ASEAN Financing Climate Policy: The Effect of Fossil Fuel Subsidies on CPI and GHGs

Abstract The Association of Southeast Asian Nations (ASEAN) employs fossil fuel subsidies to promote economic development, although such action may have a negative effect on the environment. This study employs panel data analysis to examine whether ASEAN’s fossil fuel (oil, gas, coal, and electricity) subsidies decrease the consumer price index (CPI; Model 1) and, on the other hand, increase greenhouse gas emissions (GHGs; Model 2) from energy levels, using yearly data of five ASEAN countries from 2010 to 2021. The findings demonstrate that ASEAN’s fossil fuel subsidies for oil, gas, coal and electricity do not reduce the CPI and, therefore, cannot be interpreted as reducing inflation. In addition, there is no effect of gas and coal subsidies on GHGs. This might be due to the small average of the five ASEAN countries from 2010 to 2021 in terms of gas and coal subsidies. Following the expectation, oil subsidy, which is the highest amount on average (4,635.44 real 2021 million USD), has a strong positive effect on GHGs. However, electricity subsidy, which is the second highest amount on average (1,963.22 real 2021 million USD), has a significant negative effect on GHGs.