Abstract:
One of the motivations for the removal of subsidies on fossil fuels is that these subsidies lead to the overconsumption
of energy, and as a result, undermine environmental quality. Despite the huge opportunities
that removal of subsidies on fossil fuels may bring for climate change mitigation, empirical studies
for Ghana have failed to appropriately test these links. For this reason, this study employs a multi-region
computable general equilibrium (CGE) model to evaluate the welfare and environmental impacts from
imported refined oil subsidies removal in Ghana. The simulation experiment shows evidence of welfare
losses even if environmental benefits are accounted for. Although the rate of CO2 emissions appears to
increase, there is an overall 1.9% improvement in environmental quality due to the removal of fuel
subsidies. The results provided in this study imply that the removal of subsidies on energy should be
implemented along with policies aimed at stimulating economic activities. In addition, the study has
implications for the so-called ‘green paradox’.
