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Oil consumption subsidy removal in OPEC and other Non-OECD countries: Oil market impacts and welfare effects

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  • Aune, Finn Roar
  • Grimsrud, Kristine
  • Lindholt, Lars
  • Rosendahl, Knut Einar
  • Storrøsten, Halvor Briseid

Abstract

This paper studies the oil market effects of phasing out oil consumption subsidies in the transport sector. Welfare effects in different countries are also examined. The paper further investigates potential feedback mechanisms of oil subsidy removal via lower oil prices in the global oil market, which may stimulate oil consumption in other regions. An intertemporal numerical model of the international oil market is applied, where OPEC-Core producers have market power. The major subsidisers of oil are OPEC countries, and the effects of subsidy removal here are quite pronounced. Consumption of oil in the transport sector of OPEC countries declines significantly. As a result, the global oil price falls slightly, and other regions increase their oil consumption to some degree. Although OPEC consumers are worse off by the subsidy removal, total welfare in OPEC increases due to higher profits from oil production.

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  • Aune, Finn Roar & Grimsrud, Kristine & Lindholt, Lars & Rosendahl, Knut Einar & Storrøsten, Halvor Briseid, 2017. "Oil consumption subsidy removal in OPEC and other Non-OECD countries: Oil market impacts and welfare effects," Energy Economics, Elsevier, vol. 68(C), pages 395-409.
    • Handle: RePEc:eee:eneeco:v:68:y:2017:i:c:p:395-409
    DOI: 10.1016/j.eneco.2017.10.028
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    More about this item

    Keywords

    Fossil fuel subsidies; Transport; Oil market; Market power; Distribution; Feedback mechanisms;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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