HKU Geography Professor’s PNAS Study Maps Pathway to Lower Emissions – and Poverty

A global study led by HKU’s Professor Kuishuang Feng and Professor Laixiang Sun of the University of Maryland shows how governments can reform fossil fuel subsidies while protecting vulnerable households.

Governments trying to cut fossil fuel use often face a difficult trade-off: higher energy prices can reduce emissions, but they can also raise the cost of transport, electricity, food and other essentials for low-income families. A new study published in Proceedings of the National Academy of Sciences (PNAS) on September 17 argues that this trade-off can be managed if public money shifts from subsidising energy prices to supporting people most exposed to price shocks.

Professor Feng and Professor Sun’s study estimates that explicit fossil fuel subsidies in the countries covered totalled about US$952 billion in 2022. Because wealthier households consume more energy, the richest 10% of households globally received about eight times the subsidy benefit of the poorest 10%. In low-income countries, the gap was more than 50 times.

Reallocating fossil subsidies via social assistance reduces poverty and preserves emissions cuts | PNAS

Removing subsidies without compensation would cut annual global carbon dioxide emissions by about 936 million tonnes, or about 2.5% of global energy-related emissions, according to the model. But it could also push about 42 million people into poverty.

The study finds a different outcome when savings are redirected through existing social assistance and cash transfer systems. Targeted support for low-income households could reduce global poverty by about 131 million people compared with the previous situation. If social assistance coverage reached levels achieved in some countries during the COVID-19 pandemic, the reduction could rise to about 221 million people.

The researchers also caution that returning all fiscal savings to households is not always the best option, because higher consumption can carry embedded energy use and emissions. In most countries, an “80/20” scenario — using about 80% of savings for social assistance and reserving the rest for administrative costs, debt reduction, climate resilience or other public uses — could reduce poverty while preserving emissions cuts.

“We have to have a climate tax or carbon tax, but we also need to mitigate the effects on vulnerable groups,” says Professor Feng.