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“Stepping Down the Ladder”: The Impacts of Fossil Fuel Subsidy Removal in a Developing Country

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  • Hannes Greve
  • Jann Lay

Abstract

This paper provides quasi-experimental evidence from Ghana on the impact of fossil fuel subsidy removal on cooking fuel choices. We find that households “stepped down the energy ladder”: modern fuel use decreased, while the use of transition and traditional fuels expanded. Price increases of 50% for liquefied petroleum gas (LPG) and 20% for diesel caused the share of households who mainly use firewood to increase by 3 percentage points. Urban households increased charcoal consumption by around 17%, while LPG expenditure remained constant—indicating that consumption dropped. Back-of-the-envelope cost-benefit calculations suggest that overall welfare costs, including from increased cooking-related greenhouse gas emissions, were slightly higher than fiscal savings. The LPG subsidy removal in particular was likely socially damaging. Our findings highlight the ambiguous impacts of removing LPG subsidies in developing-country contexts, where they contribute to the adoption and use of clean cooking fuels.

Suggested Citation

  • Hannes Greve & Jann Lay, 2023. "“Stepping Down the Ladder”: The Impacts of Fossil Fuel Subsidy Removal in a Developing Country," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(1), pages 121-158.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/721375
    DOI: 10.1086/721375
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    Cited by:

    1. Rose, Julian & Ankel-Peters, Jörg & Hodel, Hanna & Sall, Medoune & Bensch, Gunther, 2024. "Lost in transition: The decline of LPG usage and the charcoal renaissance in urban Senegal," Ruhr Economic Papers 1076, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    2. Evans, Olaniyi & Nwaogwugwu, Isaac & Vincent, Olusegun & Wale-Awe, Olawale & Mesagan, Ekundayo & Ojapinwa, Taiwo, 2023. "The socio-economics of the 2023 fuel subsidy removal in Nigeria," MPRA Paper 118360, University Library of Munich, Germany.
    3. Li, Zhi & Zhao, Qing & Guo, Hong & Huang, Ruting, 2024. "Impact of fossil fuel subsidies on energy-saving technological change in China," Energy, Elsevier, vol. 286(C).
    4. Stern, Nicholas & Lankes, Hans Peter & Macquarie, Rob & Soubeyran, Éléonore, 2024. "The relationship between climate action and poverty reduction," LSE Research Online Documents on Economics 121231, London School of Economics and Political Science, LSE Library.

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