Fuel subsidy

This paper analyzes the impact of changes in energy prices on the competitiveness of manufacturing firms in Chile. We find that, (i) increases in energy prices generally do not hurt firm competitiveness; (ii) the impact of energy prices depends on the fuel type—while electricity price increases are negatively correlated with firm outcomes, fossil fuel price increases have a positive association with investment and firm productivity; (iii) these effects are heterogeneous and vary by firm attributes such as size, ownership and location; (iv) the positive correlation between fossil fuel price increases and capital upgrading is particularly pronounced when energy prices are at relatively low levels.

Energy subsidy reforms can raise important challenges for firms. A large academic literature has evolved to study these effects. This paper provides a summary of that literature and recommendations for future evaluations of policy impacts

This study provides novel evidence on this insight by examining the effect of a change in fossil fuel subsidies on the manufacturing industry of an oil-rich Middle Eastern economy. Using a novel firm-level micro data set on Omani manufacturing enterprises, our work shows that increases in fossil fuel energy factor prices lead to improvements in productivity as well as efficiency and notable business upgrading. Our work indicates that subsidy reforms may not only be used to achieve environmental goals but may also drive upgrading and modernization processes of firms that can, ultimately, also improve economic performance.

Analysing the effect of energy price increases on firm-level productivity in Oman.

Switching Chilean firms to more sustainable production is critical to realising the country’s ambition of carbon neutrality by 2050.