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.
“If their aim is to avoid dangerous climate change, governments are shooting themselves in both feet,” the report, headed by ODI research fellow Shelagh Whitley, 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 United Kingdom — 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 seven percent of the benefits from fossil fuel subsidies in developing countries reached the poorest 20 percent of people between 2005 and 2009. In contrast, more than 40 percent of those subsidies benefited the people in richest 20 percent of people during that time.
Subsidies for gasoline were the most unequal, with the report citing less than five percent of those subsidies reaching the poorest people and more than 60 percent benefiting the richest. Fossil fuel subsidies for liquefied petroleum gas, more commonly known as propane, had similar numbers. Kerosene subsidies were found to have been pretty much evenly distributed.
Subsidies to fossil fuels are also making it difficult to compete with artificially low energy prices, therefore discouraging private investors from putting money into clean energy technologies. What’s more, the growing number of countries that provide subsidies to both fossil fuels and clean energy may actually be negating the impact of climate finance and other clean-energy incentives, according to the report.
ODI is calling on the G20 countries to phase out all subsidies to coal and to oil and gas exploration by 2015, and end fossil fuel subsidies entirely by 2020. The process won’t be easy, the report noted, finding that citizens across the globe are generally misinformed about what they or others receive in terms of subsidies. Additionally, special interests are dominating the playing field, making it difficult to come to a consensus.
According to the Center for Responsive Politics, individual and political action committees affiliated with oil and gas companies have donated $239 million to candidates and parties since 1990. But the U.S. isn’t the only moneyed country where special interests assure that fossil fuel subsidies reign on, according to the report.
In India, for example, federal and state governments incur great expense in order to provide the country’s powerful farm industry with “cheap or free” electricity, the report said. That, along with the fact that agricultural incomes are tax-exempt in India, provides farmers in that country with the funds to create a powerful lobby that “ensures that no government can hold on to power without holding on to [fossil fuel] subsidies.”
“The barriers to reporting on subsidies and to their removal are based on the multiple and often diverging interests of a wide range of stakeholders in both developed and developing countries,” the report said. “These include government officials, industry associations, companies, trade unions, consumers, social and labor political activists, and civil society organizations — all of whom need to be on board if subsidies are to be eliminated.”