In 2011, the top 11 richest carbon emitters spent an estimated $74 billion on fossil fuel subsidies, or seven times the amount spent on fast-track climate financing to developing nations, according to a recent report by the Overseas Development Institute. Worldwide, nations spent over half a trillion dollars on fossil fuel subsidies in 2011 according to the International Energy Agency (IEA).
“The status quo encourages energy companies to continue burning high-carbon fossil fuels and offers no incentive to change,” said the report’s author Shelagh Whitley. “We’re throwing money at policies that are only going to make the problem worse in the long run by locking us into dangerous climate change.”
In 2009 at the Climate Summit in Copenhagen, governments around the world committed to keep global temperatures from rising 2 degrees Celsius above pre-industrial averages. However, four years later—with governments having made little progress to date towards that goal—fossil fuel subsidies remain one of the major stumbling blocks.
Fossil fuel subsidies take a variety of forms: in 2011 alone, the U.S. spent $1 billion on fuel tax exemption for farmers and another $1 billion on the strategic petroleum reserve; Germany gave $2.5 billion financial assistance to its coal industry; while the UK spent $447 million in tax concessions to the oil and gas industries. The wealthy nations that spent the most subsidizing fossil fuels included Russia, the U.S., Australia, Germany and the U.K.
While the EU has been lauded for putting a price on carbon, the price has been allowed to drop so low (less than $7 tonne) that fossil fuel subsidies on the continent may actually negate any benefit entirely, according to the report.
But subsidies aren’t just an issue in rich nations. According to the report, Bangladesh, India, Indonesia, Venezuela, Pakistan, and Egypt all spent more on fossil fuel subsidies than on health services. In some cases, nations spent twice or three times more on fossil fuel subsidies. Meanwhile, the governments of Bangladesh, Pakistan, and Nigeria spent more on fossil fuel subsidies than they received in foreign aid.
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Vehicles work at night in the Tagebau Garzweiler coal surface mine in Germany. Photo by: CherryX/Creative Commons 3.0.
Such subsidies worldwide have actually put renewable energy on an unequal footing with fossil fuels, even as many governments pay lip service to the need to transition from fossil fuels to renewables.
“While many of the issues surrounding subsidies are enormously complex, one thing is relatively clear: subsidies create incentives to use fossil fuels, and disincentives to use resources efficiently and to invest in renewable energy,” reads the report. According to the IEA, for every dollar spent supporting renewable energy, governments spent $6 on fossil fuel subsidies.
“Coal, the most carbon-intensive fuel of all, is taxed less than any other source of energy and is, in some countries, actively subsidized,” says the report.
This summer G20 nations reiterated an agreement to phase out “inefficient” fossil fuel subsidies and set out a methodology to identify such subsidies. The commitment to phase out fossil fuel subsidies was first made by G20 nations in 2009, but progress has been slow.
“It has been hard to reach an agreement because subsidies touch directly on issues of government sovereignty, trade competition and poverty alleviation,” reads the report, adding that lack of data “across countries inhibits even the very first proposed step of subsidy phase-out: the analysis of the costs and distortions that subsidies impose on the economy.”
Governments have long argued that energy subsidies—including the bulk of those which are aimed at fossil fuels—are meant to keep costs down for consumers and especially help the poor. The debate over poverty and fossil fuel subsidies is especially important in developing countries. However, research shows that little of the subsidies actually assist the poorest. According to the International Monetary Foundation (IMF) only 7 percent of subsidies in the world’s developing countries actually goes to the bottom 20 percent in income.
The report recommends that nation’s phase out all fossil fuel subsidies by 2025 with G20 nations taking the lead and cutting out fossil fuel subsidies by 2020.
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