FOSSIL FUEL

Fossil fuel subsidies have long been recognized as a significant misalignment between energy pricing policies and environmental sustainability objectives, encouraging overconsumption of fossil fuels and slowing the transition to cleaner energy sources. While these subsidies are often justified on grounds of affordability and energy security, they tend to exacerbate greenhouse gas emissions, distort energy markets, and undermine climate policy commitments. The aim of this study is to examine the environmental consequences of fossil fuel subsidies and the impact of subsidy reforms across a geographically diverse sample of 68 countries. The data utilized in this study span the periods 2010 to 2023. Of the 68 countries in the sample, 51 are identified as having implemented fossil fuel subsidy reforms between 2010 and 2023, while 17 serve as control countries that maintained their subsidy regimes without major reforms during this period. The study employed a combination of system generalized method of moments (GMM) estimation and the Callaway and Sant’Anna Difference-in- Differences method with staggered treatment to analyse the effects of fossil fuel subsidies and subsidy reforms on CO2 and greenhouse gas emissions. The result from the system GMM revealed that fossil fuel subsidies significantly increased emissions, with affluence moderating the effect such that higher-income countries experience a smaller emissions response to subsidies. The analysis found no evidence for the traditional Environmental Kuznets Curve (EKC); however, reform-augmented EKC analysis demonstrated that subsidy reforms can generate complex dynamics, including temporary “green paradox” effects, where emissions initially rise among low-income populations due to higher energy prices and limited access to clean alternatives. Over the longer term, the Staggered Difference in Difference results showed that subsidy reforms significantly reduced emissions, with earlier adopters achieving the greatest cumulative environmental gains. Based on these findings, the study recommended that policymakers calibrate subsidy strategies to income levels, phase out subsidies alongside investments in clean energy access, enact policies that protect the biomass and maintain reforms as continuous rather than one-off measures. The work contributed to knowledge by empirically validating the differential effects of fossil fuel subsidy reforms on emissions, highlighting the importance of context- sensitive climate policy