How Fossil Fuel Subsidies Are Helping Trash The Planet Helping rich oil companies awash in record profits goes against common sense
“What we are doing is using taxpayers’ money – which means our money – to boost hurricanes, to spread droughts, to melt glaciers, to bleach corals. In one word: to destroy the world.”
—António Guterres, UN Secretary General
One of the best ways of speeding the proliferation of a product or industry is through government subsidies. A great way to do the opposite is through taxation. One might think that, given how much damage fossil fuels are inflicting upon society, governments would have removed all subsidies incentivizing their production. Additionally, one might expect that governments would have established strong taxes on carbon, and fossil fuel use in general. Unfortunately, they have largely failed to do anything of the sort.
In May of 2019, the International Monetary Fund performed an extensive analysis of worldwide fossil fuel subsidies. They found that, in 2017, the world put $5.2 trillion into subsidies of this nature. In 2015, the IMF estimated this number to be $4.3 trillion. The 2015 fossil subsidies were equivalent to 6.3% of global GDP, and the 2017 fossil subsidies were equivalent to 6.5% of global GDP.
This rise in subsidization took place in spite of the numerous recent commitments by world governments to disincentivize fossil fuel use. It also took place in spite of ever more dire warnings from the world’s leading scientists, about the dangers of climate change and pollution. Finally, it took place in spite of the fact that the fossil fuel sector is incredibly well established, the exact opposite of a fledgling industry in need of some early stage financial support.
It is important to note that the IMF’s calculations are not entirely representative of how much money world governments are putting into directly propping up fossil fuel industries. To arrive at their $5.3 trillion estimate, the IMF considered many different ways in which society is paying to support the use of fossil fuels. One of the most significant is, in fact, through direct subsidies. Examples of such subsidies include tax breaks for domestic energy producers, tax breaks for energy consumers, and the discounted leasing of government land for fossil fuel extraction. A recent report by Oil Change International estimated that the U.S government spends over $20 billion on these forms of direct subsidies every year. The IMF report however, projected the total amount the United States is spending on fossil subsidies to be $649 billion (In 2015).
The latter figure is larger because the IMF factored more abstract forms of subsidies into their report. For example, they considered the costs that Americans pay for pollution-related health conditions a form of subsidy. They also included costs associated with the damage caused by global warming. Another important cost was the amount of money that the U.S puts into military operations intended to protect oil supplies in foreign countries.
Some subsidies actually go directly to consumers. For example, the Low Income Home Energy Assistance Program helps poor households pay for essentials such as heating in the winter. If the energy that a family on the LIHEAP uses for heating comes from fossil fuels, then LIHEAP is technically a fossil subsidy. However, there is clearly a big difference between assisting those in need with basic necessities, and letting fossil fuel companies lease land at a discounted rate for fuel extraction (which is a common practice in the U.S).
Justifiable though some of the major subsidies may be, there is still a tremendous amount of government money going to companies that do not need it.
Given all the harm the burning of fossil fuels causes to both people and the planet, the presence of these subsidies (at their current scale) is almost inconceivable. To put this harm into perspective, consider the following section of the IMF report:
“Efficient fossil fuel pricing in 2015 would have lowered global carbon emissions by 28 percent and fossil fuel air pollution deaths by 46 percent, and increased government revenue by 3.8 percent of GDP.”
(Editor’s note: “Efficient fossil fuel pricing” means pricing that accurately reflects the amount of money fossil fuels force society to pay for the damage they cause.)
So why do we have these subsidies in the first place?
Part of the issue stems from the fact that many of them are deeply embedded in our current system, and would take a good amount of work to abolish. Additionally, governments want to spur economic growth. Lowering the price of energy can accomplish this goal in the short run. However, in depth analyses show that much of the growth generated by fossil subsidies is largely offset by the costs associated with fuel extraction and combustion. Another massive, and incredibly insidious reason for the prevalence of fossil subsidies, is lobbying.
During the 2015-16 U.S election cycle, fossil fuel companies spent over $350 million on lobbying and campaign contributions (and received an estimated $29.4 billion in direct subsidies during the same time period). From 2010 to 2019, the top five largest fossil fuel companies in the world spent €251 million lobbying the European Union. All in all, these five companies spend around $200 million per year on different forms of lobbying. This massive effort has played a huge part in the confusion and corruption of politicians, and the sustaining of subsidies.
However, the biggest contributing factors to the improper pricing of fossil fuels are probably distance and time. In many instances, the damage that fossil fuels cause fails to appear for many years after their combustion. When this damage does eventually manifest, it is often felt most strongly by those least responsible for putting large amounts of carbon into the atmosphere.
Humanity burned fossil fuels for centuries before scientists began to realize how this practice was affecting the climate. Similarly, global warming will have the most severe impact in countries that lie a great distance from those that emitted the most pollution. This spatial and temporal disconnection creates a psychological veil; a veil that those responsible for creating appropriate subsidies and taxes often fail to see through. Given the fact that it could take years for the beneficial effects of the removal of fossil fuel subsidies to become noticeable, it’s not all that difficult to understand why most of them are still in place.
Still, the situation is not hopeless, and some change is occurring. In India for example, politicians have cut fossil fuel subsidies by about 75% since 2014. In Britain, coal powered electricity generation declined precipitously following the instigation of a carbon tax in 2013. British Columbia has also enacted a strong tax on carbon ($30 per ton). These “anti-subsidies” are clearly steps in the right direction.
If you want to take the fight against fossil fuel subsidies into your own hands, there are many ways in which you can do so. One of the best is by voting for politicians who understand the insanity of these subsidies and will fight to remove them. Another great measure is donating to environmental lobbying groups who can help convince elected officials that fossil subsidies are not in the best interest of society. Finally, you can spread information on the topic to show the general public that the time for fossil subsidies has come to an end.