Ending Fossil Fuel Subsidies is a Crucial First Step

Ending fossil fuel subsidies is the first step towards addressing climate change. We know that the climate crisis is a genuine emergency and we also know that fossil fuels are the leading cause, hence transitioning away from them is central to addressing the crisis we face.

"The first step towards that is to stop supporting the industry with our public dollars," Stephen Kretzmann, the executive director of Oil Change International is quoted as saying in a Center for Biological Diversity press release. "These subsidies are a raw deal for American taxpayers, and a disaster for our climate."

Fossil fuel subsidies are antithetical to carbon reduction efforts by governments, businesses, cities and communities worldwide. They are harmful to the environment and economic development. As Jake Schmidt, of the Natural Resources Defense Council, wrote in a blog: "Given tight budget times and the need to address global warming, subsidizing activities that are heating the planet just doesn't make sense. The only beneficiaries of fossil fuel subsidies are oil, gas and coal companies that are raking in record profits at the expense of the rest of us."

As explained on the Price of Oil website, a fossil fuel subsidy is any government action that lowers the cost of fossil fuel energy production, raises the price received by energy producers or lowers the price paid by energy consumers. There are a lot of activities under this simple definition—tax breaks and giveaways, but also loans at favorable rates, price controls, purchase requirements and a whole lot of other things.

Fossil fuel subsidies have been around since 1926, despite the fact that it is the most profitable industries in the world. As explained by Denmark’s Minister of Trade and Development Cooperation, Mogens Jensen, "Fossil-fuel subsidy reform are a key climate change mitigation policy with clear economic, social and environmental benefits."

Globally, the combination of production and consumption subsidies for the fossil fuel industry amount to more $600 billion annually.

According to the OECD production subsidies are estimated to be between $45 billion and $75 billion (budgetary support and tax expenditures) by the 24 richest OECD countries. Fossil fuel subsidies distort energy markets and each OECD country averages between $160-200bn each year. According to the International Energy Agency (IEA), consumption subsidies in 37 developing countries were worth $557bn annually.

According to a 2015 IMF publication when we factor the cost of damage from pollution and climate change, fossil fuel companies are getting $5.3tn a year in subsidies. To put this number into context that is equivalent to $10m a minute every day, that is more than the total health spending of all the world’s governments. Let that sink in, we spend more on energy that is killing people and the planet than we do on helping people to be well.

As reported by BBC News phasing out fossil fuel subsidies could reduce carbon emissions by 10 percent by 2030. In combination with the right carbon pricing scheme a 40 percent reduction in emissions is possible in some countries.

In 2015 a coalition of eight national governments (Costa Rica, Denmark, Ethiopia, Finland, New Zealand, Norway, Sweden and Switzerland), with the support of the International Institute for Sustainable Development (IISD), called for the "phase-out of subsidies to fossil fuels in the lead-up" to COP21. :

"The International Energy Agency (IEA) highlights fossil-fuel subsidy reform as a key component of a set of energy measures to combat climate change and estimates that even a partial phase-out of fossil-fuel subsidies would generate 12 percent of the total abatement needed by 2020 to keep the door open to the 2°C target. Accelerating the reform of fossil-fuel subsidies is therefore an urgent priority," the coalition known as "the Friends of Fossil Fuel Subsidy Reform" wrote In a communiqué. "The International Monetary Fund views that fossil fuel prices should reflect not only supply costs but also environmental impacts like climate change and the health costs of local air pollution. The majority of fossil-fuel subsidies are also socially regressive, with benefits disproportionately skewed toward middle- and upper-middle income households..."[removing subsidies would also] free up financing for sustainable development and support both national and international environmental priorities. At the same time, accelerated subsidy reform needs to be undertaken alongside measures that protect the poor and vulnerable groups from the impact of higher energy prices."