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Fossil Fuel Subsidies: Cut Them and See CO2 Reduced


By Duncan Clark, The Guardian

One of the most surprising and alarming issues in the climate and energy arena is the fact that the fossil fuels causing global warming continue to receive substantial government support, making them artificially cheap and encouraging more of them to be consumed. It's a form of madness that my colleague Damian Carrington put his finger on recently when he wrote that "the house is ablaze and we are throwing bucket after bucket at it — buckets of petrol."

The fossil fuels causing global warming continue to receive substantial government support, making them artificially cheap and encouraging more of them to be consumed. Credit: MissShari/flickr. 

What's particularly baffling is that while government support given to environmentally beneficial renewable power sources is subject to seemingly endless media and political scrutiny, the 500% larger subsidies given to oil, gas and (to a much lesser extent) coal rarely get much attention.

In case that 500% figure sounds hard to believe, that’s the estimate by the International Energy Agency of all the energy subsidies given out globally over the past few years. As the IEA reports, fossil fuels — and specifically oil and gas — account for the overwhelming majority.

It's worth pausing for a moment to take in the sheer amount of money we're talking about here: more than half a trillion dollars in 2008 (when energy prices hit record highs), equivalent to the total GDP of Sweden or Saudi Arabia. The figure was lower in 2010, but so far there's no obvious sign of a downward trend, seemingly because reductions in subsidies in some countries have been offset by rising energy prices, which can ratchet up the cost of the remaining subsidy schemes.

So where and how are all these fuel subsidies dished up? There are two main sources of data: the IEA and the OECD. Let's look first at the IEA's analysis, which focuses on the more obvious type of subsidy: government policies designed directly to hold the end price of fossil fuels below the cost of supply. The bulk of these "consumption subsidies" are given out in developing and transitional economies.

One thing that's immediately striking here is that consumption subsidies tend to be biggest in nations that export a lot of fossil fuels, whether it's Saudi oil or Russian gas. According to the IEA's Fatih Birol, this is because countries such as these see fuel subsidies as a way to "share out" the benefits of energy exports among their population.

One rationale for subsidizing fossil fuels is to help lift poorer members of society out of energy poverty. However, IEA data suggest that the poor receive a disproportionately small amount of the benefits. In most cases, the poorest 20% of the population typically receive only around 5–10% of the benefits of the subsidies, suggesting that if the policies are designed for poverty alleviation, then they're not working properly.

So what would happen if all these subsidies were phased out? According to the IEA's models, we'd see a massive reduction in global fossil fuel use:

This in turn would lead to a huge reduction in greenhouse gas emissions. The IEA estimated annual carbon cuts by 2035 would result in savings add up to 2.6 billion tonnes of CO2. According to IEA estimates, that kind of cut would be sufficient to provide around half the savings needed to limit global warming to 2C.

Clearly, then, if we're to have any chance of solving climate change, fossil fuel subsidies need to go. The case for urgently scrapping them seems particularly strong in countries such as Russia and Saudi Arabia where per capita carbon footprints are already higher than the global average.

Things feel less black and white in the case of poorer countries, purely because in a world where rich nations have done relatively little to cut their own emissions, it's difficult to see how they — or the international agencies they dominate — have the moral authority to demand an end to fuel subsidies in, say, India or Nigeria, where the average person has a footprint 20–40 times smaller than the typical American. This is especially true given that fossil fuel companies in rich countries still receive indirect support through a myriad of mechanisms such as tax credits and government underwriting of corporate risk.

The OECD identified a remarkable 250 such mechanisms in its heroically comprehensive inventory of estimated budgetary support and tax expenditures for fossil fuels. Exactly which of these counts as subsidies as such is open to debate, but by the OCED's reckoning the total value of government support to fossil fuel companies in its member countries is $45-75 billion. I suspect that the sooner we in the developed world ditch these kinds of indirect subsidies, the sooner the rest of the world will be likely to agree to ditch their much larger direct ones.

It won't be easy, of course — not least because of the powerful influence of the fossil-fuel lobbying machine. I don't know of any good global data about the relative size of the fossil fuel and renewables lobbies, but where figures are available, the hydrocarbon brigade massively outspend those pushing for clean energy — by a factor of 12 in the US, according to one estimate.

But do it we must, because on a planet staring devastating climate change in the face, spending tax-payers' money on propping up fossil fuels really is as crazy as throwing buckets of petrol on a house fire.

Reprinted with permission. 


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