Global Fossil Fuel Subsidies Dwarf Funding Commitment To Climate Change

As representatives of nearly 200 countries gathered in Paris to discuss ways of reducing emissions from fossil fuels, many pointed to what they consider a simple and obvious way to change behavior: Stop widespread subsidies that encourage the use of fossil fuels.

Industrialized nations agreed to start phasing the subsidies out after an agreement at the Group of 20 summit meeting of the world's largest economies in 2009, and some progress has been made. The International Energy Agency said its $490 billion estimate for worldwide fossil fuel subsidies in 2014 would have been $610 billion if not for changes since that agreement.

But calls for greater cuts continue. The energy agency issued a statement last month identifying the elimination of subsidies as one of the most effective strategies for reducing greenhouse gas emissions. The subsidies are "public enemy No. 1 in terms of sustainable development," said Fatih Birol, executive director of the agency.

On Monday, the first day of the climate conference, representatives of 35 governments and hundreds of businesses and organizations issued a call for countries to take aggressive action to phase out fossil fuel subsidies. Christiana Figueres, executive secretary of the United Nations Framework Convention on Climate Change, said, "The huge sums involved globally could be better spent on schools, health care, renewable energies and building resilient societies."

In their simplest form, fossil fuel subsidies amount to government spending to keep the price of fuel low for citizens. They are why gasoline in Venezuela costs about 2 cents per gallon. The International Energy Agency estimates that global subsidies total about $490 billion a year. Those direct subsidies are found chiefly in the developing world and in oil-producing nations.

Industrialized countries like the United States are less likely to reduce the cost of fuel at the pump with government money, but experts who track subsidies say that America, too, finds ways to support fossil fuel use through tax breaks and in backing for exploration and production. The Organization for Economic Cooperation and Development has counted 800 ways that rich industrial nations use taxpayer money to support fossil fuel producers.

A new report from Oil Change International, an energy research and advocacy group, estimates that aid to the coal, oil and natural gas industries came to $452 billion last year. The group said the situation amounted to governments "allowing fossil fuel producers to undermine national climate commitments, while paying them for the privilege."

"We have to stop using government funds to support the industry that is causing the problem," said Stephen Kretzmann, executive director and founder of Oil Change International. "That would seem to be the low-hanging fruit of solving climate change: When you're in a hole, stop digging. And yet we really haven't made much progress."

The International Monetary Fund has come up with a much higher estimate for the global total of fossil fuel subsidies - $5.3 trillion, which includes the costs of the effects of energy use on people's health, the environment and climate change. That figure constitutes 6.9 percent of the global gross domestic product.

Whatever the estimates, they stand in sharp contrast to the money being spent on reducing the effects of climate change. Even the lowest subsidy estimates far exceed the pledge by advanced industrialized nations to spend $100 billion a year by 2020 to fight climate change.

A recent report from the Climate Policy Initiative, a nonprofit research and policy organization funded by financier George Soros, suggested that to keep the global temperature from rising more than two degrees Celsius would require about $1 trillion per year.

Bill Hare, chief executive of the nonprofit research and policy group Climate Analytics, said taking action on direct subsidies could have a profound effect. "Emissions could be reduced by up to 20 percent from what would otherwise occur if you removed fossil fuel subsidies," he added.

Critics of subsidies say their greatest benefits go to the middle class and the rich, who can better afford cars.

By keeping conventional fuels at low prices, subsidies also make alternative energy sources less affordable in comparison. The International Energy Agency's 2014 World Energy Outlook report warned, "Fossil fuel subsidies rig the game against renewables and act as a drag on the transition to a more sustainable energy system."

That report noted that some countries spent a greater share of their gross domestic product on fossil fuel subsidies than on health or education.

Going into the Paris climate talks, Morocco, India, Ethiopia, Vietnam, Singapore, China and Mexico had committed to addressing subsidies, Kretzmann said. "Governments have a lot of incentive and opportunity to eliminate those now, with oil prices so low," he added.

And as prices have dropped, subsidies have been reduced in many countries, including India, Indonesia, Mexico and the United Arab Emirates, said Hare of Climate Analytics.

While attempts to cut subsidies have led to social unrest, more recent efforts, including a gradual phaseout to soften the blow, have enjoyed quiet success.

But previous efforts have often been abandoned when global fuel prices rise and consumers are pinched. "If you look at the history of fuel subsidy reform, it doesn't always stick," said Michael L. Ross, a professor of political science at the University of California, Los Angeles, who studies energy subsidies.

A study from the Carbon Tracker Initiative, the Institute for Energy Economics and Financial Analysis and other groups suggested that eliminating production subsidies for the Powder River Basin coal region in Wyoming and Montana alone would raise the price of that coal enough to reduce demand for it by 30 percent in the long term, which the study estimates would equal the emissions from as many as 32 coal-burning plants.

Michael A. Levi, an energy expert with the Council on Foreign Relations, said that fuel subsidies were an inefficient way to help the poor, anyway. However, he noted that better ways were not necessarily available. Giving money directly to the poor to make up for the lost fuel savings would require a banking and credit infrastructure that often cannot be found in the developing world.

"You shouldn't want to solve these countries' fiscal problems on the backs of their weakest citizens," Levi said.

In the United States, a long-standing coalition of environmentalists and libertarians has sought to eliminate tax breaks and policies that support the fossil fuel industry. Eli Lehrer, the co-founder of the R Street Institute, a free-market think tank in Washington, said the oil industry did not need many of the tax breaks it received.

"I doubt that eliminating the intangible drilling cost write-off would reduce oil production at all," he said.

Carlton Carroll, a spokesman for the American Petroleum Institute, said the tax breaks for his industry "are similar to other manufacturing sectors." He added, "As an industry, we pay higher taxes than any other."

Such arguments do not convince Lehrer, whose group is part of the Green Scissors coalition that includes environmentally conscious budget cutters across the political spectrum. "These subsidies on fossil fuels are a very good, transideological issue," he said. "To the left, it's a terrible act of environmental destruction. To the right, it's crony capitalism. And both sides are true."