More than half a trillion dollars per year in subsidies to fossil fuels tilt the playing field in favor of dirty, inefficient and dangerous energy.
By Mitchell Beer
One of the surest ways to move toward a low-carbon future would be to cut the multi-billion-dollar annual subsidies the world’s governments turn over to oil, gas and coal companies.
Subsidies for Fossil Fuels Inefficient and Wasteful
But five years after G20 heads of state criticized “wasteful” support for the industries that produce the lion’s share of the world’s carbon pollution, international agencies are still reporting little or no progress on huge dollar savings that should be an easy win, bringing climate hawks together with the most committed fiscal conservatives.
An early March report in Deutsche Welle (DW) recalled the closing statement from the 2009 G20 summit in Pittsburgh:
“The inefficient subsidization of fossil fuels supports wasteful behavior, complicates investments in clean energy sources, and undermines efforts to fight the dangers of global warming.”
So with the global economy still sputtering and the effects of climate change becoming ever more dramatic, you might have expected governments to free up needed funds by heeding the G20’s advice.
And as a deep transformation of the energy system picks up momentum, with solar and wind production costs plunging and utility business models entering a period of rapid change, you might have thought public policies would support the technologies that actually give us a solid shot at achieving deep greenhouse gas reductions by mid-century.
$500 Billion Per Year to Fossil Fuels
But you would have been wrong.
- In 2010, the International Energy Agency (IEA) placed global fossil fuel subsidies at $409 billion, up considerably from $300 billion a year earlier. Some calculations put the annual total in the trillions. (That's 'trillion' with a 'trill'.)
- In 2011, according to the U.K.-based Overseas Development Institute (ODI), global fossil fuel subsidies exceeded $500 billion, including $70 billion from the world’s richest nations.
- Oil Change International places U.S. fossil fuel subsidies at $14 to $52 billion per year.
- Even Germany, with its much-celebrated, much-maligned support for renewable energy, spent more than five times as much on fossil fuel subsidies as recently as 2010, according to DW. The €52 billion (about US$71 billion) fossil allocation, calculated by Germany’s Federal Environment Agency, represented about a sixth of the country’s national budget.
“If their aim is to avoid dangerous climate change, governments are shooting themselves in both feet,” the ODI report stated. A year ago, IEA Chief Economist Fatih Birol declared that “fossil fuel subsidies do not make sense,” telling the European Wind Energy Association the world won’t meet its climate targets while conventional energy costs are kept artificially low.
“One of the main arguments to keep fossil fuel subsidies is that they protect the poor, but studies show that 80 percent of fossil fuel subsidies go to middle and high income households,” Birol said. Ironically, the same U.S. legislators who pour public funds into profitable oil companies recently moved to cut food stamps for the poorest of the poor.
Renewables: Doing Much More with Far Less
But what about the drumbeat of criticism leveled at government subsidies for renewable energy? The Congressional investigations into companies like Solyndra, a firm that received $535 million in U.S. government loan guarantees before filing for bankruptcy?
What about the feed-in tariffs that supposedly skew electricity markets and push power utilities to prematurely adopt renewable energy?
In the U.S., according to a December 2011 analysis produced by DBL Investors for the Yale School of Management, renewable energy and energy efficiency receive far less support than the government allocated to coal, oil, natural gas and nuclear generation at the same stage in their development. Over the first 15 years of subsidies, in inflation-adjusted dollars:
- The nuclear industry averaged $3.3 billion per year.
- Oil and gas averaged $1.8 billion.
- Renewables averaged less than $400 million.
“Although it is not at all apparent from the political discourse these days, the inflation-adjusted support for new energy sources is much lower today than it's been at any previous point in our history,” stated a report synopsis by the Yale Insights.
The earlier generation of energy technologies “did not simply emerge as the result of free-market forces,” Yale noted. “Rather, the government heavily subsidized each new energy source, often at both the federal and state level.”
Cutting the Subsidy Cord
The report underscores the long tradition of government funding for technologies that might never be commercialized without some timely support. As Yale notes, stories like Solyndra open up “legitimate policy questions” about the role of government in subsidizing emerging energy forms.
But fossil fuel subsidies are a whole other conversation. These are established, massively profitable industries, powerful enough to reshape political discourse and drive the earth itself into a new geological epoch. The companies have no reason to cut the subsidy cord themselves. So isn’t it time for citizens and governments to get the job done?