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Fossil fuel subsidies dwarf renewables support, favour rich - report

by Jake Lucas | Thomson Reuters Foundation
Friday, 8 November 2013 18:06 GMT

An activist walks past a banner of a giant 1 trillion dollar bill, representing the amount in taxpayer dollars spent yearly by governments on fossil fuel subsidies, in Los Cabos, Mexico, June 18, 2012. REUTERS/Victor Ruiz Garcia

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Mounting global fossil fuel subsidies distort the price of carbon, favour the rich in the developing world and amount to six times as much as subsidies for renewable sources of energy, a new report says

LONDON (Thomson Reuters Foundation) - Mounting global fossil fuel subsidies distort the price of carbon, favour the rich in the developing world and amount to six times as much as subsidies for renewable sources of energy, according to a new report.

“If their aim is to avoid dangerous climate change, governments are shooting themselves in both feet,” wrote Shelagh Whitley, author of the report and a research analyst for the Overseas Development Institute (ODI) based in London.

The report was released on Thursday, days before member nations of the U.N. Framework Convention on Climate Change meet in Warsaw, Poland, to discuss how to work toward a new climate deal in 2015.

The report cited the International Energy Agency’s 2011 estimate that global subsidies totaled $523 billion and were rising. Whitley said they were closer to $600 billion, just a year later in 2012.

Among the 11 top rich-country emitters, including the United States, UK and Russia, fossil fuel subsidies amounted to $112 per person in 2010, according to an ODI estimate.

 In some cases, fossil fuel subsidies take up significantly more of countries’ budgets than spending on social services. The report said Egypt, Indonesia, Pakistan and Venezuela all spent at least twice as much on subsidies than on public health.

Although G20 countries have pledged to phase out their fossil fuel subsidies, the report called for them to set “clear and ambitious goals”, including a plan to eliminate all subsidies by 2020.

An important step toward that goal is to create a common definition for fossil fuel subsidies, the report said.  “What’s important is whatever you count, make that really clear,” Whitley said.

She gave the example of the International Monetary Fund (IMF), which includes failing to factor the cost of pollution - something most countries do not do - in its own estimates of subsidies.


In the developing world, fossil fuel subsidies are often thought to benefit the poor by increasing peoples’ access to energy and ability to afford fuel.

In the last financial year, the World Bank Group, for example, increased the amount it lent to fossil fuel projects to $2.7 billion, the report said.

But it noted an IMF finding that “it is quite typical for the poorest 20 percent of households to receive less than 7 percent of the benefits generate by fossil fuel subsidies.”

“That’s generally because they use less fuel,” Whitley explained.

Data from World Bank and IMF studies of 20 developing countries show that the wealthier people are, the more they benefit from subsidies, the report said. This is one of the reasons why phasing out fossil fuels is difficult, Whitley added.

“The people who are most likely to be able to group together and protest against subsidy reforms or subsidy phase-outs are not the poorest,” she said.

Getting rid of fossil fuel subsidies has proved tricky in many countries that have tried. One famous example is the Nigerian government, which eliminated its subsidies overnight in 2012. The resulting increase in food, fuel and transportation costs filled the streets with protesters, forcing the government to scale back its subsidy reductions.

Whitley said the trouble with Nigeria’s approach to cutting fossil fuel subsidies was that the changes came very quickly and without any social protection for vulnerable groups.

A better example is Iran, she said, which set up bank accounts to compensate 80 percent of the population, to help them manage an increase in fuel prices as subsidies were reduced. This was possible because “Iran is not a very poor country”, Whitley said, and has the means and infrastructure to manage the transition away from subsidies.

Still, Whitley said she was surprised by how similar the problem of fossil fuel subsidies is across countries. When Nigeria scaled back its subsidies, fuel prices more than doubled overnight.

If the same thing happened in any other country - developed or not - it isn’t hard to imagine people reacting in more or less the same way.

“The world is becoming more and more of a level playing field, and we need to see how there are similarities,” she said. “We’re probably going to see a lot of opportunities for lesson-learning across countries.”

Jake Lucas is an AlertNet Climate intern.

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