Fossil Fuel Subsidies

Today my friend Bruce Smith pointed out this:

• How to save $300 billion, The Economist Online, 12 November 2010.

Here’s an executive summary for you busy folks:

This year’s World Energy Outlook, put out by the International Energy Agency, says that governments spent $312 billion on subsidies for fossil fuels in 2009.

According to the IEA, eliminating these subsidies would reduce the world’s energy demand by 5%: the current energy consumption of Japan, Korea and New Zealand combined. It would also reduce carbon emissions by about 0.4-0.5 gigatons by 2020.

(I think they mean annual carbon emissions. They also say “this is more than a third of the difference between business-as-usual emissions and the level needed to stand something like a 50:50 chance of limiting global warming to two degrees centigrade”, but that seems overly optimistic to me, given the figures I’ve been reading.)

Of the $312 billion in subsidies, more than a fifth comes from one country: Iran. To keep fuel prices as low as ten American cents a liter for gasoline — two cents for diesel — the Iranian government spent $66 billion in 2009. That’s $895 per person, or 20% of their GDP.

Saudi Arabia’s subsidy is even higher per capita, though lower overall and under 10% of GDP. (Guess what percent of their GDP comes from oil.)

Uzbekistan’s fossil fuel subsidy is even more absurd: a whopping 32% of GDP.

What is it for the USA, and the other countries the readers of this blog live in? What can we do to reduce or end these obscene subsidies?

10 Responses to Fossil Fuel Subsidies

  1. Nathan Urban says:

    I can’t vouch for the quality of the source, but a little Googling turned up a study from the Environmental Law Institute. It claims the U.S. federal government, through 2002-2008, provided $16 billion in direct spending and $54 billion in tax breaks to subsidize fossil fuels. That comes to about $10 billion per year.

  2. streamfortyseven says:

    As far as Iran is concerned, there’s not much an American can credibly do, given the enmity between our two governments. You’d have to convince them that oil is a non-renewable resource, that they have X years of remaining economically recoverable oil at present rates of consumption, and that subsidising domestic use has a hidden cost, namely that there is less oil available for sale to the international market. Since in Iran the oil is owned by the state, that might seem to them to be a cogent argument. On the other hand, they’ve been through some recent political instability (remember the anti-government demos last year?), so raising prices for oil products such as gasoline and home heating oil might not be thought of as being such a good idea.

    • DavidTweed says:

      The hidden question is though: why is making oil use domestically cheaper causing less oil being available for sale on the international market a bad thing for Iran? Maybe they’d theoretically get more “money” from international sales, but can they buy things with that money that will “make the domestic populace as happy” as providing subsidised petrol? (I’m unsure how effective trade embargoes/sanctions currently are against Iran even if they decided what to buy.)

      That’s part of what the Export Land Model (Azimuth project is down so wikipedia link) is all about: why, from the point of view of an oil producing country, when there is a supply shortage should selling oil on the international market better for them than subsidising home consumption?

      Note that this is orthogonal to issues about oil being non-renewable, since you’re talking about it being used either domestically or on the international market. If someone had the bravery to suggest leaving the oil in the ground for the time being it might be different, if they were to be able to make that case.

      • streamfortyseven says:

        Iran’s government isn’t terribly democratic. They have elections, but they are subject to massive fraud and vote stealing. Unlike in the US, for example, that got millions of people out in the streets in protest last year, and there is (possibly US-funded) domestic resistance movement dedicated to overthrow of the Ahmedinejehad government. Ahmedinejehad, in turn, has been told by the US President, first Bush, and now Obama, that his country rests squarely within the US gunsights, in so many words. In response to this, he has quite reasonably been feverishly involved in developing a credible nuclear deterrent. Ahmedinejehad makes speeches equally as bellicose as those made against him, and the US does represent a credible threat, having active military operations in the country next to his, with upwards of 150,000 armed troops carrying out combat missions therein.

        So there are two dynamics here:
        1. The need to keep the domestic population for the most part on his side, so that he has sufficient time to create a nuclear counterforce or counter population threat to US intentions; and
        2. The need to raise sufficient capital for foreign exchange to buy materiel and expertise to construct said nuclear capability and the means to deliver weapons to a target.

        These are the things which drive Iranian oil policy. it’s a knife-edge balance, because the two things are mutually exclusive in a zero-sum game, I.e. Keep the domestic population sufficiently pacified so that people supporting the government outnumber opponents, while raising sufficient foreign exchange capital to fund a nuclear weapons development program in as quick a time as possible.

        • DavidTweed says:

          Perhaps I should have widened things out from just Iran to make the point clear. Regardless of any political issues in any country that is “subsidising domestic fossil fuel use”, it’s not at all clear why doing this is worse for them than not subsidising domestic use, so that there is more oil available for export to be bought on the world market. This applies whether it’s Iran, Kuwait, Uzbekistan or Norway. You can argue they aren’t bringing as much “money” as they could be, but quite possibly whatever this money could buy “would less appreciated” than subsidised fuel.

          The western nations may have to accept that saying “drop your subsidies for domestic use and take our trader’s money so that we can buy and use that oil” to any oil producing nation may not result in anything.

        • Frederik De Roo says:

          @David:
          I don’t think Norway subsidizes its domestic use of fossil fuel, see e.g. here

        • DavidTweed says:

          I think it’s a complicated issue, particularly since I suppose one ought to see if a “subisdy” in one part of the fossil fuel “usage chain” is being balanced by extra “tax” in another part of the chain. There are certainly claims that Norway (which I only picked as an example of a democracy which subsidises fossil fuel usagee) has fossil fuel subsidies (although whether they’re cancelled out elsewhere I honestly don’t know):

          claim of 1.4 billion dollar subsidy

          this looks like it may be the source

        • streamfortyseven says:

          @David: it makes a difference whether it’s the government doing the oil trading, or whether it’s private corporations. If the latter, then you have free market considerations to deal with, with the incentives being much in favour of extracting the resource and selling it, to keep earnings positive, if not growing, per quarterly earnings report. If the former case holds, then policy considerations trump profit motive if any. Kuwait tends to be more of a market player as does Norway, and so far as multinational companies control oil production, Uzbekistan also. In Iran on the other hand, Iran’s production and oil exportation are driven by the considerations I mentioned here.

        • streamfortyseven says:

          By “here”, I mean “keeping the domestic population pacified by keeping food and transport costs down, while raising sufficient foreign capital to fund development of nuclear weapons and delivery systems in the quickest time possible.”

  3. The impact of subsidized consumption of fossil-fuel-derived motor fuels can be reduced by swift and certain enforcement of roadway speed limits, by requiring new housing developments not to be way out of town, by making them pedestrian-friendly …

    All these things, and these sorts of thing, collectively enrich everyone else who depends on government money when fossil fuel users are also so dependent.

    That includes the public servants who decide whether speed limit enforcement will be swift and certain. Etcetera.

    The reason they don’t do this, indeed do the opposite, is that the net subsidies are negative: fossil fuel users subsidize government.

    Talk of positive subsidies, except in the mentioned countries — Iran, etc. — is disinformation meant to protect that governmental fossil fuel income.

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