Fossil fuel use subsidised to the tune of up to $1.9tn

Efforts by a variety of organisations to quantify global support for fossil fuels have generated estimates that range from $523bn to over $1.9tn, depending on the calculation and what measures are included. The level of support for fossil fuels has increased to return to 2008 levels following a dip in 2009–2010.

 

These are the conclusion of a Worldwatch Vital Signs report which aggregates both production and consumption subsidies for fossil fuels. On the production side, subsidies are defined as preferential tax treatments and direct financial transfers (grants to producers and preferential loans). Consumption subsidies lower the price for energy users, usually through tax breaks or under-priced government energy services.

 

The International Energy Agency (IEA) estimated that coal, electricity, oil, and natural gas consumption subsidies in 38 developing economies were $523bn in 2011. A parallel study by the OECD on production subsidies in its 24 member countries found that support averaged $55–90bn per year between 2005 and 2011. If tax breaks are included, a report by the International Monetary Fund estimates a total figure of $1.9tn in subsidies.

 

In developing countries, around $285bn (50% of all fossil fuel consumption subsidies) went to oil in 2011. Natural gas consumption there received $104bn in support. Coal received only $3bn in direct consumption subsidies in these countries, but another $131bn went to public under-pricing of electricity, much of which is generated from burning coal, says the Worldwatch report.

 

Support for renewables is still small ($88bn in 2011) compared with the support for fossil fuels estimated by the IEA and OECD.

 

The report also looks at the issue from an emissions perspective. Around 15% of global carbon dioxide emissions receive $110 per tonne in support, while only 8% are subject to a carbon price, effectively nullifying carbon market contributions as a measure to reduce emissions. Accelerating the phase-out of fossil fuel subsidies would reduce carbon dioxide emissions by 360mn tonnes in 2020, says the report.