A new study claims that fossil fuel subsidies are a burden for national budget and for the environment. Carbon pricing should be introduced, instead, as a solution to drastically reduce CO2 emissions and obtain financial resources to address sustainable development.


An article by Ginevra Gatti

Two major problems affecting the world in the twenty-first century are high concentrations of CO2 in the atmosphere and low levels of basic public goods (such as public health, education, services and infrastructures). While the former is felt worldwide, the latter is more limited to developing countries. However, both have huge implications on the health and well-being of the global population and the environment. The authors of a new study published on Nature Sustainability try to shed a light on how the two problems are interconnected and could be addressed simultaneously by modifying current policies on carbon emissions.

The authors highlight that in many countries of the world governments subsidize fossil fuels to support certain industries or to keep fuel prices low for consumers. However, the researchers believe that such policy is not just environmentally harmful, but also economically unsustainable. Therefore, they suggest to switch from such subsidies to carbon pricing. This change of direction would not only reduce carbon dioxide emissions, alleviating a great environmental burden, but also have substantial positive effects for the economy of countries such as Burundi, Nigeria, Mauritania, Uganda, Zimbabwe and many others. On the one hand, by removing the subsidies, more public funds would be available; on the other, by introducing carbon pricing, more financial resources for the government would be generated. With these new revenues, other urgent public problems could be addressed and solved.

The researchers further explain that such policy option could be a starting point for the implementation of the SDGs (the global Sustainable Development Goals set by the United Nations) in countries where measures for sustainable development are most needed. According to their outcomes, redirecting fossil fuel subsidies alone could completely cover public financing needs for the SDGs in Egypt, as well as in other low and low-middle income countries in Sub-Saharan Africa, like Togo, the Republic of Congo and Senegal. Moreover, combining the fiscal reform that removes subsidies with the introduction of a substantial carbon price would provide more than two thirds of the public funds required for the SDG agenda for several countries in South- and Southeast Asia. As lead author Max Franks explains, “in India, more than 90 percent of the entire public financing needs for the SDGs could be covered, as our study shows, so there really is a huge potential of making use of carbon price dollars for health, education, and other public goods.”

The researchers underline that it was not possible to include in the study potential indirect effects, such as reduced income of fossil fuel exporting countries, or positive growth driven by better health, education and infrastructures. However, their results show that carbon pricing could be an effective tool to achieve the goals of climate policy and sustainable development at the same time and on a global scale. Furthermore, disagreements from negatively impacted businesses and people could be overcome by highlighting the huge benefits that the policies implemented through carbon pricing revenues would bring to the whole population. By so doing, public support would be gained and tax administration strengthened.

Read more:

The full paper: Max Franks, Kai Lessmann, Michael Jakob, Jan Christoph Steckel, Ottmar Edenhofer (2018): Mobilizing Domestic Resources for the Agenda 2030 via Carbon Pricing. Nature Sustainability [DOI: 10.1038/s41893-018-0083-3
Press release of the Potsdam Institute for Climate Impact Research.