Including Fossil-fuel Consumption Subsidies in the GTAP Data Base

Abstract

Historically fossil-fuel consumption subsidies have been one of the most widely used energy and public policy interventions. According to the International Energy Agency (IEA), in 2014 they amounted to $493 billion worldwide, which is equivalent to 0.6% of global GDP. Their contribution is even more significant for most energy exporting countries, in many cases exceeding 5-15% of national GDP. However, despite their large magnitude, fossil-fuel consumption subsidies are not explicitly represented in most global economic databases and models, including the Global Trade Analysis Project (GTAP) Data Base, as they are generally not captured by the input-output framework. In this paper, we present methods to integrate pre-tax fossil-fuel consumption subsidies to the GTAP Data Base and produce a version of the GTAP 9.2 Data Base that includes these subsidies. The proposed approach includes updates of energy commodity market prices and corresponding tax rates, within the GTAP Data Base build process. Including fossil-fuel consumption subsidies in the GTAP Data Base provides several benefits for energy and environmental policy simulations, including availability of an additional policy instrument and more consistent representation of energy prices.