Fossil fuel subsidies costly to environment

Mar 112013

Globally, governments gave Big Oil $620 billion in 2011.

by Emily E Adams

The energy game is rigged in favor of fossil fuels — because we omit the environmental and health costs of burning coal, oil, and natural gas from their prices. Subsidies manipulate the game even further.

According to conservative estimates from the Global Subsidies Initiative and the International Energy Agency (IEA), governments around the world spent more than $620 billion to subsidize fossil fuel energy in 2011: some $100 billion for production and $523 billion for consumption. This was 20 percent higher than in 2010, largely because of higher world oil prices.

Of the $523 billion that supported consumption, $285 billion went to oil, $104 billion to natural gas, and $3 billion to coal; an additional $131 billion was divided among the three energy sources specifically for electricity use. Through these subsidies, governments cut the prices people paid for fossil energy by nearly a quarter — encouraging waste and hindering efforts to stabilize climate.

In contrast, just $88 billion went to subsidies for renewable energy, most often paid to the producer. This support was almost equally divided among solar photovoltaics, wind, biomass electricity, and biofuels (ethanol and biodiesel).

Iran spent the most of any country to subsidize the use of fossil fuels: $82 billion, equal to 17 percent of the country’s gross domestic product. Half of that money went to oil. With domestic automotive fuel prices held far below world market prices, Tehran is snarled in seemingly endless traffic congestion and choked with air pollution.

The world’s two leading energy exporters had the second and third highest subsidies: Saudi Arabia spent $61 billion, mostly for oil use, and Russia spent $40 billion, split almost evenly between natural gas and electricity use. India spent just under $40 billion, nearly 80 percent more than in 2010. China’s $31 billion, mostly for oil, rounded out the top five.

On a per person basis, Middle Eastern countries top the list. The United Arab Emirates spent a whopping $4,200 per person on fossil fuels consumption in 2011. Kuwait and Qatar each doled out more than $3,600 per person. Each of these countries ranks high on another disreputable list: the world’s top carbon emitters per capita.

In 2009, the G-20 countries committed to gradually eliminating “inefficient fossil fuel subsidies that encourage wasteful consumption,” but they have made little measurable progress. Rising world oil prices have strained the budgets of governments that heavily subsidize gasoline and diesel use, leading a number of countries, including Morocco and Mexico, to reduce their support.

In December 2010, Iran instituted a five-year program to reduce subsidies, which began by nearly quadrupling gasoline prices overnight. Without such reforms, Iran would have had even higher subsidies in 2011.

The estimated $623 billion spent to subsidize fossil fuels does not capture the full extent of support, such as certain tax breaks and years of government-funded research and infrastructure dedicated to the older, dirtier sources. In contrast, just $88 billion went to subsidies for renewable energy, most often paid to the producer. This support was almost equally divided among solar photovoltaics, wind, biomass electricity, and biofuels (ethanol and biodiesel). Clearly, the deck is stacked against renewables.

The IEA estimates that phasing out all fossil fuel consumption subsidies by 2020 would cut carbon dioxide emissions in that year by nearly 2 gigatons, the equivalent of taking 350 million cars off the roads. The fossil fuel industry does not need billions of dollars in government support; in 2012, the Big Five oil companies — Royal Dutch Shell , ExxonMobil, BP, Chevron, and ConocoPhillips — together raked in $137 billion in profits. Shifting subsidies from the dirty fuels of the last century to clean renewable sources, such as wind, solar, and geothermal, will help speed the transition to a new and lasting energy economy.

For more information on shifting subsidies and restructuring the tax system, see World on the Edge by Lester R Brown.

About Emily Adams

Emily Adams received a Master of Environmental Management degree in 2010 from Duke University’s Nicholas School of the Environment with a focus on the intersection of science and policy. Emily is glad to return to the city of her undergraduate institution, American University, where she studied environmental science and graduated magna cum laude. Prior to joining Earth Policy Institute, she spent a year living in Geneva, Switzerland learning French, hiking, and working at the World Meteorological Organization. At EPI, Emily contributes to the research, writing, and editing of releases and follows global environmental trends.

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