Abstract
This paper uses the OECD’s global recursive-dynamic general equilibrium model ENVLinkages to examine the mid-term economic consequences and the optimal energy supply mix adjustments of a simultaneous implementation of i) a progressive fossil fuel subsidy reform in emerging and developing economies and ii) a progressive phase out of nuclear energy, mostly affecting OECD countries, China and Russia. The analysis is then transposed in the context of climate change mitigation to depict the corresponding implications for CO2 emissions, to assess the interactions between the two energy policies, and to derive how the associated costs are affected by the different policies. The phase-out scenario projects a nuclear capacity halved by 2035 as compared to the Baseline, corresponding to $120 billion losses in value-added of the nuclear industry for that year. The nuclear phase-out leaves GDP and real household consumption marginally affected in energy importing countries. A multilateral subsidy reform is more likely to affect international fossil fuel prices and alter patterns of global energy use. The fossil fuel subsidy reform, when implemented together with nuclear phase-out, more than offsets negative consequences on household consumption but still leads to a decrease in global CO2 emissions. The combined policies help save the equivalent of current energy consumption in the Middle East. Combining a climate policy, an effective fossil fuel subsidy reform, even with a lower nuclear share in the power mix, brings about multiple benefits to OECD countries which reduce their energy bill and achieve large climate change mitigation at lower cost.
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Notes
Ellis (2010) gives a comprehensive overview of modelling and empirical studies to study the effects of the fossil fuel subsidy reform.
Bazillian and Onyeji (2012) point at infrastructural and institutional deficiencies which are not appropriately factored into the decision-making process of reforming the support to fossil fuel consumption and which may make these policies sometimes ineffective. Other distributional impacts within different income groups shall be carefully considered when implementing such policies.
The IEA dataset contains fossil-fuel subsidies to end-users in 35 non-OECD countries in addition to two OECD countries, Mexico and South Korea.
In our modelling framework, the nuclear phase-out takes the form of a constraint (i.e. an upper bound) on the activity level of the nuclear sector.
Deviations of all GHGs emissions by country in the fossil fuel subsidy removal scenario relative to the Baseline are provided in the Supplementary Material.
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The views expressed in this paper are those of the authors and do not necessarily represent the views of the OECD or of its member countries.
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This article is part of the Special Issue on “The EMF27 Study on Global Technology and Climate Policy Strategies” edited by John Weyant, Elmar Kriegler, Geoffrey Blanford, Volker Krey, Jae Edmonds, Keywan Riahi, Richard Richels, and Massimo Tavoni.
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Magné, B., Chateau, J. & Dellink, R. Global implications of joint fossil fuel subsidy reform and nuclear phase-out: an economic analysis. Climatic Change 123, 677–690 (2014). https://doi.org/10.1007/s10584-013-1030-y
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DOI: https://doi.org/10.1007/s10584-013-1030-y