Subsidies lock us into a high-carbon energy world, which is bad for us and the environment.
To keep voters and consumers happy, governments around the world spend between $160 billion and $400 billion each year on subsidies for the production and use of coal, oil and gas. The aim, of course, is to keep the prices of these fossil fuels artificially low.
Yet by subsidizing fossil fuels, taxpayers will eventually end up paying a lot more for their continued reliance on coal, oil and gas: the effects of climate change will cost trillions upon trillions of dollars in coming decades. That is why, says the United Nations, such subsidies must stop. Instead, the world’s nations must start, or continue, investing more in low-carbon energy sources.
“Understanding the size of existing fossil fuel subsidies is an important first step towards achieving reform,” Joy Kim, an expert on fossil fuel subsidies at UN Environment, says. “You can’t manage what you can’t measure.”
Global financial support to renewable energy amounts to only $121 billion, which pales beside subsides for fossil fuels. Encouragingly, however, low-carbon sources are becoming ever larger parts of energy plans from the United Kingdom and France to China and India.
In tandem, several countries’ governments are reconsidering subsidies on fossil fuels as they are discovering “not only the necessities, but also the benefits of subsidy removal,” the UN notes. “For example, in June 2018, Argentina and Canada committed to peer reviews of their fossil fuel subsidies under the G20 process. China, Germany, Indonesia, Italy, Mexico and the USA had done this earlier.”
By keeping the prices of fossil fuels artificially low, subsidies are contributing to wasteful consumer habits, which in turn are exacerbating environmental problems such as air pollution. When gasoline is cheap, more people continue driving even to short distances away, for instance. Fewer people are also likely to take public transport in favor of passenger cars during their commutes to and from work.
According to a 2015 study by the International Monetary Fund, removing fossil fuel subsidies and taxing fossil fuels based on its actual costs to consumers in terms of the environmental harm they cause there would be a drop of 20% in fossil fuel-related carbon emissions worldwide. Removing these subsidies would also reduce premature air pollution-related deaths by more 50% per cent. In addition, government revenues would balloon by $2.9 trillion, or almost 4% of global GDP.
Instead, subsidies “lock us into a high-carbon energy world,” the UN warns. “Coal, oil and gas not only produce health-damaging pollutants when they burn: the extraction process also produces significant quantities of carbon dioxide and methane. The sheer size of the subsidies is [also] a significant drain on national budgets, diverting resources from other areas like health and education.”