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You are here: Home / Conflict Triggers / Climate Change Updates / Fossil Fuel Subsidies are the Wrong Tool

Fossil Fuel Subsidies are the Wrong Tool

September 18, 2017 by Rudy Sovinee 3 Comments

Fuel Subsidies Benefit Rich
The rich get over 60% of the benefit in gasoline as well as more than their share of other fuel subsidies (jet fuel would be nearly all to their benefit.) This encourages consumption and is opposite what is needed to reverse global warming.

Fossil fuel subsidies cause more use of materials that warm the planet. We need to STOP giving extra money to fossil fuel companies as tax breaks and outright subsidies! These policies encourage greater usage and worsen our planetary environment. Many nations provide subsidies in the name of helping the poor, but is that accurate? Which income groups do subsidies help more?

Fuel Subsidies most benefit the Rich

Look at the graphic to the right. Note that the poorest people receive very little of the subsidies provided for gasoline and LPG. The rich use the most carbon based fuels so receive the most benefit. In the USA, substitute gasoline with “jet fuel and gasoline” and the graphic probably fits similarly. Prof. Kevin Anderson simplified how the top 10% globally can be approximated. He suggests they are: ►Academics ►Business Leaders ►Policy Makers ►Frequent Fliers
Look next to the graphic of the 2017 EIA forecast. It specifically shows that jet fuel and LPG grow as the other materials remain level. Again, these are the areas where subsidies most benefit the upper income groups.

EIA CO2 Forecast
EIA Forecasts continued growth of CO2 emissions through 2040. Meanwhile global subsidies for energy are reported at $US 5.3 Trillion for 2015*

Unlike a Carbon Fee & Dividend plan that most helps those who use the least, subsidies accrue to those who use the most fuel. Isn’t that opposite what we know needs to happen so as to slow/ stop and then reverse recent growth in CO2 ppm? That same link has a graphic showing the wealthiest top 20% of the people generate 68% of the CO2.

Fossil Fuel Subsidies Are HUGE

In the USA alone the estimate is in excess of $70 BILLION/ yr in fossil fuel subsidies (enough to cover most Harvey and Irma costs in 3-5 years.)

USA energy subsidies are primarily fossil fuel subsidies.
USA energy subsidies are primarily fossil fuel subsidies. This when we need to reduce carbon emissions and while fossil fuel company income generally exceed that of many nations. [The US politics also subsidizes Ethanol production – a problem when it replaces food for fuel because the overall process has a negative EROEI]

It isn’t just the USA, most countries have subsidies in one form or another.

Fossil Fuel Subsidies by Country
Tabulating the hundreds of subsidies and tax breaks given as fossil fuel subsidies is difficult. These two charts show similar patterns across nations, but not precisely the same values – evidence of the difficulty of counting everything. A 2015 IMF paper reports that tax breaks, direct subsidies and the societal costs of carbon combine to global energy subsidies in the range of $US 5.3 TRILLION/yr! *

The US portion of that $US 5.3 TRILLION/yr – using a 2016 social cost of carbon of $130/ton CO2 and 7.75 Gigaton produced is $747 Billion. This is what we could be cycling through the economy as Carbon Fee Dividends, but which are sorely needed already to address infrastructure decay and replacement. As the climate destabilizes, these numbers grow.

G-20 nations supply/ report their subsidies differently. The number below is immediately at odds with the USA subsidies chart shown near the top.

G-20 Fossil Fuel Subsidies
The G-20 nations are generally oil producers, and as such have alternative means of fossil fuel subsidies directly to the producers.

Are Fuel Subsidies Good Government Investment?

What really are we getting for these subsidies? We are making the effective profits of the companies bigger, but at the cost of many better investment options, options that would not be as destructive to the viability of the planet.

Global oil discoveries can't keep pace with consumption.
Despite subsidies for exploration expenses, the handwriting is on the wall for a diminishing return on such expenditures. Why is the public being made to pay for an industry that is polluting the environment, as it warms the planet, and claims right of way for pipelines that need not be built?

Social Costs of Carbon

Recent news of the leaked vapors and unhealthy nature of those leaks to the air and water around Houston are just a focused example of leaks from pipelines, trains and trucks that occur daily in the USA and globally. Carbon extraction and use increases frequency of asthma. Fracking and mountaintop coal extraction irreparably pollute soil and aquifers plus adding earthquake damage too. Ecuador has an ongoing lawsuit against Chevron, Gulf states vie against BP, Indonesia has sued PTTEP, and Nigeria has sued Shell in the UK … each over damage to their lands and watershed. Meanwhile the CO2 levels mount, adding to the strength and range of locations for severe storms.

The social costs are real, ongoing and increasing. Instead of only fighting these in court, or subsidizing fuel consumption, set a fee on carbon as it is extracted from mines or comes out at a wellhead. Be sure to count the leaks and waste ponds too. Imposing the current appropriate fee immediately is very disruptive economically. Increasing the fees annually gets to the levels needed as outlined in an “Experts Consensus Report”, a transition tactic James Hansen has proposed.  SIGNIFICANTLY, the expert economists saw a HIGHER Social Cost of Carbon than anything the government has considered. Bottom line – James Hansen is correct in calling for a CARBON FEE & DIVIDEND. (Start at a number and increase it annually by $10/tonne of CO2 – roughly 0.35 tonnes CO2/barrel of oil)

The SOCIETAL COSTS of Carbon
The SOCIETAL COSTS of Carbon are probably higher than most estimate. Currently we see the health costs of air pollution and water pollution, but increasingly too, the costs of climate damage to crops and buildings due to droughts, floods and storms.

No One Silver Bullet

We need to BOTH stop subsidies and add a price to carbon. This induces people and corporations to shift away from materials that are adding to the warming. Stopping subsidies adds to the federal treasury immediately. The “fee & dividend” option is a revenue neutral way to soften the impact on those with less options to switch quickly to renewable energy alternatives.

* THE 2015 IMF Working paper and link to PDF that reports global energy subsidies are in the range of $US 5.3 TRILLION/yr! One quick screen capture from that paper confirms the above analysis is largely verifiable

IMF2015 Subsidy Costs Excessive
Thoughtful analysis of subsidy costs suggest they persist because the rich set policy, and subsidies largely benefit the rich.
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Filed Under: Climate Change Updates, Conflict Triggers

Comments

  1. Rudy Sovinee says

    September 21, 2017 at 4:03 pm

    One perverse aspect of subsidies not yet mentioned, It’s these excessive amounts of cash that supply the means for these companies to lobby for even more tax cuts and special mark-ups… and to support climate denial think tanks such as the Heritage Foundation. :-O Amazingly convenient for them, and destructive for us all.

    Reply
  2. Rudy Sovinee says

    October 3, 2017 at 2:12 pm

    More discrepancies as to what the total amount of subsidies – but the economic tipping point for many of the US fields is a direct result of subsidies.

    “The authors then assumed a minimum rate of return of 10 percent for a project to move forward. The question then becomes “whether the subsidies tip the project from being uneconomic to economic,” clearing that 10 percent rate-of-return threshold.
    “The authors discovered that many of the not-yet-developed projects in the country’s largest oil fields would only be economically feasible if they received subsidies. In Texas’s Permian Basin, 40 percent of those projects would be subsidy-dependent, and in North Dakota’s Williston Basin, 59 percent would be, according to the study.
    “Subsidies “distort markets to increase fossil fuel production,” the authors concluded. “Our findings suggest an expanded case for fossil fuel subsidy reform,” the authors wrote. “Not only would removing federal and state support provide a fiscal benefit” to taxpayers and the budget, “but it could also result in substantial climate benefits” by keeping carbon the ground rather than sending it into a rapidly warming atmosphere.”

    https://insideclimatenews.org/news/03102017/high-oil-subsidies-ensure-profit-undermine-climate-change-goals

    Reply
  3. Rudy Sovinee says

    February 26, 2020 at 3:28 am

    This post in Scientific American adds some impressive stats:
    “In the 2018 study, emissions reductions from subsidy removal were calculated by the researchers to be five hundred million to two billion metric tons of carbon dioxide per year by 2030. This figure is by no means “small.” It amounts to roughly one quarter of the energy-related emission reductions pledged by all of the countries participating in the Paris Agreement (four to eight billion tons). Hundreds of millions of metric tons of CO2 reductions is nothing to sneeze at, particularly when it can be achieved by a single policy approach that also brings strong fiscal, environmental and health benefits.”

    https://blogs.scientificamerican.com/observations/fossil-fuel-subsidies-must-end/
    and the paper in Nature that was finally published in Feb 2020 after being submitted in Nov 2018. https://perma.cc/KTF4-239S

    Reply

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