Propping Up the Past: Fossil Fuel Subsidies Should Go the Way of the Dinosaur

Ending subsidies for dirty fuel would make gas more expensive. Maybe that's not a bad thing

Eliminating fossil fuel subsidies could save as much as Germany's annual greenhouse gas emissions every year by 2015 -- half of the carbon emission savings required to prevent dangerous levels of climate change -- according to Fatih Birol, chief economist of the International Energy Agency (IEA). An estimated 2.6 billion tonnes of CO2 would be saved by 2035, more than India and Germany’s emissions combined.

In 2009, the G-20 countries agreed to phase out fossil fuel subsidies over the "medium term" to help combat global warming. But like many tentative international agreements, no actual timetable was set, and in 2010, the total tab actually rose, with 37 governments spending USD 409 billion subsidizing dirty fuel sources. Fossil fuel consumption subsidies are on target to reach a staggering USD 660 billion by 2020, about 0.7 percent of global GDP.


While Russia, India and China do the most subsidizing, the United States does its fair share, propping up the fossil fuel industry -- primarily with tax breaks, overseas production credits, grants and R&D funding -- to the tune of USD 72 billion between 2002 and 2008, according to a 2010 analysis by the Environmental Law Institute. During the same period, the renewable energy industry didn't fare nearly as well, receiving only USD 29 billion.

President Obama has called on Congress to eliminate fossil fuel subsidies to help fund a jobs package. "Do we keep tax loopholes for oil companies, or do we put teachers back to work?" Obama asked in September. He has the support of 59 percent of Americans who, according to a Washington Post/ABC News poll, want to repeal permanent fossil fuel tax breaks to reduce the deficit. But considering the many Congress members who receive contributions from the oil and gas industries, getting it done is an uphill battle.

The oil and gas companies argue that without subsidies, there would be domestic production decreases, job losses and a rise in gas prices. But according to the Treasury Department, eliminating domestic subsidies would reduce US oil production by less than one half of one percent, and would only increase exploration and production costs by less than two percent.


Giving breaks to dirty fuel isn't just a rich-world problem. "Both developing and developed countries need to phase out inefficient subsidies," said Angel Gurria, secretary-general of the Organisation for Economic Co-operation and Development (OECD), in his opening remarks at the launch of the OECD's Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels in October. "As they look for policy responses to the worst economic crisis of our lifetimes, phasing out subsidies is an obvious way to help governments meet their economic, environmental and social goals."

For countries that export lots of fossil fuel -- Iran, Saudi Arabia, Russia, for example -- so-called "consumption subsidies" that keep end prices lower than supply cost -- are seen as a way to share the benefits of export with the population, and even lift people out of "energy poverty," according to Birol. However, this idea is based on a falsity: If you want to finance poverty alleviation, helping the oil, coal and gas industries isn't the way to do it.

Noting that a mere 8 percent of 2010 subsidies for oil, gas and coal went to the poorest fifth of the population, Birol told the Guardian, "It's clear that other direct forms of welfare support would cost much less," adding that the poor are "punished twice" because subsidies could instead be used to help fund much-needed public services such as hospitals and schools. "Energy markets can be thought of as suffering from appendicitis due to fossil fuel subsidies," he said. "They need to be removed for a healthy energy economy."


While everyone complains about high gas prices, there are significant long-term benefits. With higher prices at the pump, people drive less, which means less carbon emissions. It also means fewer vehicular accidents. In 2008, the year of the most recent surge in gas prices, vehicular traffic deaths dropped by 12 percent, a drop attributed to a decrease in highway speeds and a 2 percent drop in miles driven, according to the National Highway Traffic Safety Administration. Higher gas prices also help to increase demand in hybrid vehicles and help support local businesses as people shop closer to home instead of driving to big-box stores like Walmart, Target and Costco. Ultimately, it would help wean society off fossil fuel. And taking some of the savings generated by eliminating subsidies to offset a reduction in payroll taxes would help consumers at the pump.

Instead of artificially lowering the price of oil, what if world governments spent USD 409 billion on something else, like ending world hunger? According to the United Nations, an annual investment of USD 30 billion would help solve the food crisis, nourishing over 860 million hungry people for over a decade and setting the stage for a healthier future by boosting agricultural productivity in developing nations.. Feeding the world instead of an addiction to dirty fuels that cause global warming? Now that's food for thought.



Clark, Duncan. "Phasing out fossil fuel subsidies 'could provide half of global carbon target'." The Guardian. January 19, 2011.
Boselli, Muriel. "IEA warns of ballooning world fossil fuel subsidies." Reuters. October 4, 2011.
Plumer, Bradford. "Fossil-Fuel Subsidies Still Dominate." August 3, 2010.
Lacey, Stephen. "Obama Proposes Cutting Oil and Gas Subsidies $41 Billion to Help Fund Jobs Package." September 13, 2011.
Krueger, Alan B. "Statement of Alan B. Krueger Assistant Secretary for Economic Policy and Chief Economist." US Department of Treasury Subcommittee on Energy, Natural Resources, and Infrastructure. United States Treasury Department. September 10, 2009.
Gurria, Angel. "Launch of the OECD Inventory of Estimated Budgetary Support and Tax Expenditures Relating to Fossil Fuels." Organisation for Economic Co-operation and Development. October 4, 2011.
Ibid., 1.
Mucken, Lynn. "Stop grousing about the numbers at the pump. All of this could be good for you and good for America." MSN Money. April 19, 2011.
Los Angeles Times editorial board. "The price of hunger." June 23, 2008.

image: Oil refinery at dawn, Halifax, Nova Scotia (credit: Iguanasan, Flickr Creative Commons)