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Originally published on DeSmogBlog by Ben Jervey.
The exact worth of massive global fossil fuel subsidies is incredibly hard to figure. There’s no real consistency in the definitions of subsidies, or how they should be calculated. As a result, estimates of global subsidy support for fossil fuels vary widely.
According to a new analysis by the Worldwatch Institute, these estimates range from $523 billion to over $1.9 trillion, depending on what is considered a “subsidy” and how exactly they are tallied.
Worldwatch Institute research fellow Philipp Tagwerker, who authored the brief, explains:
The lack of a clear definition of “subsidy” makes it hard to compare the different methods used to value support for fossil fuels, but the varying approaches nevertheless illustrate global trends. Fossil fuel subsidies declined in 2009, increased in 2010, and then in 2011 reached almost the same level as in 2008. The decrease in subsidies was due almost entirely to fluctuations in fuel prices rather than to policy changes.
In other words, though the estimates vary widely, they all agree that fossil fuel subsidies are back up to the record levels they were at in 2008, before the financial crisis caused a temporary dip. So while world leaders, including President Obama, talk about ending subsidies that benefit one of the world’s richest industries, there hasn’t been any actual reduction.
Why such difficulty calculating the subsidies? For starters, subsidies typically fall into two broadly different categories: production subsidies and consumption subsidies. Production subsidies are what you think of when you hear about special tax rates for oil companies or grants or loan guarantees to “clean coal” projects. Basically, they include anything that lowers the cost of energy production — through tax advantages, loan assistance, grants, or anything else.
Consumption subsidies refer to any financial mechanisms that lower the cost of energy for the end consumers. Think of the artificially low gasoline prices in Venezuela, or even something such as tax breaks for home heating fuel.
According to Tagwerker, production subsidies are most common in wealthier, industrialized countries, while consumption subsidies are more common in developing countries with populations struggling to afford fossil fuels.
The $523 billion number above — standing as the bottom boundary of the range of global fossil fuel subsidies — represents only the consumption subsidies for coal, electricity, oil and, natural gas in 38 developing countries, as estimated by the International Energy Agency (IEA). It doesn’t include any production subsidies at all.
Production subsidies are often quoted at $100 billion a year, a number that comes from a June 2010 report to the G-20 leaders from the Organisation for Economic Co-operation and Development (OECD), the IEA, the World Bank, and the Organization of the Petroleum Exporting Countries (OPEC). But that doesn’t include so-called “support measures” like:
export credit agencies (estimated at $50-100 billion annually)
cost of securing fossil fuel shipping routes (estimated at $20-500 billion/year)
Then there’s the issue of externalities. Tagwerker argues that external costs — like those associated with resource scarcity, environmental degradation, and human health — should be considered in subsidy calculations, as their absence artificially lowers the true cost of fossil fuel energy.
“Without factoring in such considerations, renewable subsidies cost between 1.7¢ and 15¢ per kilowatt-hour (kWh), higher than the estimated 0.1–0.7¢ per kWh for fossil fuels,” writes Tagwerker. “If externalities were included, however, estimates indicate fossil fuels would cost 23.8¢ more per kWh, while renewables would cost around 0.5¢ more per kWh.”
A recent report by the International Monetary Fund (IMF) took a unique approach to subsidy calculations, lumping them into pre-tax and post-tax groupings rather than production and consumption.
The IMF then tacked on a modest $25-per-ton carbon tax to capture the external costs of climate pollution. After tallying up all the various subsidies, the IMF came up with a whopping $1.9 trillion every year, or roughly 2.5-percent of the global GDP in 2012.
Finally, Tagwerker considers the entire subsidy through the lens of climate pollution. “From an emissions perspective, 15 percent of global carbon dioxide emissions receive $110 per ton in support, while only 8 percent are subject to a carbon price, effectively nullifying carbon market contributions as a measure to reduce emissions.”
Image Credit: Subsidies via Shutterstock.
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The Elephant in the Room
by John Brian Shannon
Fuel Subsidies ‘built this city’ — and every other city too — but are no longer required for a mature industry in a mature and developed economy.
For seven decades, petroleum provided North Americans with a comparatively cheap, plentiful, and reliable source of energy. And it happened to be a kind of energy that was particularly suited to our growing transportation needs.
Back in Henry Ford’s day, all of the government subsidies directed towards the exploitation of oil and gas were easily absorbed by a large and upwardly mobile population, and the few gigatons of transportation CO2 and other gases that were added to the atmosphere were easily absorbed by the Earth’s natural systems.
In Henry’s day, agriculture was by far the biggest polluter, followed by industry, construction, and electricity production, transportation was down the list.
Today of course, transportation is directly responsible for one-third of all airborne emissions, and added to that, are the emissions created in the manufacture of the parts necessary to build those millions of cars, trucks, trains, ships and airplanes. In 2013, it adds up to be a very large number indeed. The U.S. alone produces 7 billion tons of CO2 per year.
In an era of unaffordable U.S. budget deficits, direct subsidies to the petroleum industry are in excess of $4.86 billion dollars per year (on average) and when added to the various indirect government subsidies, have become dangerous to the overall economy.
For just one example of other subsidies supporting North America’s addiction to oil; Whose Army, Navy, Air Force, and Marines have protected all that Middle East oil since 1932, and what is the grand total cost of that protection?
Meanwhile, the environmental subsidy in the U.S. is one that is far past the point of absorbing the total amount CO2 added by the U.S. alone.
Someone has to say it. The oil and gas industry, which once lifted the North American economy to unimaginable heights, has now become an unbearable burden to the economy and the environment, and the situation continues to worsen every year. Petroleum, is the 7 gigaton elephant in the room.
At least we only have one elephant in our room. By 2040, China will have four.
China is racing toward developed nation status. China produced 7.2 billion tons of CO2 in 2010, making it the world’s single biggest polluter. It estimated in 2008 that 410,000 people die from air pollution in China every year. It’s land area is similar in size to the U.S. although the U.S. has 311 million citizens (most households own at least one car) while China has 1.35 billion citizens, (where a majority of households will soon become car owners for the first time).
Huge tracts of forested land and grassland in both countries could conceivably capture and make use of, all the CO2 we produce, storing it for decades or even permanently — but only when forested areas and grasslands are not replaced with shopping malls and factories. Which is what has been happening at an accelerating pace since the beginning of the Industrial Revolution.
India, with less than half of the land area of China, but with a rapidly growing demographic, will be in even worse shape than the U.S. or China. By 2022, India will have 2 billion citizens, but with only half the available land area to absorb all that CO2. In addition, vast areas of land in India are unsuitable for the plant life which removes CO2 from the atmosphere.
At present only 1 billion people in the world have one car or more per household, have home electronics and washing machines, and are connected to an electrical grid (developed nation status). Six billion don’t. But six billion people are expected in the developed nations club by 2050.
For now, the undeveloped and emerging nations are carbon-neutral or better — while one billion live in developed nations which are (huge) net contributors to global pollution levels.
Oil and gas has lifted one billion people into developed nation status, and for that we should be grateful. But, with six billion more people joining the club, we won’t have breathable air in some cities unless we change our transportation fuel — and soon.
All else being equal, if we lower our airborne emissions by one-third by switching from petroleum to electricity for our transportation needs, we will be in acceptable shape. What damage has been done, has already been done — no use in crying over spilt milk. And even if we do successfully switch to electric vehicles, the plant life on the planet will still be working overtime to capture and sequester all CO2 produced by the agriculture and manufacturing sectors as they will continue to add unimaginable amounts of CO2 to the atmosphere.
The important point is to stop adding more carbon dioxide to the atmosphere than the Earth systems can handle. A simple but profound switch away from oil and gas to electricity in our transportation sector can accomplish this goal.
Electric vehicles are presently making huge strides and in September 2013, the all-electric Tesla S was the best selling car in Norway. And really, why not? The Tesla S is a great drivers car, it features almost zero maintenance and it runs on electricity which is provided by a network of (renewable energy powered and conveniently located) Supercharger stations placed all over the country which are free to use for the life of the car. Not to mention the always-available Tesla buyback scheme, where Tesla will repurchase your used Tesla for a previously agreed-upon price.
Free electricity for Tesla cars, no airborne emissions from Tesla cars, and a guaranteed Tesla buyback program. This is the future of transportation!