07 June 2010

Global Fossil Fuel Subsidies: $557 billion per Year

[UPDATE: Please do note that the image above is not from the FT account below, and is really just eye candy for this post. Sorry for any confusion, and thanks to several commentors!]

Today's FT has this mind-boggling statistic:

The IEA estimates that in 2008 – the latest year for which data are available – 37 large developing countries spent about $557bn in energy subsidies, according to a draft seen by the Financial Times. Previous estimates put it at about $300bn. Iran, Russia, Saudi Arabia, India and China top the ranking, according to the report.

Some of the biggest spenders, including Saudi Arabia and China, recently warned of the need to cut subsidies over the medium term. . .

The IEA estimates that energy consumption could be reduced by 850m tonnes equivalent of oil – or the combined current consumption of Japan, South Korea, Australia and New Zealand – if the subsidies are phased out between now and 2020. The consumption cut would save the equivalent of the current carbon dioxide emissions of Germany, France, the UK, Italy and Spain.

Critics of energy subsidies say they encourage wasteful consumption, reduce global energy security, impede investment in clean energy sources and undermine efforts to deal with the threat of climate change.

They also claim that subsidies are a burden to national budgets, with spending on financial support to oil, natural gas and coal sometimes larger than education or health spending. The IEA says the 37 countries surveyed spent, on average, about 2.1 per cent of their GDP on energy subsidies.

Even though the G20 nations agreed last year to phase out fossil fuel subsidies, real policy action in that direction has yet to occur. Consider that the Kerry-Lieberman bill in the Senate -- the climate bill -- would add hundreds of billions of dollars in subsidies for fossil fuels. Remarkably, this bill is being championed by mainstream environmental groups and the Obama Administration.

20 comments:

Raven said...

Roger,

I am not sure if the figure has anything to do with the text but it is extremely misleading because it includes the 'foreign tax credit' as a "subsidy". The 'foreign tax credit' is an absolutely essential part of tax policy that is available to every US company that does business in multiple countries. Eliminating it would mean US companies would have to pay taxes multiple times on the same income.

It is also misleading because it shows absolute dollars rather than a subsidy per BTU. On a per BTU basis fossil fuel subsidies are tiny.

ljohnson said...

Roger: It should be noted that most of the subsidies for fossil fuels, are for reducing the cost to consumers, in 3rd world countries, especially for gasoline and electricity.

In Iran, for instance, the cost of gasoline was only about 10 cents/liter (when I was there). This is less than 40 cents a US gallon.

Nigeria is similar, with riots following every government announcement to raise prices. They are in a tight spot there, as they sell their oil to other countries, then buy back the refined gasoline at market prices.

The number of 500 billion is pretty close to the estimate of the IISD, which is a Canadian activist organization, founded by a conservative prime minister of Canada (don't ask).

They also break it down, but you need to go into the appendices to get the detail.

http://www.globalsubsidies.org/files/assets/feasibility_ffs.pdf

Oddly, the German's, according to the IIDC, subsidize coal as much as PV and wind (but the IIDC only mentions fossil subsidies). A bit schizoid, in my opinion.

Most developed countries subsidies are for carbon sequestration, or renewable, like ethanol.

The IIDC tends to count tax breaks as subsidies, but as most of these are accelerated tax deductions, its not even a tax reduction. Its the same deduction, in a shorter time frame.

Tom said...

Hi Roger,

You might flag your graphic (which looks great--where do you get these?) as being U.S. subsidies only--the EU puts a lot in the pot as well.

Roger Pielke, Jr. said...

-1, 3-

Yes, the image has nothing to do with the post. I've added an update. Thanks for the comments.

-2-ljohnson

Yes, you are right that things get complicated, especially when subsidies are made in the context of the very poor. But lets start with where I end, what is the justification for such subsidies among the very rich?

ljohnson said...

Roger: There is no justification for subsidies to the rich.

Nor, in my opinion, even for 3rd world inhabitants. It just causes more problems then it solves. The money spent subsidizing gasoline in Nigeria, would be better spent on water wells and malaria control.

The vast majority of subsidy money paid, though, is to underwrite the costs of 3rd world gasoline and power, usually through the National corporations.

In the west, very little is spent on paying subsidies. Most money given in the west, is for things like ethanol and CS. (IISD)

For fossil fuel subsidies, these organizations count tax breaks as subsidies. Most of these "subsidies" are actually accelerated tax deductions. Its the same deductions, just over a shorter time.

In Canada, this means the government gets paid royalties quicker, as no royalty is due until project cost has been recouped. Government coffers are filled a full 4 years earlier, than under the old tax regime.

"If you want more of something, reduce its taxation. If you want less, increase the taxes."

ljohnson said...

Roger: I do agree with you, especially on the Kerry-Lieberman bill.

Giving carbon credits (and hence money) to fossil fuel companies, in a climate change bill, borders on the absurd.

It's much closer to Monty Python, than to effective legislation.

jgdes said...

I honestly don't see what is the big deal about a carbon tax. States and countires apply taxes all the time. Will anyone really be fooled by giving the tax a funny name and adding 10 layers of bureaucracy?

eric144 said...

"Giving carbon credits (and hence money) to fossil fuel companies, in a climate change bill, borders on the absurd"

That is the magic of post normal capitalism. The biggest banking collapse in history has resulted in record profits for banks. The decarbonisation of the global economy will result in record profits for oil companies (without taking into account the billions of new eastern consumers).

The new post normal British prime minister said today that "Britain's whole way of life would be disrupted for years by the most drastic public spending cuts in a generation".

They are however fully committed to increasing energy prices through carbon trading to save the planet.

Harrywr2 said...

jgdes said... 7

"I honestly don't see what is the big deal about a carbon tax"

Proportionality. Is it fair to tax a state without wind or hydro resources at the same rate as a state with huge wind and hydro resources?

Is it fair to tax a rural farmer at the same rate as an urban city dweller?

Is it fair to tax residents of Alaska who have enormous heating bills at the same rate as someone in Southern California who doesn't have a particularly large heating or cooling requirement?

There are only 23 states with a population density greater then 100/sq mile. That's only 46 votes in the Senate.

In the House of Representatives 10 states create the majority. All California all the time.

Any plan that comes out of the house of representatives is going to favor urban dwellers at the expense of rural dwellers, any plan that comes out of the Senate is going to favor rural dwellers at the expense of urban dwellers.

Stalemate, or convoluted.

Wallace said...

Roger,
Do you know of an objective source to read about the history of energy subsidies. The few times I have tried to research this topic, I have found that most sources have an axe to grind. Thanks.

glacierstate said...

We've been spending $100 billion a year in wars and defense of the Persian Gulf. I presume we would not be spending that if all they had was sand.

If you divide that by the amount of oil we use, it works out to about 30 cents per gallon. If you divide it only by the gallons of oil we get from the gulf, it works out to about $3.00 per gallon.

It appears those figures are not included.

Raven said...

glacierstate,

There was no oil in Viet Nam, Korea or Afghanistan. The US went in because of geopolitical interests. There is no reason to believe that Islamic militants would be any less pissed off at the US if there was no oil.

More importantly, the US will always depend on resources that are in unfriendly places. If it is not oil it will be lithium, uranium, thorium or any number of other rare earth metals.

jgdes said...

Raven
No need to guess. It was the stated aim of the neo-cons to invade Iraq in a plan signed by Cheney, Rumsfeldt and Wolfowitz. They made it quite clear that it was for the twin protection of oil resources and the middle-east partners of the US, ie Saudi Arabia and Israel. Afghanistan was supposedly about finding Osama Bin Laden. Well that was a bust! Time to admit it? We might have called Iraq a success if Gardner's plan had been followed instead of Bremer's. Alas...there are now far more pissed-off extremists than before. And they don't fight fair - blowing themselves up in buses. Best seeking a better way forward.

As it seems a lot of money was spent in these wars and nothing much achieved, ever thought that actually being friendlier is a lot cheaper and more effective? It worked with Russia and China, the really big enemies that the West didn't dare take on directly. Take away the need for antagonism and maybe you take away the antagonism itself.

Unfriendly places? Chavez wanted to cooperate with Obama and he still does. Do you know he offered oil to the US at $50 a barrel - what he called "a fair price". Thorium is mainly to be found in India. Lithium in inoffensive Bolivia. Poor beltway journalism has seemingly left too many people seeing enemies everywhere. In reality most foreigners actually like North Americans; they just hate the crony-capitalist-led US foreign policy which keeps the 3rd world poor downtrodden. ie They want the US to buy their stuff at a "fair price", not to steal it.

It is an odd twist though that many on the right seem to combine being pro-war and pro-nuclear. I keep wondering why nuclear proliliferation is so easily dismissed by them. You'd think it would be at least a concern. It worries me more than any thermageddon.

Harry
We don't need that big a tax and anyway such effective carbon tax decisions are already routinely made for gasoline and diesel, eg congestion charges, toll charges, farmer exemptions. All that needs to be done is ensure the extra is spent on good ideas rather than on enriching Wall Street.

Frontiers of Faith and Science said...

I would deeply question the definition of 'subsidy' as used in the article you reference.
This sort of 'analysis' inevitably turns out to use a misleading and false definition of 'subsidy' to fool people.

Harrywr2 said...

OT - In Other Insanity
German Nuclear Plants Too Profitable

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2010/06/07/bloomberg1376-L3P9DG0D9L35-1.DTL

Germany wants to tap some of the "significant" profits from nuclear plant use, the government said in a statement yesterday. Reactors can be more competitive than fossil-fuel- fired generators as they don't emit carbon-dioxide, meaning operators don't have to purchase permits to produce the greenhouse gas. That justifies taxation, the government said.

Harrywr2 said...

jgdes said...

"We don't need that big a tax and anyway such effective carbon tax decisions are already routinely made for gasoline and diesel"

I think in the US we are getting revised CAFE standards. I used to have a Chevy Sprint, which was one of the cheapest cars to purchase and also got the highest mileage(I got real world 50 MPG). I'm sure it's existence depended on GM needing to sell a high mileage car to make up for it's gas hogs. Once they figured out how to meet CAFE standards without a cheap, high mileage econobox they dropped it.

Now if I want a 'high MPG' car, I have to pay a premium for it.

Raven said...

jgdes,

The US goes to war to assert its geo-political dominance. The excuses are largely irrelevant.

In fact, any rational analysis of the past behavoir shows that there is no need to invade countries to get access to oil. In all cases these countries are desperate to sell their oil and the biggest risk to supply are corrupt governments that cannot keep the pumping infrastructure running.

Claiming that foreign wars are a fossil fuel subsidy is rediculous.

Frontiers of Faith and Science said...

Roger,
It seems the impression of your readers is that the $557B number is bogus in a large way.

SBVOR said...

Roger sez (Fri Nov 05, 02:22:00 PM MDT ):

“It is interesting to me to see all of these comments mythologizing the linear model of innovation, and yet not a single complaint about the $557 billion in government subsidies for fossil fuels.”

Roger,

Your own post debunks your straw man assertion -- reread it.

“The question that matters (at least outside the pub and political philosophy classroom) is not ‘Should government be involved in innovation?’

But rather, ‘Given the realities of government involvement in innovation, how do we best direct it to public ends?’

The Utopian ideological stuff I can do without.”


Utopian stuff like abiding by the limitations imposed upon the United States Congress by Article 1, Section 8 of the United States Constitution? Or, is that document too “Utopian” for your tastes?

SBVOR said...

Sorry, I posted my previous comment in the wrong thread -- my bad. I will now go post it in the correct thread.

Roger - Feel free to delete this post and my previous post in this thread.

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