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Abraham writes: "A study was just published in the journal World Development that quantifies the amount of subsidies directed toward fossil fuels globally, and the results are shocking. The authors work at the IMF and are well-skilled to quantify the subsidies discussed in the paper."

In this photo taken on November 19, 2015, smoke belches 
from a coal-fired power station near Datong, in China's northern Shanxi 
province. (photo: Greg Baker/AFP/Getty Images)
In this photo taken on November 19, 2015, smoke belches from a coal-fired power station near Datong, in China's northern Shanxi province. (photo: Greg Baker/AFP/Getty Images)


Fossil Fuel Subsidies Are a Staggering $5 Trillion Per Year

By John Abraham, Guardian UK

07 August 17


A new study finds 6.5% of global GDP goes to subsidizing dirty fossil fuels

ossil fuels have two major problems that paint a dim picture for their future energy dominance. These problems are inter-related but still should be discussed separately. First, they cause climate change. We know that, we’ve known it for decades, and we know that continued use of fossil fuels will cause enormous worldwide economic and social consequences.

Second, fossil fuels are expensive. Much of their costs are hidden, however, as subsidies. If people knew how large their subsidies were, there would be a backlash against them from so-called financial conservatives.

A study was just published in the journal World Development that quantifies the amount of subsidies directed toward fossil fuels globally, and the results are shocking. The authors work at the IMF and are well-skilled to quantify the subsidies discussed in the paper.

Let’s give the final numbers and then back up to dig into the details. The subsidies were $4.9 tn in 2013 and they rose to $5.3 tn just two years later. According to the authors, these subsidies are important because first, they promote fossil fuel use which damages the environment. Second, these are fiscally costly. Third, the subsidies discourage investments in energy efficiency and renewable energy that compete with the subsidized fossil fuels. Finally, subsidies are very inefficient means to support low-income households.

With these truths made plain, why haven’t subsidies been eliminated? The answer to that is a bit complicated. Part of the answer to this question is that people do not fully appreciate the costs of fossil fuels to the rest of us. Often we think of them as all gain with no pain.

So what is a subsidy anyway? Well, that too isn’t black and white. Typically, people on the street think of a subsidy as a direct financial cost that result in consumers paying a price that is below the opportunity cost of the product (fossil fuel in this case). However, as pointed out by the authors, a more correct view of the costs would encompass:

not only supply costs but also (most importantly) environmental costs like global warming and deaths from air pollution and taxes applied to consumer goods in general.

The authors argue, persuasively, that this broader view of subsidies is the correct view because they “reflect the gap between consumer prices and economically efficient prices.”

Without getting too deep into the weeds, the authors discuss both consumer subsidies (when the price paid by a consumer is below a benchmark price) and producer subsidies (when producers receive direct or indirect support which increases their profitability). The authors then quantify what benefits would be achieved if the fossil fuel subsidies were reformed.

Interested readers are directed to the paper for further details, but the results are what surprised me. Pre-tax (the narrow view of subsidies) subsidies amount to 0.7% of global GDP in 2011 and 2013. But the more appropriate definition of subsidies is much larger (8 times larger than the pre-tax subsidies). We are talking enormous values of 5.8% of global GDP in 2011, rising to 6.5% in 2013.

The authors also broke the results down by fossil fuel type and usage (coal, petroleum, natural gas, electricity). It is not clear to me how the authors separated the various fuel sources out of electrical generation; however, the results show that petroleum and coal receive much larger subsidies compared to their counterpart fuels. The authors organized results by geographical region and found that the top three subsidizers of fossil fuels are China, USA, and Russia, respectively. The European Union is a bit less than half of the entire US subsidy. Other notable countries and regions are discussed.

There are two key takeaway messages. First, fossil fuel subsidies are enormous and they are costs that we all pay, in one form or another. Second, the subsidies persist in part because we don’t fully appreciate their size. These two facts, taken together, further strengthen the case to be made for clean and renewable energy. Clean energy sources do not suffer from the environmental costs that plague fossil fuels.

I asked one of the authors, Dr. Coady, why their work is important. He told me:

A key motivation for the paper was to increase awareness among policy makers and the public of the large subsidies that arise from pricing fossil fuels below their true social costs—this broader definition of subsidies accounts for the many negative side effects associated with the consumption of these fuels. By estimating these costs on a global scale, we hope to stimulate an informed policy debate and provide renewed impetus for policy reforms to reap the large potential benefits from more efficient pricing of fossil fuels in terms of improved public finances, improved population health and lower carbon emissions.

As a climate scientist, I focus almost exclusively on the scientific questions related to climate change. But equally important are the economic issues that, when dealt with, will usher in a new era of energy.


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+13 # chrisconno 2017-08-07 11:09
Just imagine what the alternatives could do with even half the subsidies oil gets. It has never been a level playing field so its any wonder the alternatives have had such a struggle. Let oil pay for itself; exploration, extraction labored under clean air and water regulations, distribution labored under all much needed regulations, and should have to pay taxes at a rate that reflects the opulence of its profit. That would be a more level playing field.
 
 
+10 # tedrey 2017-08-07 11:10
From the study: "China was the biggest subsidizer in 2013 ($1.8 trillion), followed by the United States ($0.6 trillion), and Russia, the European Union, and India (each with about $0.3 trillion). Eliminating subsidies would have reduced global carbon emissions in 2013 by 21% and fossil fuel air pollution deaths 55%, while raising revenue of 4%, and social welfare by 2.2%, of global GDP."
 
 
-10 # lnason@umassd.edu 2017-08-07 11:33
Most of the "subsidies" enumerated in this study are not subsidies at all. The author's assess what they call subsidies to coal or oil or gas by estimating air pollution costs or the eventual costs of global warming or various other externalities.

The US does not "subsidize" fossil fuels at all -- no government check is received by BP or Exxon or Valero -- in fact, all US fossil fuel companies pay the government well over $100 billion each year for corporate federal and state taxes, for gasoline and commodity sales taxes, mineral rights, and more. Additionally, actual subsidies for "renewable" energy sources are far larger than even the putative "subsidies" for fossil fuels documented in this study.

There are countries which do subsidize fossil fuels: Venezuela, Ecuador, Argentina, China, India, Pakistan, Bangladesh, Iran, Russia (and their former SSRs, Iraq, Saudi Arabia, Libya, Algeria, Egypt, several Gulf statelets, Thailand, Indonesia, and Malaysia. No capitalist or even semi-capitalist country is on the list -- only socialist or communist regimes feel that they can justify actual subsidies.

Lee Nason
New Bedford, Massachusetts
 
 
+4 # Bruce Gruber 2017-08-07 18:21
Oil "depletion" allowances ?!? Is that like an individual citizen getting to write off 1/75th of their lifetime income in each workingf year for having used up that much of their personal "potential"?
 
 
+5 # tedrey 2017-08-08 05:39
"Energy subsidies are measures that keep prices for consumers below market levels or for producers above market levels, or reduce costs for consumers and producers. Energy subsidies may be direct cash transfers to producers, consumers, or related bodies, as well as indirect support mechanisms, such as tax exemptions and rebates, price controls, trade restrictions, and limits on market access. They may also include energy conservation subsidies. The development of today's major modern energy industries have all relied on substantial subsidy support.
Energy subsidies are measures that keep prices for consumers below market levels or for producers above market levels, or reduce costs for consumers and producers.[1] Energy subsidies may be direct cash transfers to producers, consumers, or related bodies, as well as indirect support mechanisms, such as tax exemptions and rebates, price controls, trade restrictions, and limits on market access. They may also include energy conservation subsidies. The development of today's major modern energy industries have all relied on substantial subsidy support.

"Global fossil fuel subsidies represented 6.5% of global GDP in 2015. The elimination of these subsidies is widely seen as one of the most effective ways of reducing global carbon emissions."
Wikipedia

The autors of this study are properly using the term.
 
 
+5 # Texas Aggie 2017-08-08 11:49
"The author's assess what they call subsidies to coal or oil or gas by estimating air pollution costs or the eventual costs of global warming or various other externalities."

And since those costs are paid by society at large and not by the fossil fuel industry, they indeed are subsidies. When you get someone else to pay your expenses, that is a subsidy.

And when you get something like mineral rights on public land at below cost, that is also a subsidy, especially when the government builds the infrastructure (roads) for you to haul your product out of public lands.
 
 
+10 # Jaax88 2017-08-07 12:01
When will knot heads like trump and Pruitt
understand that fossil fuels do not benefit the general public, the nation or the planet at this point in history? The only real benefit is to the relatively few people that own the fossil fuel assets. The continued use of fossil fuels will have an increasing cost to all from their harmful use.
 
 
-7 # Old School Conservative 2017-08-07 18:00
In other words, the title of the article is just made up BS.
 
 
+6 # Bruce Gruber 2017-08-07 18:18
Guess that means the Koch Brothers can continue to create tax-exempt faux-foundation dis-research to assist in buying congressional assistance to lower their contribution to public investment by lowering taxes and doing away with pesky regulations.
 

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