From Climate Spectator and Reuters we learn that the OECD and the International Energy Agency are calling for an end to subsidies for the fossil fuel industries by the nations of the world. (also here) Not only are combined fossil fuel subsidies sizable, but they discriminate in favour of the rich and middle classes against the world’s poor. At the same time artificially lowering prices below their costs distorts the market for energy products by making it more difficult for alternative energies to compete.

The International Energy Agency and the OECD last night delivered another broadside against the extent of fossil fuel subsidies around the globe, estimating that they amounted to $409 billion in 2010 – a rise of $110 billion over 2009 – and will likely exceed $600 billion by 2010.

Moreover, the agencies argue, they do nothing to alleviate fuel poverty, because they are poorly directed. While many of them reduce the price of oil and fuel below their cost, they favour only the rich and middle class that can afford them in the first place. Only eight per cent of the subsidies reach the poorest population.

“Making energy cheap means we use fuel in a wasteful manner, says Fatih Birol, the chief economist at the IEA. Without these subsidies, he says, fossil fuel consumption would decline 4 per cent by 2020, carbon emissions would decline, and more money could be directed towards renewable energy and energy efficiency.

Currently fossil fuel subsides are about 8 times higher than those for renewable energies. Most of the subsidies come from nations such as Iran, Saudi Arabia and Russia, and half of the subsidies are directed towards petroleum products. The OECD estimates that 24 OECD nations together hand out around $45-$75 billion a year in fossil fuel subsidies. At current rates, these subsidies would reach 0.7 percent of global gross domestic product by 2020.

Leaders of the Group of 20 (G20) major economies committed in Pittsburgh in 2009 to phase out, over the medium-term, inefficient fossil fuel subsidies that encourage wasteful consumption.  Since then China, India and Russia have made significant strides in making reductions.





Tags: , , ,