Energy subsidies in OECD countries

This chapter reviews the prevalence of energy subsidies in OECD countries and analyses the possible economic and environmental effects of their removal. Most OECD countries have reduced energy subsidies over the past two decades as part of a general move away from heavy government intervention in energy markets and other sectors of the economy. Examples of this include cuts in direct grants and payments to consumers and producers, the lifting of price controls, cuts in research and development pro grammes and the removal of trade barriers. Most of the energy subsidies that remain are intended to protect domestic industries and employment in them, redistribute income to poor people or, increasingly, to protect the environment. Often, subsidies that encourage the production and consumption of fossil fuels by lowering prices are offset by taxes, such that net subsidies are in many cases small or negative. The scope for CO₂ emission reductions through the removal of subsidies to fossil fuels may be large in some countries but is probably modest for the OECD as a whole. The scope for reducing emissions by increasing subsidies to low carbon-intensive or carbon-free fuels or increasing taxation of carbon-intensive fuels appears to be larger. However, subsidies may not be the most efficient way of achieving emission reductions.