Market Power and Fossil Fuel Subsidy Reforms: A CGE Approach with Endogenous Markups

Using a perfectly competitive theoretical engine to study FFSR is puzzling knowing the role of OPEC and the importance of economies of scale in the oil sector, historically one of the largest single- sector recipients of fossil fuel subsidies. The present study develops a multi-regional CGE model with endogenous markups to explore the impact of market power on subsidy reforms in the oil sector. Results show that compared to the perfectly competitive case, markups lower the overall effectiveness of a global reform to reduce fossil fuel consumption. However, the impact of pro-competitive effects on unilateral policies in oil-exporting or importing countries varies. Complementary industrial policies will therefore be needed to maximize the benefits of phasing out fossil fuel subsidy and ensure commitment across regions.

Speaker bio:

Robin Argueyrolles completed his Master of Science in Economics at Tilburg University (Netherlands) before working as a climate mitigation project consultant at the United Nations Environmental Program (UNEP). In 2021, he integrated the newly established Global and Regional Land-Use Change Research Group at the University of Basel (Switzerland) for his ongoing PhD. His research is broadly concerned with the interplay between energy, agriculture, and the environment. He, for example, explored the tension between renewable energy and fossil fuel subsidies, and the implications these can have for fiscal revenues, land-use, and Greenhouse gas emissions. 

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