saving roughly 13,500 DALYs. A gradual elimination of fuel subsidies by 2024 saves nearly 23,000 DALYs. In the scenario where fuel subsidies are eliminated by 2024 and coupled with an increase in the international price of oil of 20 percent, the DALYs saved amount to over 30,000. This corresponds to roughly 0.04 percent of GDP. When we incorporate changes to the transport index in the simulations, at the maximum the cumulative savings of DALYs rise to around 0.07% of GDP. These are clearly not trivial numbers given that the estimated cost of _total_ pollution in the Greater Cairo region amounts to around 0.2 percent of GDP.

# **8. Conclusion**

Our paper covers ground that has been relatively neglected both in analytical and policy terms; namely the externalities associated with energy subsidies. The latter are pervasive in the MENA region and cut across different types of economies, including those without significant natural resources. While the broad consequences of energy mis-pricing are well understood, the magnitudes of the external effects associated with current pricing rules have attracted limited attention, let alone quantification. We attempt to correct this deficiency by focusing on two sectors – transport and agriculture – with a specific emphasis on the congestion and pollution costs associated with the first and the consequences for resource (water) depletion and crop selection in the case of the second. The paper is, however, exploratory both in a methodological and in an empirical sense, not least because of the absence of available data of sufficient quality. Nevertheless, we are able to identify the dominant channels through which energy subsidies create external costs and, particularly in the case of transport, begin to quantify their magnitudes in the context of Cairo. We view this exercise as a prelude to a more detailed study that will require further data assembly and collection.

In the case of transport in Cairo, we are able to quantify the impact of a change in energy pricing involving a reduction in subsidies on energy use and CO2 emissions. We then associate those emissions with that of particulates – as measured by PM10 – and through that channel make a link to health outcomes, as measured in terms of excess mortality and morbidity using the DALY measure. We find that there are non-trivial changes in energy use and CO2 emissions when energy subsidies are reduced. Our simulations indicate at their outer limit that a gradual elimination of fuel subsidies by 2024, when coupled with an increase in the international price of oil by 20 percent, would result in CO2 emissions falling by as much as 25 percent. Eliminating subsidies by 2020 would lead to a decline in energy use of around 20 percent with an equivalent drop in CO2 emissions. As regards the impact on health, subsidy elimination by 2024 would result in large order savings in terms of mortality and morbidity that amount to roughly 0.04 percent of GDP. When factoring in changes in the use of different transport modes linked to a hypothetical increase in public investment in public transport infrastructure, at a maximum the cumulative savings of DALYs rise to around 0.07% of GDP. These are clearly significant given that an earlier World Bank study estimated the cost of total pollution in the Greater Cairo area to be around 0.2 percent of GDP. In sum, our paper provides further evidence on the damaging and corrosive impact of energy subsidies by demonstrating that in one sector alone the external effects are large. Although the paper does not attempt to measure the overall costs associated with energy underpricing on water use and scarcity, it uses available evidence to describe the 32