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07/14/2015

Why eliminate fossil fuel subsidies?

Fossil fuel subsidies increase global warming, delay the development of renewable energies and retard the transition to a low-carbon economy.

The support given to fossil fuels, such as oil, coal and gas, increases global warming and delays the development of renewable energies. This support comes in the form of subsidies, mainly for consumption but also for production, and they have a high economic, environmental and social cost that retard the transition to a low-carbon economy.

Institutions like the International Monetary Fund (IMF), International Energy Agency (IEA), World Bank, OECD, G8 and G20 all recommend replacing polluting fossil fuels with clean energy. The latest reports provide convincing data that cannot be ignored, most notably:

Fossil fuel subsidies

Total worldwide subsidies for fossil fuels amount to $5.3 trillion, i.e. 6.5% of global GDP in 2015 (How Large Are Global Energy Subsidies? IMF).

Three-quarters of these subsidies are linked to local environmental harm and approximately one-quarter contribute to global warming through CO₂ emissions (IMF).

Removing these subsidies could have the number of emissions-related premature deaths, saving 1.6 million lives every year. In 22 of Europe's 48 countries, the cost of deaths linked to pollution averages more than 20% of GDP (WHO).

Every taxpayer dollar invested in subsidising fossil fuels generates 1.3 dollars, whereas every dollar used to subsidise renewable energy attracts 2.5 dollars in new investment (ODI).

Fossil fuels receive six times more subsidies than renewables. For example, in the Middle East and North Africa, the entire cost of achieving the renewable energy goals through 2020 is lower than the bill for subsidising fossil fuels in a single year (IISD).

As IEA chief economist Fatih Birol has pointed out, some governments say we have these subsidies to protect the poor, but only 8% actually reach the poorer segments; the rest goes to people with medium or high income.

At present, 80% of global energy consumption is based on fossil fuels. They are one of the main causes of climate change and, moreover, these subsidies have a perverse effect in retarding the access to affordable, reliable, sustainable and modern energy for all (Sustainable Development Goals 7), the transition to a low-carbon economy necessarily involves a deep reform of fossil fuel subsidies.

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