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Fossil Fuel Subsidies
                                    

The IEA (International Energy Agency), within the framework of the World Energy Outlook, has been measuring fossil-fuel subsidies in a systematic and regular fashion for more than a decade. Its analysis is aimed at demonstrating the impact of fossil-fuel subsidy removal for energy markets, climate change and government budgets. link   G7 countries gave over US $42 billion to coal mining and power projects between 2007 and 2015. Japan continues to be the worst culprit among G7 countries, giving $22 billion to coal projects between 2007 to 2015, with second place Germany handing out $9 billion over the same period - (May 2016 link)        
What constitutes a subsidy? The answer isn’t black and white. Typically, people think of a subsidy as a direct financial cost that result in consumers paying a price that is below the opportunity cost of the product (fossil fuel in this case). The authors of a new study argue costs would encompass not only supply costs but also (most importantly) environmental costs like global warming and deaths from air pollution and taxes applied to consumer goods in general.  They say this broader view of subsidies is the correct view because they “reflect the gap between consumer prices and economically efficient prices. link

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Latest news:

August 7 2017: Fossil fuel subsidies are a staggering $5 trillion per year. A new study finds 6.5% of global GDP goes to subsidizing dirty fossil fuels. According to the authors, these subsidies are important because first, they promote fossil fuel use which damages the environment. Second, these are fiscally costly. Third, the subsidies discourage investments in energy efficiency and renewable energy that compete with the subsidized fossil fuels. Finally, subsidies are very inefficient means to support low-income households. link

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          Below
  • Overview
  • Arguments for and against subsidies
  • Other news items
See also page on fossil fuel divestments here

Overview

June 2017: $87 billion from banks in fossil fuel subsidies in 2016. World’s largest banks lent $87bn to oil, coal and LNG companies in 2016, a drop from $111bn lending in 2015, and also lower than 2014 ($92bn). However, the report warns that despite the 22% decline in funding, banks are still funding fossil fuel projects at a rate that will push the world beyond the 1.5 degrees climate change limit determined by the Paris Climate Agreement.  link

October 2016: Global government wasting energy with subsidies. By some estimates, fossil fuel consumption subsidies may be responsible for more than 10% of total global emissions of CO2, the leading greenhouse gas. They also contribute to traffic jams and air pollution in cities across the developing world. Electricity rates are so discounted in the Persian Gulf states that some residents do not bother to turn down their air-conditioners while away on vacation. Economists say the vast majority of benefits from the subsidies go to the wealthy, not to the poor. link  

May 2017: Britain's coal sector gets 356million a year in subsidies, despite Government’s green pledges. The multimillion-pound support is part of 5.3 billion ($6.85 bn) given to the coal industry every year by 10 European countries, which account for 84% of the continent’s CO2 emissions, according to the Overseas Development Institute. link

August 2016: Leading insurers tell G20 to stop funding fossil fuels. Three of the world’s biggest insurers have called on G20 leaders to implement a timeframe for ending fossil fuel subsidies when they meet in China this week.  The G20 has already committed to phase out “inefficient fossil fuel subsidies that encourage wasteful consumption” over the “medium term”. In May, the G7 nations pledged to achieve this by 2025. link

May 2016: G7 still propping up fossil fuel industry. Today, the G7 summit in Japan called on all countries to end fossil fuel subsidies by 2025. Though it may sound familiar (these calls have been made since 2009) where the Ise-Shima promise differs is in setting an expiry date. We finally have an endgame for these perverse incentives, and although we could easily get there twice as fast, a yardstick for holding governments to account. Unfortunately, actions speak louder than words. In spite of these powerful proclamations, G7 governments continue to prop up a doomed fossil fuel industry. link

August 2015: G20 countries pay over $1,000 per citizen in fossil fuel subsidies. New figures from the IMF show and gas show that the US, which hosted the G20 summit in 2009, gives $700bn a year in fossil fuel subsidies, equivalent to $2,180 for every American: Australia gives $1,260 per head in fossil fuel subsidies. link   

May 2015: Fossil fuel subsidies to hit $5.3 trillion in 2015.  Subsidies for fossil fuels that cause climate change have soared since 2013, a new study from the International Monetary Fund has revealed. Oil, gas and coal costs will be subsidised to the tune of $ 5.3 trillion  a year in 2015. The last time the IMF ran the data it calculated they were worth $1.9 trillion. Economists say the latest figures are more accurate as they represent the “true” cost of energy, which includes the environmental, health and climate impacts of burning fossil fuels. link

November 2014: $88 billion a year in public money to fossil fuel companies. Rich countries are subsidising oil, gas and coal companies by about $88bn a year to explore for new reserves, despite evidence that most fossil fuels must be left in the ground if the world is to avoid dangerous climate change. Most of the support was in the form of tax breaks for exploration in deep offshore fields. The public money went to major multinationals as well as smaller ones who specialise in exploratory work, according to Britain’s Overseas Development Institute (ODI) and Washington-based analysts Oil Change International. link

July 2014: Federal government still spending billions to subsidize fossil fuels. The amount of money the U.S. government forfeits through subsidies has increased steadily over the last five years reaching $18.5 billion in 2013, according to a report from the environmental group Oil Change International. That total is up from $12.7 billion in 2009. link

Worldwide subsidies in 2012 totaled $544 billion.  link 

April 2013: Special tax breaks for big oil go back 100 years. President Obama’s budget proposal for 2014 would eliminate $39 billion of special tax breaks for Big Oil companies over the next decade as part of comprehensive business tax reform, and end a century of largesse. Tax breaks to oil companies emerged over the past 100 years to help the then-nascent industry develop, and they relieved the oil and gas industry of $466 billion in tax payments to the federal treasury between 1918 through 2009. In recent years these companies earned billions of dollars due to high oil and gasoline prices and do not need additional support from taxpayers. The five largest oil companies — BP, Chevron, ConocoPhillips, ExxonMobil, and Shell — earned a combined total of $255 billion in 2011 and 2012, largely a result of higher oil prices. Reuters reported last year that Chevron, ConocoPhillips, and Exxon/Mobil — the three largest American oil companies — paid half or less of the standard corporate tax rate. link  

US world's number one fossil fuel subsidizer - Climate Progress
Fossil fuel subsidies 'killing UK's low-carbon future - Guardian

Fossil fuel subsidies 'reckless use of public funds' - BBC

Arguments for and against subsidies

Oil industry case for government funding/subsidies. Using the dictionary definition of the word subsidy, the oil industry allegedly benefits enormously from government generosity. Motor fuel taxes alone contributed $14 billion to federal and provincial treasuries last year, yet allegations persist this industry is on the dole. This is another battle the petroleum industry is losing. It just has not received the attention it should.

There are three different definitions of subsidies to the oil industry. The first is direct government cash through reduced commodity pricing. Numerous oil and gas producing countries, all with state controlled production, sell fuel to their domestic economies below the market price. Some even import oil at the world price and sell it to their own citizens well below cost. The Organization for Economic Cooperation and Development reported in 2014 that 40 countries subsidized the cash cost of motor fuel by a whopping US$548 billion in 2014. The second definition of subsidy is taxes not collected. This newer derivative includes depletion and capital cost allowances, accelerated or otherwise. Depreciation deductions against income taxes payable are not restricted to oil and gas. The third and furthest stretch of the definition of subsidy comes from climate change activists who claim health and environmental damages caused by the consumption of fossil fuels which may be borne by future governments are a subsidy to companies and industries which produce and market petroleum, coal and natural gas. link

Climate Progress counters: Subsidies to fossil fuels are making it difficult for renewables to compete with artificially low energy prices, therefore discouraging private investors from putting money into clean energy technologies.

The wealthy benefit most subsidies in the developing countries. Producers of oil, gas and coal received more than $500 billion in government subsidies around the world in 2011, with the richest nations collectively spending more than $70 billion every year to support fossil fuels. Those are the findings of a report by the Overseas Development Institute, a think tank based in the United Kingdom. “If their aim is to avoid dangerous climate change, governments are shooting themselves in both feet,” the report, said. “They are subsidizing the very activities that are pushing the world towards dangerous climate change, and creating barriers to investment in low-carbon development and subsidy incentives that encourage investment in carbon-intensive energy.”

While the report acknowledges there is currently no globally agreed definition of what constitutes a subsidy, it cites the World Trade Organization’s approach: “a subsidy is any financial contribution by a government, or agent of a government, that confers a benefit on its recipient.” Germany, for example, provided €1.9 billion in financial assistance to its hard coal sector in 2011, according to the report. That same year, the U.S. created a $1 billion fuel tax exemption for farmers and invested $500 million for fossil energy research and development. The top 11 “rich-country emitters” - the biggest being Russia, the United States, Australia, Germany and the U.K. - are estimated to have spent $74 billion on subsidies in 2011.
That total amount outweighs the support provided to developing countries to reduce their greenhouse gas emissions by seven to one, the report found. Fossil fuel subsidies were actually created to benefit the poor. According to ODI, governments often justify giving tax breaks and freebies to energy companies in order for those companies to provide energy access to those who can’t afford it. Generally, however, that winds up not being the case. Citing a report by the International Monetary Fund, ODI said only 7% of the benefits from fossil fuel subsidies in developing countries reached the poorest 20% of people between 2005 and 2009. In contrast, more than 40% of those subsidies benefited the people in richest 20% of people during that time. link

Other news items

February 2017: G20 urged to ditch fossil fuel subsidies by 2020. Investors and insurers with more than $2.8 trillion in assets under management called on the Group of 20 economies to phase out fossil fuel subsidies by 2020 despite U.S. doubts about climate change. link

August 2016: G20 leaders prepare to convene September in Hangzhou, China. With more than $5.3 trillion in global subsidies currently funneled into the pockets of the world's fossil fuel giants annually, the Fossil Free Finance Campaign (launched by the Sierra Club) aims to move the U.S. government and public institutions, like the World Bank, as well as governments around the world, including those at the G20, to completely eliminate all fossil fuel subsidies by 2020. link

December 2014: Fossil fuel industry spends big in Congress. Fossil fuel industries contributed more than $84 million to candidates, political parties, and outside spending groups during the 2014 election cycle. Of this total, more than $64 million went directly to candidates and parties, 79.5% of which supported Republicans and 20.5% of which supported Democrats. In addition to these direct contributions to candidates, incumbent members of Congress, and political parties, the companies and utilities spent $493 million on lobbying the 113th Congress, more than $288 million in 2013 and close to $205 million in 2014. link

April 2014: Tax breaks that are killing the planet. ExxonMobil, the world’s largest oil company, hauled in a $32.6 billion profit last year. CEO Rex Tillerson got a 3% bump in his pay package, sending it above $28 million. All told, the U.S. government gifts as much as $4.8 billion to the oil industry each year, more than any other country. Much of that comes not as direct handouts but instead via loopholes in the tax code; deductions for depleting oil reserves, for example, and write-offs for the expense of drilling a new well. link


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