16 November 2015

It’s time the state quit its fossil fuel subsidy addiction


The oil, gas and coal industries like to portray themselves as rugged, pioneering frontiersmen. So it’s a shock to learn this week that behind this façade is the reality that these industries are deeply dependent on huge amount of government support.  The truth is the fossil fuel industry, and the politicians that supply them, are subsidy junkies.

Of the many misguided economic policies, surely there are none quite so barmy as fossil fuel subsidies.

The Economist summed them up like this: “They wreck government budgets, they damage the environment and despite noble intentions they do little to help the poor, since richer folk are heavier energy consumers. (In 2008 the poorest 40 per cent of Egyptians received 3 per cent of petrol subsidies).”

So it was particularly galling to read this week that the G20, which is meeting today in Turkey, spends $452 billion a year on the wretched things. The findings, published by the Overseas Development Institute and Oil Change International, show that governments are bankrolling the fossil fuel industry through billions in direct spending, tax giveaways, investment by state owned enterprises and loans.

The report, Empty Promises, singles out the UK as a particular offender. While some other countries are at least reducing government support for fossil fuels, the UK is increasing it. The report says: “The UK stands out as a member of the G20 that, despite its pledge to phase out fossil fuel subsidies, has dramatically increased its support to the production of fossil fuels in recent years. No other G7 country has done this.”

What is sad is that the politicians know what they’re doing is folly. Last year David Cameron said in a speech at the UN that we needed to fight “against economically and environmentally perverse fossil fuel subsidies” a view shared by his Secretary of State for Energy and Climate Change, Amber Rudd.  Even the G20 itself agreed in 2009 to end the madness and phase out fossil fuel subsidies but six years on governments are still propping them up with state funding.

Like junkies, they know they need to quit but they just can’t wean themselves off the drug. Despite promising to kick the habit we find them still hooked.  And the UK government is like an addict that refuses to accept they have a problem. Ministers claim the UK doesn’t provide any fossil fuel subsidies. But whereas the Empty Promises report uses the definition recognised by the World Trade Organisation and agreed by 153 countries, the UK government cherry picks its own criteria in order to claim its hands are clean.

The UK government claims to hold the view that subsidies are for immature technologies to help them develop and deploy, but should not last any longer than necessary before they can stand on their own. Yet there aren’t many industries more mature than the fossil fuel industry, so why hasn’t the government turned off the subsidy taps? The problem is both the civil service and risk-averse ministers favour incumbent industries over insurgent ones. The contradictions with the government’s view of subsidies are so glaring that their only response has been denial – and that’s hardly the foundation for democratic debate or for good policy making.

Another striking finding is that the government spending for fossil energy from the G20 alone ($452 billion) is nearly four times larger than the global amount spent on supporting renewables ($122 billion). This lopsided playing field was criticised by the head of the International Energy Agency, Fatih Birol, who pointed out the subsidy disparity between fossil fuels and renewables meant there was not “fair competition.”  The IEA was formed following the oil shocks of the 1970s and is a leading authority providing global energy analysis. Birol said: “Fossil fuel subsidies are public enemy number one for the growth of renewable energy. I don’t understand some countries – they have renewable energy programmes and at the same time they have subsidies for fossil fuels. This is, in my view, myopic.”

Despite these myopic policies renewable energy is doing surprisingly well. Last month wind power became the cheapest form of electricity to produce in the UK and Germany, the first time it has happened in a G7 country.

Also giving the lie to the claim that fossil fuels are inherently cheap was a revealing report by the International Monetary Fund earlier this year. The IMF study factored in externalities and hidden costs of fossil fuel subsidies such as health impacts and pollution and estimated that the world was actually subsiding fossil fuels to the tune of $5.3 trillion.

Not only are their economists and their scientists telling governments it’s time to ditch subsidies the stock market is also trying to send a message.  The share price of Peabody Energy, the world’s largest private coal company, has fallen to less than a tenth of its value over the last 12 months. It’s currently trading around $13 per share compared to $170 the same time last year and above $400 in 2013. The steady collapse from its 2011 peak of over $1000 has seen it lose almost 99 per cent of its value.   That is not a horse I’d want to be backing.

G20 leaders gather in Turkey today. They should treat it like a meeting of Alcoholics Anonymous and finally put a date on when they are going to kick their fossil fuel subsidy addiction.

Joe Ware is Church & Campaigns Journalist at Christian Aid