The reduction of explicit and implicit subsidies for fossil fuels such as coal, oil, and natural gas could lead to greater prosperity, higher tax revenues, and significantly lower CO2 emissions, despite higher energy prices. According to a recent study by ZEW Mannheim, Germany, around one-third of all countries worldwide could achieve their climate targets without having to take additional measures such as CO2 pricing. This would make it easier to reconcile economic, fiscal, and climate policy goals than previously assumed.
»Many countries continue to help keep fossil fuels affordable for consumers. For example, explicit subsidies cover part of the supply costs, or implicit subsidies mean that the external health costs associated with the use of fossil fuels are not included in the price,« explains Sebastian Rausch, head of the ZEW Research Department for Environmental and Climate Economics and co-author of the study.
Tim Kalmey, a researcher at ZEW and also co-author of the study, adds: »Abolishing explicit subsidies, such as tax exemptions on kerosene or gas price caps, would have only a limited effect on CO2 emissions. It is crucial that the external costs of fossil fuels, i.e., the harmful effects on health caused by local air pollution, are also factored into the price. We estimate that this would reduce global CO2 emissions by 32 percent.«
The abolition of explicit and implicit subsidies in all countries could result in around one-third of all countries achieving their climate targets without further measures – including China, India, and Indonesia. But industrialized countries and energy-importing nations such as Germany, the US, Japan, and the UK could also achieve around one-third of their climate targets in this way.
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