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

    (Statistics Norway)

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. We investigate 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 subsidizers of oil are OPEC countries, and we find that 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.

Suggested Citation

  • Finn Roar Aune & Kristine Grimsrud & Lars Lindholt & Knut Einar Rosendahl & Halvor Briseid Storrøsten, 2016. "Oil consumption subsidy removal in OPEC and other Non-OECD countries. Oil market impacts and welfare effects," Discussion Papers 846, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:846
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    5. Aldubyan, Mohammad & Gasim, Anwar, 2021. "Energy price reform in Saudi Arabia: Modeling the economic and environmental impacts and understanding the demand response," Energy Policy, Elsevier, vol. 148(PB).
    6. Karanfil, Fatih & Pierru, Axel, 2021. "The opportunity cost of domestic oil consumption for an oil exporter: Illustration for Saudi Arabia," Energy Economics, Elsevier, vol. 96(C).
    7. 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.
    8. Zakia Batool & Sajjad Ali & Abdul Rehman, 2022. "Environmental Impact of ICT on Disaggregated Energy Consumption in China: A Threshold Regression Analysis," Sustainability, MDPI, vol. 14(23), pages 1-17, November.
    9. Atalla, Tarek N. & Gasim, Anwar A. & Hunt, Lester C., 2018. "Gasoline demand, pricing policy, and social welfare in Saudi Arabia: A quantitative analysis," Energy Policy, Elsevier, vol. 114(C), pages 123-133.
    10. Berk, Istemi & Çam, Eren, 2020. "The shift in global crude oil market structure: A model-based analysis of the period 2013–2017," Energy Policy, Elsevier, vol. 142(C).
    11. Shittu, Ibrahim & Abdul Latiff, Abdul Rais & Baharudin, Siti ‘Aisyah, 2024. "Assessing the compensation and reinvestment plans for fuel subsidy rationalization in Nigeria: A dynamic computable general equilibrium approach," Energy, Elsevier, vol. 293(C).
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    13. Kheiravar, Khaled H, 2019. "Economic and Econometric Analyses of the World Petroleum Industry, Energy Subsidies, and Air Pollution," Institute of Transportation Studies, Working Paper Series qt3gj151w9, Institute of Transportation Studies, UC Davis.

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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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