Fossil fuel subsidies costing rich countries $112 per person
Think tank says support for coal, oil, and gas is locking the world into a high-carbon future and failing to benefit poorer people
By Will Nichols
07 Nov 2013
Average fossil fuel subsidies in the world's richest countries have reached $112 per person, draining national treasuries while undermining international efforts to avert dangerous climate change, according to an influential think tank.
The Overseas Development Institute (ODI) will today publish a new report arguing that fossil fuel subsidies are costing the 34 OECD countries between $55bn and $90bn a year, with the highest level of subsidies in Russia, the United States, Australia, Germany and the UK.
It calculates that each of the 11.6 billion tonnes of carbon emitted by the top 11 rich-country emitters (E11) in 2010 came with an average subsidy of $7 a tonne - around $112 for every adult in those countries.
The subsidy programmes take different forms, ranging from the €1.9bn of financial assistance Germany provided to its hard coal sector in 2011 to a $1bn fuel tax exemption for US farmers, and the £280m in tax concessions for oil and gas production provided by the UK in 2011. Earlier this year, campaign group Friends of the Earth revealed the UK government has handed oil and gas firms tax breaks worth nearly £1bn, despite its stated support for phasing out fossil fuel subsidies.
According to the International Energy Agency, global fossil fuel subsidies totalled $523bn in 2011 - almost six times the amount given to renewable energy.
The ODI says this mismatch creates perverse incentives favouring investment in carbon-intensive energy, which run directly counter to governments' stated goal of curbing emissions.
It also warns governments are "shooting themselves in both feet" by failing to put a sufficiently high price on carbon.
In addition, the report dismisses the argument that subsidies benefit the world's poorest people, noting that it is quite typical for the poorest 20 per cent of households to receive less than seven per cent of the benefits generated by fossil fuel subsidies.
Moreover, fossil fuel subsidies also inhibit the development of efficient and low-carbon economies in these countries and attract funding that could be better spent on other programmes. For example, the report notes that in India, Pakistan and Bangladesh fossil fuel subsidies are more than double the level of spending on health services, while in Egypt, Pakistan, Morocco, and Bangladesh, these subsidies outweigh the national fiscal deficit.
Report author Shelagh Whitley called for the G20 countries to use this month's Warsaw climate summit to agree a common definition of fossil fuel subsidies and commit to phasing them out by 2020, with richer nations taking the lead on subsidies to coal and to oil and gas exploration by 2015.
"The rules of the game are currently biased in favour of fossil fuels," Whitley added in a statement. "The status quo encourages energy companies to continue burning high-carbon fossil fuels and offers no incentive to change. We're throwing money at policies that are only going to make the problem worse in the long run by locking us into dangerous climate change."
© Incisive Media Investments Limited 2013, Published by Incisive Financial Publishing Limited, Haymarket House, 28-29 Haymarket, London SW1Y 4RX, are companies registered in England and Wales with company registration numbers 04252091 & 04252093