Scrapping fossil-fuel subsidies would get us halfway there on climate change

at 10:43 AM ET, 01/20/2012

Here’s one free-market way to tackle global warming. In 2010, the world spent $409 billion on fossil-fuel subsidies to artificially lower the price of coal, gas and oil. Eliminating those subsidies would curb fuel use and lead to half the emissions cuts necessary to avoid 2°C of warming.

That’s all according to Fatih Birol, chief economist at the International Energy Agency. The Guardian’s Datablog supplies the chart. By Birol’s calculations, scrapping all subsidies for fossil-fuel consumption would avoid 2.56 gigatons of carbon-dioxide per year by 2035 — or about 70 percent of what the European Union currently emits. That could provide almost half of the extra cuts the world needs to stay within its carbon budget:

So what do these fuel subsidies entail? Duncan Clark offers a full country-by-country breakdown. Governments in Iran, Saudi Arabia, Egypt, Venezuela, Indonesia and elsewhere all spend money to reduce the price of gasoline at the pump, which in turn encourages higher oil use. Other nations, like Russia, offer natural-gas discounts for heating. China spends $2 billion per year to promote coal-burning. And so on.

Such subsidies are frequently touted as poverty-assistance measures, but they’re not particularly effective at that task — as Birol observed, the poorest 20 percent of the population in these countries received just 8 percent of the benefits.


Curbing fuel subsidies in Nigeria--good for the planet, but a political nightmare. (AFOLABI SOTUNDE/Reuters)
But that doesn’t mean scrapping these subsidies will be easy. In recent weeks, Nigeria has been upended by strikes and ferocious mass protests over a government plan to pare back popular fuel-import subsidies. And it’s all well and good to hector Saudi Arabia about its lavish gasoline subsidies — Saudi residents already have extremely high carbon footprints — but what about poorer countries like India? Can they really afford to curtail energy use?

One possible solution comes from a 2008 Harvard Kennedy School study, which suggested that developing countries could take the money saved by rolling back subsidies and devote it toward efficiency upgrades or even lump-sum payments to citizens.

Still, even if wonks find this solution elegant, the politics are often hideous, not least because there are plenty of wealthy countries, including the United States, that still directly and indirectly subsidize their own fossil-fuel production. The OECD estimates (PDF) that developed countries spend about $45 billion to $75 billion each year supporting their oil, gas and coal industries. The Obama administration tried to pare back a few oil tax breaks early in its term and found its efforts stymied by Congress. And as long as developed countries won’t bother junking their own subsidies, it’s hard to envision poorer countries taking the lead on this.

 
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