This article introduces the various trade impacts of fossil fuel subsidies. There are large direct and pass-through trade impacts. Direct trade impacts are found when producer subsidies affect the markets for crude energy products such as crude oil, natural gas, and coal. Direct trade impacts are also found when consumer subsidies decrease the input costs of various industries, whether they refine crude products into energy carriers (e.g. gasoline, electricity) or they use energy products to produce non-energy products (e.g. iron and steel, plastics). Pass-through trade impacts are found when upstream fossil fuel subsidies lead to a lower-cost product that is then used in downstream production processes. We find that markets for fossil fuels, refined energy products and energy-intensive products are enormous. In 2018, crude fossil fuel exports were worth at least US$1.3 trillion, petroleum product exports at least US$800 billion, and exports of energy-intensive goods at least US$1.3 trillion. Their trade volume and export value, as well as their competition density highlight that fossil fuel subsidies have a direct impact on who wins and who loses in terms of market share.

Oil prices fell from around $US110 per barrel in 2014 to less than $US50per barrel at the start of 2017. This put enormous pressure on government budgets within the Gulf Cooperation Council (GCC) region. The focus of GCC economic policies quickly shifted to fiscal reform, including the removal of domestic subsidies on energy products. In this paper, we use a dynamic Computable General Equilibrium (CGE) model to investigate the economic impact of the gradual removal of subsidies on refined petroleum and electricity, with specific reference to the Kingdom of Saudi Arabia (KSA).

Our study shows that removing subsidies eliminates a large distortion in the economy. This improves the efficiency of resource use, so that even though employment and capital in most years fall relative to baseline levels, real GDP rises. In addition, we show that fully-funded compensation payments offset the increases in energy prices, leaving economic welfare of the Saudi-national population little affected. Removing the energy subsidies leads to an improvement in the net volume of trade, while leading to a mixed outcome for industries.

This article fills a gap in the literature by quantifying impacts of fossil fuel subsidy reform on trade (inflow and outflow) in an oil-producing, “almost small”, economy, using Kuwait as an example. It employs a two-region economy-wide model with oligopoly behaviour in a general equilibrium framework. The model embodies unique elements of Kuwait's economic structure, idiosyncratic rigidities, and distortions, including oligopolistic industrial structure and labour markets. Simulations show that energy subsidies have minimal effects on trade and on non-energy exports, largely due to the pervasiveness of oligopolies that sustain large markups and their collusive pricing. Reforming energy subsidies generates higher pro-trade effects if implemented during low (not high) oil prices because its negative effects are partially offset by efficiency gains and reduction in oligopoly markups. Yet, contrary to claims by proponents of reforms, these effects remain largely constrained unless appropriate incentives are introduced. These results have important policy implications. In developing oil-exporting economies with pervasive oligopolies, microeconomic reform can be a channel through which to achieve pro-trade effects of energy subsidy reform. Further, benefits beyond export expansion, such as higher economic efficiency, could be better motivators of energy subsidy reform in oil economies.

For a long time, the use of intermediate products in production has been growing more rapidly in most countries than domestic production. This is a strong indication of more interdependency in production. The main purpose of input-output analysis is to study the interdependency of industries in an economy. Often the term interindustry analysis is also used. Therefore, the exchange of intermediate products is a key issue of input-output analysis. We will use input–output data for this study that the author prepared for the new ‘Handbook on Supply, Use and Input–Output Tables with Extensions and Applications’ of the United Nations. The supply use and input–output tables contain separate valuation matrices for trade margins, transport margins, value added tax, other taxes on products and subsidies on products. For the study, two input–output models were developed to evaluate the impact of fuel subsidy and taxation reform on output, gross domestic product, inflation and trade. Six scenarios are discussed covering different aspects of the reform.

Despite being at the forefront of the global policy agenda, fuel subsidy reform is understudied and its impact on trade is not particularly well understood. This type of reform could have a huge impact on market performance by increasing transportation costs. I present a case study from Ethiopia, which removed its fuel subsidies and increased the price of diesel price by 39% overnight on 4 October 2008. What is the impact of such an increase in diesel price on transportation costs and hence grain prices in developing countries such as Ethiopia? I use spatial difference-in-difference (sDID) on distance from major markets to assess the effects of removing the fuel subsidy on grain price dispersion. The sDID leverages distance from the national capital to investigate the impact of fuel subsidy reform on markets located at different distances from consumer centers. The results indicate that remote markets experienced high price dispersion compared to markets near the capital.

Western Europe's industrialization was powered largely by coal. Within 15 years after the end of the Second World War, however, governments were subsidizing coal and protecting producers from foreign competition while allowing their industries to contract in a way that avoided large-scale unemployment of miners. The oil-price shocks of 1973–1974 and 1979–1980 gave temporary reprieve to hard-coal production until international oil prices slumped in 1986. This event, combined with ever more stringent environmental regulations and, later, caps on carbon-dioxide emissions, led to the disappearance of subsidized coal mining in one country after another. As of the end of 2019, hard coal was still being mined – in small amounts – in only three Western European countries: Norway, Spain, and the United Kingdom. This paper describes the history of the industry from 1945 through to the present, and the consequences of subsidy policy for trade in hard coal and its substitutes. A common observation is that a reduction in subsidized coal production by a country has not necessarily translated into increased imports of coal on a one-for-one basis.