Why is public money supporting fossil fuels?

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Why is public money supporting fossil fuels?

Danny Chivers writes about how, at a time of climate breakdown, public money still supports the fossil fuel industry.


Fossil fuel subsidies are still increasing. Credit: John W Banagan/Getty

Fossil-fuel subsidies are in the news again. Even with the terrible effects of climate change, government support for oil, coal, and gas is increasing.

But no-one can really agree on how much money goes to subsidizing fossil fuels. The argument against these subsidies is simple - ‘Do you want to stop climate breakdown? Then stop giving money to the industries that cause it’. But the details are a bit more complicated.

That’s because most fossil fuel subsidies aren’t usually money direct from the government but they are indirect support that it is difficult to measure.

The first kind of subsidies are ‘production’ subsidies. These are direct payments and tax breaks to fossil-fuel companies, including subsidies for specific projects and payments to help shutting and cleaning up mines. These payments are different in different countries and are often difficult to understand and to measure. The International Energy Agency (IEA) gives figures of $70 to $100 billion per year but the figures are likely to be higher.

The second kind of subsidies are tax breaks or payments that make fossil fuels cheaper for the customer. Two important examples of these ‘consumption’ subsidies are reduced Value Added Tax (VAT) on heating fuels in the UK, and supporting vehicle fuel in oil-rich states like Saudi Arabia. The IEA says these subsidies were about $400 billion in 2018.

The third kind of subsidies are ‘after tax’. They are not really a subsidy but the costs to society of climate change, air pollution, and other negative effects of fossil fuels. It is more difficult to measure but it is a good way to show the costs of all the damage from burning carbon. The IMF says these costs are about $4,700 billion.

Protesters usually think about production and consumption subsidies, which are $500 billion per year. This is not the full picture. Other forms of government support are military spending to protect oil infrastructure, and politicians travelling around the world to promote the fossil-fuel interests of transnational companies. But the IEA says renewable energy subsidies are only about $140 billion.

At this time in 2019, it is not possible to defend fossil fuel subsidies. We need to replace the subsidies which make fuel cheaper for people on low incomes. But we should not use public money ‘to increase hurricanes, droughts, and (fuel) heat waves’, as UN chief António Guterres said in 2019.

The G20 nations promised to stop them in 2009, but there is very little progress. The big decrease in subsidies for coal production in the EU is positive. Some countries used the low oil prices to cut their fuel consumption subsidies between 2010 and 2016. But the IEA said that in 2017 and 2018 there was an increase in consumption subsidies, as oil prices increased again.

Some countries are going in the wrong direction. In the next five years, the UK’s oil industry will receive $6.2 billion more than it pays in taxes, thanks to generous government support. The Institute on Taxation and Economic Policy says that in the US, Republican tax changes in 2017 gave $25 billion to oil and gas companies. And Australia is planning to support new coalmines with hundreds of millions of dollars.

Much of this is because of the power of the fossil-fuel industry. As protesters speak against fossil-fuels, it is a good idea for them to add stopping subsidies. A recent report showed that stopping fossil-fuel subsidies could stop over a billion tonnes of greenhouse emissions in the UK. It is time to stop these terrible subsidies to polluters.



(This article has been simplified so the words, text structure and quotes may have been changed)