric methodologies, and model specifications.

2009

Building on the Optimal Export Tax model, where trade policy maximizes domestic welfare of exporting countries with monopoly power in international markets, we introduce a cheap oil model to explain the wedge between international and domestic prices of crude oil in OPEC countries, where political, as well as economic considerations affect policy decision. We empirically test this model's predictions, and find that policies affecting domestic and international oil prices in OPEC countries are, on average, consistent with the Optimal Export Tax model. Although differences of domestic oil prices among OPEC countries suggest some countries give extra weight to domestic consumers' well-being and pursue "cheap oil" polices, these differences are small. JEL Code: F1 Q4

Energy Policy, 1995

One of the crucial issues of energy markets in oil exporting developing countries is the high level of subsidies on petroleum products and the low efficiency in energy use. The purpose of this paper is to investigate the impacts of a subsidy phase out policy on the energy sector and oil revenues in three countries: Algeria, Iran and Nigeria. By using a standard econometric approach, we find that the effects of different deregulation policies are substantial. We also analyse the impact of a policy based on autonomous energy-efficiency improvement. Finally, a combination of both policies is elaborated and quantified. Our results show that a policy geared at more rational use of energy would permit these countries to save enough oil to meet future increases in demand while maintaining stable production capacity. Furthermore, such an energy policy could result in additional oil revenues which would enhance their economic development.