Common Tragedies

Thoughts on Environmental Economics

Removing energy subsidies in China

Posted by Daniel Hall on November 6, 2008

There is a new discussion paper out from William Pizer, Takahiro Ueno, Michael Levi, and (ahem) Daniel Hall.  We talk about options for engaging countries in the developing world in a post-Kyoto climate agreement.

Here is an interesting sentence:

the elimination of subsidies for transport fuels in China would be equivalent to an $11 per ton CO2 tax on gasoline – or a $25 per ton CO2 tax on diesel – relative to current prices.

The upshot is that the removal of subsidies for fossil fuels in non-OECD countries — where subsidies remain widespread and encourage fuel and emissions growth — could be a near-term bridge for international climate negotiations.  Developed countries could raise fossil energy prices — through taxes or cap-and-trade systems — while simultaneously developing countries reduced or eliminated fossil fuel subsidies.  Eventually one would like to harmonize prices on emissions/fuels globally, as this would be most efficient.  In the near-to-medium term, however, moving closer to market prices in the developing world while taxing externalities in the developed world would be a big step forward.

I suspect I may have other sentences of interest from this paper in coming days.

Here is the website for the Harvard Project on International Climate Agreements.  Our discussion paper is one among a great number of very interesting papers for the project.

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3 Responses to “Removing energy subsidies in China”

  1. John Fleck said

    Daniel -

    Most interesting analysis. Raises a question that is beyond the scope of the paper itself, but seems relevant. To what extent does US policy need to take a similar approach, by examining the indirect subsidies in our own energy system, including especially the cost of the military apparatus needed to defend our oil supplies.

  2. [...] Hall writes: Here is an interesting sentence: the elimination of subsidies for transport fuels in China would [...]

  3. [...] paper determined that getting rid of diesel subsidies in China would be the equivalent of slapping a pricetag of $25 [...]

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