Environmental and welfare assessment of fossil-fuels subsidies removal: A computable general equilibrium analysis for Ghana

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’.