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Mitigation Potential of Removing Fossil Fuel Subsidies

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Burniaux, J.-M., Chateau, J.
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This paper uses simulations from the Organisation for Economic Co-operation and Development's General Equilibrium ENV Linkages model to determine the quantified estimates of the economic and environmental benefits of removing fossil fuel subsidies worldwide. Energy subsidies are estimated using a price-gap approach, which compares end-user consumer prices with reference prices that correspond to the full cost of supply or, where available, the international market price, adjusted for the costs of transportation and distribution. The report concludes that removing fossil fuel subsidies worldwide would result in environmental and economic gains, but that they would be unevenly distributed. It also finds that the elasticity of fossil fuel demand is a key variable whose uncertainty affects this analysis.