Investigating the relationship between petroleum product subsidies and particulate matter concentrations: An empirical approach

Abstract: The aim of this paper is to examine how petroleum product consumer subsidies affect concentrations of the air-pollutant small particulate matter (PM10) through excessive consumption. An empirical cross-sectional approach is adopted to test the hypothesis that petroleum product subsidies increase concentrations of PM10. PM10 is known to cause adverse health effects and previous research show that fossil fuel subsidies are often inefficient and come with adverse economic, social and environmental consequences. Petroleum products, including gasoline, diesel and kerosene, are heavily subsidized. With international oil prices being low, now is a time of opportunity for petroleum product subsidy reform. The subsidization of petroleum products for consumers is not a problem limited to developing countries even though the issues differ in character and in terms of severity. The sample used in this study includes 100 countries, both developing and developed, in 2011. Due to issues of endogeneity in the model, instrumental variables are introduced for petroleum product consumer subsidies and per capita GDP. Our model yields approximately unbiased and consistent estimates. A coefficient of 0.3158 for the natural logarithm of petroleum product consumer subsidies is found to be statistically significant at a 1 % significance level. The practical significance can be discussed, since the model predicts an increase in PM10 concentrations by 0.3158 percentage units from a one percentage unit increase in the billion dollars spent on petroleum product consumer subsidies. However, no threshold of PM10 concentrations without adverse health effects has yet been identified.