Global Fossil Fuel Subsidies At Record Highs

Originally published on DeSmogBlog by Ben Jervey.

Global Fossil Fuel Energy Consumption
Global Fossil Fuel Energy Consumption

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.

This article, Fossil Fuel Subsidies Are Back Up To 2008 Levels, is syndicated from Clean Technica and is posted here with permission.

About the Author

The DeSmogBlog ProjectDeSmog Blog The DeSmogBlog Project began in January 2006 and quickly became the world’s number one source for accurate, fact based information regarding global warming misinformation campaigns. TIME Magazine named DeSmogBlog in its “25 Best Blogs of 2011” list. Our articles and stories are routinely highlighted in the world’s most popular news outlets and blogs: New York Times DotEarth, Huffington Post, Daily Kos, ThinkProgress, and Treehugger, to name a few. DeSmogBlog has won the Canadian Public Relation Society’s Leadership in Communication award, and was voted Canada’s “Best Group Blog” by their peers.

What is up with Africa?

by John Brian Shannon

Yesterday, the UNDP opined on Twitter that “Africa is on the move.”

Today, on Project Syndicate David Fine wrote “Inside Africa’s Consumer Revolution” where he pointed out some interesting facts about that continent.

“Nowadays, Africa’s economic potential – and the business opportunities that go with it – is widely acknowledged. Poverty and unemployment are still more widespread than in other emerging markets, but accelerating growth since 2000 has made Africa the world’s second-fastest-growing region (after emerging Asia and equal to the Middle East).”

CAR101212B-1 Steady pace of African growth 2012 and 2013

The above chart is from the IMF which is noted for it’s careful and qualified assessments of developing nations and regions. Here is a small excerpt from their authoritative October report:

Regional Economic Outlook: Sub-Saharan Africa Maintaining Growth in an Uncertain World

”Economic conditions in sub-Saharan Africa have remained generally robust despite a sluggish global economy. The near-term outlook for the region remains broadly positive, and growth is projected at 5¼ percent a year in 2012–13. Most low-income countries are projected to continue to grow strongly, supported by domestic demand, including from investment. The outlook is less favorable for many of the middle-income countries, especially South Africa, that are more closely linked to European markets and thus experience a more noticeable drag from the external environment. The main risks to the outlook are an intensification of financial stresses in the euro zone and a sharp fiscal adjustment in the US–the so called fiscal cliff.”

Mind you, not everything is trending upwards — some things are going downhill there too. Way down. Here is a nice chart to underscore that trend.

image

Figure 1: African Debt and Debt Service Source: International Monetary Fund, World Economic Outlook Database, October 2009.

The World Bank agrees with the optimistic view of things and has noted this progress in their twice-yearly report on Africa — Africa’s Pulse. Here is a short excerpt from that report:

In its wide-ranging analysis of new developments in Africa, the new report notes that after ten years of high growth, an increasing number of countries are moving into ‘middle- income’ status, defined by the World Bank as those countries achieving more than $1,000 per capita income.

Of Africa’s 48 countries, 22 states with a combined population of 400 million people have officially achieved middle-income status; while another 10 countries representing another 200 million people today would reach middle-income status by 2025 if current growth trends continue or with some modest growth and stabilization.

On October 15, 2012 Jean-Michel Severino and Emilie Debled wrote about Africa’s huge growth opportunity in their great Project Syndicate piece, “Africa’s Big Boom

“Africa is undergoing a period of unprecedented economic growth. According to The Economist, six of the ten fastest-growing countries in 2011 were in Africa. Average external debt on the continent has fallen from 63% of GDP in 2000 to 22.2% this year, while average inflation now stands at 8%, down from 15% in 2000. This positive trend is likely to persist, given that it is based on structural geographic and demographic factors, such as rising exports, improved trade conditions, and steadily increasing domestic consumption.”

The continent we call Africa, once an economic backwater is rapidly-transforming into an important partner of the world’s major economies, by providing much-needed raw resources and increasingly, agriculture is playing an important role there.

A major UN paper dated June 2011 remarked on the recent optimism felt by many world leaders, “The African Moment: On the Brink of a Development Breakthrough

In the words of UN Secretary General Ban ki-Moon (2011:1) at the Summit of the African Union in January 2011: ‘Africa is on the move. The new narrative for Africa is a story of growth.’ And as Donald Kaberuka (2010:4), President of the African Development Bank, noted at the opening of the 2010 African Economic Conference, there is now ‘broad agreement that an unusually strong momentum has built up in the African economies over the last decade’. This change in perception does not mean that the immense challenges faced by the continent  are being glossed over, but the Afro-pessimism of the 1990’s has clearly been replaced by a much more realistic and confident outlook. African people seem to share this view.

The answer to the question What’s up with Africa? Everything you want in a growing continent.

Please take the time to read the seminal articles that I have cited in this post. They will enrich your understanding of this coming-of-age continent.

JOHN BRIAN SHANNON

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