Energy subsidies | Levelling the Subsidy Playing Field

Originally published at JBS News by John Brian Shannon John Brian Shannon

By now, we’re all aware of the threat to the well-being of life on this planet posed by our massive and continued use of fossil fuels and the various ways we might attempt to reduce the rate of CO2 increase in our atmosphere.

Divestment in the fossil fuel industry is one popular method under discussion to lower our massive carbon additions to our atmosphere

The case for divestment generally flows along these lines;
By making investment in fossil fuels seem unethical, investors will gradually move away from fossil fuels into other investments, leaving behind a smaller but hardcore cohort of fossil fuel investors.

Resulting (in theory) in a gradual decline in the total global investment in fossil fuels, thereby lowering consumption and CO2 additions to the atmosphere. So the thinking goes.

It worked well in the case of tobacco, a few decades back. Over time, fewer people wanted their names or fund associated with the tobacco industry — so much so, that the tobacco industry is now a mere shadow of its former self.

Interestingly, Solaris (a hybridized tobacco plant) is being grown and processed into biofuel to power South African Airways (SAA) jets. They expect all flights to be fully powered by tobacco biofuel within a few years, cutting their CO2 emissions in half. Read more about that here.

Another way to curtail carbon emissions is to remove the massive fossil fuel subsidies

In 2014, the total global fossil fuel subsidy amounted to $548 billion dollars according to the IISD (International Institute for Sustainable Development) although it was projected to hit $600 billion before the oil price crash began in September. The global fossil fuel subsidy amount totalled $550 billion dollars in 2013. For 2012, it totalled $525 billion dollars. (These aren’t secret numbers, they’re easily viewed at the IEA and major news sites such as Reuters and Bloomberg)

Yes, removing those subsidies would do much to lower our carbon emissions as many oil and gas wells, pipelines, refineries and port facilities would suddenly become hugely uneconomic.

We don’t recognize them for the white elephants they are, because they are obscured by mountains of cash.

And there are powerful lobby groups dedicated to keeping those massive subsidies in place.

Ergo, those subsidies likely aren’t going away, anytime soon.

Reducing our CO2 footprint via a carbon tax scheme

But for all of the talk… not much has happened.

The fossil fuel industry will spin this for decades, trying to get the world to come to contretemps on the *exact dollar amount* of fossil fuel damage to the environment.

Long before any agreement is reached we will be as lobsters in a pot due to global warming.

And know that there are powerful lobby groups dedicated to keeping a carbon tax from ever seeing the light of day.

The Third Option: Levelling the Subsidy Playing Field

  • Continue fossil fuel subsidies at the same level and not institute a carbon tax.
  • Quickly ramp-up renewable energy subsidies to match existing fossil fuel subsidies.

Both divestment in fossil fuels and reducing fossil fuel subsidies attempt to lower our total CO2 emissions by (1) reducing fossil fuel industry revenues while (2) a carbon tax attempts to lower our total CO2 use/emissions by increasing spending for the fossil fuel industry

I prefer (3) a revenue-neutral and spending-neutral solution (from the oil company’s perspective) to lower our CO2 use/emissions.

So far, there are no (known) powerful fossil fuel lobby groups dedicated to preventing renewable energy from receiving the same annual subsidy levels as the fossil fuel industry.

Imagine how hypocritical the fossil fuel industry would look if it attempted to block renewable energy subsidies set to the same level as fossil fuel subsidies.

Renewable energy received 1/4 of the total global subsidy amount enjoyed by fossil fuel (2014)

Global Energy Subsidies (2014, in billions USD). Image courtesy of IISD.
Global Energy Subsidies 2014. (billions USD). Image courtesy of IISD.

Were governments to decide that renewable energy could receive the same global, annual subsidy as the fossil fuel industry, a number of things would begin to happen;

  • Say goodbye to high unemployment.
  • Say goodbye to the dirtiest fossil projects.
  • Immediate lowering of CO2 emissions.
  • Less imported foreign oil.
  • Cleaner air in cities.
  • Sharp decline in healthcare costs.
  • Democratization of energy through all socio-economic groups.

Summary

Even discounting the global externality cost of fossil fuel (which some commentators have placed at up to $2 trillion per year) the global, annual $548 billion fossil fuel subsidy promotes an unfair marketplace advantage.

But instead of punishing the fossil fuel industry for supplying us with reliable energy for decades (by taking away ‘their’ subsidies) or by placing on them the burden of a huge carbon tax (one that reflects the true cost of the fossil fuel externality) I suggest that we simply match the renewable energy subsidy to the fossil subsidy… and let both compete on a level playing field in the international marketplace.

Assuming a level playing field; May the best competitor win!

By matching renewable energy subsidies to fossil fuel subsidies, ‘Energy Darwinism’ will reward the better energy solution

My opinion is that renewable energy will win hands down and that we will exceed our clean air goals over time — and stop global warming in its tracks.

Not only that, but we will create hundreds of thousands of clean energy jobs and accrue other benefits during the transition to renewable energy. We will also lower healthcare spending, agricultural damage, and lower damage to steel and concrete infrastructure from acid rain.

In the best-case future: ‘Oil & Gas companies’ will simply become known as ‘Energy companies’

Investors will simply migrate from fossil fuel energy stock, to renewable energy stock, within the same energy company or group of energy companies.

At the advent of scheduled airline transportation nearly a century ago, the smart railway companies bought existing airlines (or created their own airlines) and kept their traditional investors and gained new ones.

Likewise, smart oil and gas companies, should now buy existing renewable energy companies (or create their own renewable energy companies) and keep their traditional investors and gain new ones.

Related Articles:

G20 Brisbane 2014 Hints at Eliminating Fossil Fuel Subsidies

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As the G20 Brisbane 2014 wraps up, leaders discussed the eventual elimination of the massive global subsidies paid to the fossil fuel industry which topped some $600 billion dollars last year, slightly more than last year’s $550 billion and 2012′s $500 billion.

Meanwhile, non-polluting renewable energy continues to receive peanuts — well under $100 billion dollars worldwide in 2014.

At the G20 Brisbane 2014 Summit leaders discussed elimination of the massive $600 billion dollars subsidy paid to the fossil fuel industry in 2014.
At the G20 Brisbane 2014 Summit leaders discussed elimination of the massive $600 billion dollars subsidy paid to the fossil fuel industry in 2014.

Clean energy does have it’s detractors, similar to the criticisms by the detractors of aircraft travel 100 years ago when people traveled by ship or by train. But, “The times, they are a changin’,” rings true in this century too!

“We do it this way, because we’ve always done it this way,” is no longer good enough. The fossil fuel industry provides the fuel for the world’s transportation industry and it is the most heavily subsidized industry on the planet and has been given carte blanche to operate in any way it sees fit.

Fine. We needed the oil. Whatever has taken place was done with our tacit approval. But with the very real effects of climate change now becoming clearer to us with each passing year, not to mention the more poignant effects on human health by breathing polluted air and drinking fracked water, fossil now requires a relook.

It’s not just climate and individual health concerns that are driving the discussion, health care systems around the world are now realizing that a good portion of disease and mortality are directly relatable to the environment. In major industrialized nations, billions of dollars in health care dollars are spent to repair the damage to people’s health from fossil fuel emissions. It’s not a few billion ‘here and there’ it may be as high as 1/3rd of all health care spending in the world’s most industrialized nations.

The cost of fossil is becoming a very large number for even the richest countries

  • Climate: For each 1 degree of climate increase the world will spend 1 trillion dollars to counter drought, sea level rise, abnormal storm activity and land remediation.
  • Health: Our sophisticated health care systems can now argue with statistical proof that fossil fuel burning contributes to human mortality and disease in a much more precise manner than in decades past.
  • Costs: $600 billion dollars in subsides is a lot for the world’s nations to bear. And that number continues to grow each year as all of the ‘easy oil’ and ‘easy gas’ is already tapped and locations with special extraction methods must be employed.

From the G20 Energy Sustainability Working Group 2014, Co-chair’s Report

Inefficient fossil fuel subsidies

G20 members reported to G20 finance ministers in September on their progress towards meeting the G20 commitment, initially made at the 2009 Pittsburgh summit and reaffirmed at subsequent summits, to “ rationalize and phase out inefficient fossil fuel subsidies that encourage wasteful consumption over the medium term ”. The ESWG benefitted from updates on the preparations for the first round of voluntary peer reviews involving the United States and China. A second round of voluntary peer reviews involving other G20 countries is expected to commence in mid – 2015. Germany has announced it will participate in the second round.

In response to a request from leaders at the 2013 Saint Petersburg summit, the ESWG tasked the World Bank Group, in consultation with other relevant international organisations, to prepare a report on transitional policies to assist the poor while phasing out inefficient fossil fuel subsidies that encourage wasteful consumption. The World Bank Group provided regular updates to the ESWG through the year and the final report was delivered to finance ministers in September. — Read the full report here.

It looks like ‘business as usual’ is headed for change in the energy industry

Only fossil fuel superpowers Australia (coal), Canada (coal, oil, tar-sands petroleum, fracked gas and conventional gas, deepsea oil extraction), and Saudi Arabia (oil), alone out of the G20 did not see fit to endorse the Energy Sustainability Working Group 2014 report.

No surprise there. However, the day is coming when the costs of not switching to clean energy will far exceed the costs of switching. If all energy subsidies were magically and instantly removed — that day would be today.