Ending Fossil-Fuel Aid Will Cut Oil Demand, IEA Says

June 7 (Bloomberg) -- Fatih Birol, the International Energy Agency’s chief economist, called on leaders of the Group of 20 Nations to fulfill their pledge to end fossil-fuel subsidies, a move he said will cut oil demand and greenhouse-gas emissions.

Stopping aid by 2020 would reduce global oil demand by 6.5 million barrels a day, he said, or about a third of the current U.S. use. Subsidies that promote consumption, such as below- market gasoline prices, totaled $557 billion in 2008, he said. Nations that use them the most include China, Venezuela, Egypt Iraq and Iran, according to IEA surveys.

“This is the only single policy item that could make such a major change in the global energy and climate-change game,” Birol said in a telephone interview today.

Global leaders are searching ways to reduce dependency on oil and tackle global warming as the BP Plc oil spill focuses attention on the broader cost of fossil fuels. G20 leaders, who failed to broker a deal on restricting carbon emissions at the Copenhagen climate summit, will discuss how to implement their pledge in Toronto this month, Birol said.

“Governments and energy consumers are paying to encourage investment in renewable energy, but the fossil-fuel alternative is not cheap either,” said Angus McCrone, a senior analyst at Bloomberg New Energy Finance in London.

Consumers pay about 71 percent of competitive market reference prices for fuels such as oil or natural gas, according the IEA.

Oil consumers received the biggest portion of subsidies in 2008, or $312 billion. Natural-gas consumers, such as gas-fired power plants, benefitted from $204 billion in aid, followed by coal, at about $40 billion. The total, $557 billion, exceeded the $342 billion tallied in the previous year, as energy use increased, Birol said.

Greenhouse-gas emissions from burning carbon-based fuels would fall by 2.4 gigatons a year, equivalent to the emissions of Europe’s five biggest economies, by phasing out fossil fuel subsidies, Birol said.

China, Russia, India and Indonesia are interested in ending subsidies, and Iran is planning major changes to aid that accounts for a third of the central government budget, he said.

“I see a growing momentum,” Birol said.

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net

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