Support for fossil fuels has rebounded
January 23, 2014 | By
Barbara Vergetis Lundin
Efforts by a variety of organizations to quantify global support for fossil fuels have generated estimates that range from $523 billion to more than $1.9 trillion, depending on the calculation and what measures are included, creating widespread confusion. The Worldwatch Institute, however, is clear on one thing -- the level of support has rebounded to 2008 levels following a dip in 2009-2010 during the global financial crisis. Traditional calculations account for two kinds of energy subsidies. Production subsidies lower the cost of energy generation through preferential tax treatments and direct financial transfers (grants to producers and preferential loans). Consumption subsidies lower the price for energy users, usually through tax breaks or underpriced government energy services. While production subsidies predominate in Organization for Economic Co-operation and Development (OECD) countries, consumption subsidies are favored in developing countries to reduce the burden on poor households' income, as poor people have to use a greater share of their income to buy fossil fuel products. Coal, electricity, oil, and natural gas consumption subsidies in 38 developing economies were $523 billion in 2011, the International Energy Agency (IEA) estimates. Using a price-gap approach, the IEA figure includes subsidies that bring the price of fossil fuels below the international benchmark. Subsidies that lower the price just to the international level, or slightly above it, are not captured. In a parallel study by the OECD, support measures for the production and consumption of fossil fuels in its 24 member countries were inventoried. Using a broader definition than the price-gap method (including direct budgetary transfers and tax expenditures), support for fossil fuels in OECD countries alone averaged $55-90 billion per year between 2005 and 2011. The lack of a clear definition of "subsidy" makes it difficult to compare the different methods used to value support for fossil fuels, but the varying approaches still illustrate global trends. Fossil fuel subsidies declined in 2009, increased in 2010, and reached almost the 2008 level in 2011. The decrease in subsidies was due almost entirely to fluctuations in fuel prices rather than to policy changes. In developing countries in 2011, roughly $285 billion, or more than 50 percent of all fossil fuel consumption subsidies, went to oil. Natural gas consumption received $104 billion. Coal received only $3 billion in direct consumption subsidies, while another $131 billion went to public underpricing of electricity -- much of which is generated from burning coal. In industrial countries, using the broader definition of consumption subsidies, the support for oil was valued at roughly $38 billion in 2011. Natural gas support totaled around $10 billion. Coal received only $7 billion in subsidies. This is according to Worldwatch research. Worldwatch also says that support for renewables is still small -- $88 billion in 2011 -- but expanded by 33 percent in 2011, more than the 28 percent increase for fossil fuel subsidies. Of the $88 billion support for renewables, two-thirds went toward electricity and the remaining one-third to biofuels. For more:
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