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November 29, 2013
Fossil Fuel Subsidies Average $112 per Adult
    by Robert Kropp

A new report on subsidies by the Overseas Development Institute recommends that they be phased out globally by 2025 in order to encourage investment in renewable energy.


The Overseas Development Institute (ODI), a UK-based think tank, has analyzed fossil fuel subsidies—which include measures to reduce prices for consumers as well as tax breaks for fossil fuel companies—and found that they cost over half a trillion dollars globally every year. The amount averages out to $112 for every adult person in the world.

“We estimate that the top 11 rich-country emitters (E11) spent $74 billion on subsidies in 2011, with the highest level of subsidies in Russia, the United States, Australia, Germany and the United Kingdom,” the report states. “In effect, each of the 11.6 billion tonnes of carbon emitted from the E11 countries in 2010 came with an average subsidy of $7 a tonne – around $112 for every adult in the E11.”

Since the current price of carbon in the European Union (EU) carbon trading system has fallen to below a price of $7 per ton, “the carbon price may as well not exist,” ODI stated.

Furthermore, “these subsidies outweigh the support provided to fast-start climate finance by a ratio of 7:1,” the report continued. “These subsidies have significant implications for private investors and clean-energy project developers, who must compete with artificially low energy prices based on fossil fuels...It is clear, therefore, that eliminating rich-country fossil fuel subsidies would enable a low-carbon transition while unlocking new opportunities for energy cooperation.”

“The rules of the game are currently biased in favor of fossil fuels,” report author Shelagh Whitley said. “The status quo encourages energy companies to continue burning high-carbon fossil fuels and offers no incentive to change. We’re throwing money at policies that are only going to make the problem worse in the long run by locking us into dangerous climate change.”

As early as 2009, the G-20 nations called for an end to such subsidies, stating, "Inefficient fossil fuel subsidies encourage wasteful consumption, reduce our energy security, impede investment in clean energy sources and undermine efforts to deal with the threat of climate change." Research by the Organization for Economic Co-operation and Development (OECD) concluded that ending subsidies could help promote increased investment in renewable energy technologies.

The new ODI report recommends that G-20 nations agree to end fossil fuel subsidies by 2020, and that a global phase-out occur no later than 2025.

Also, “It is critical that national-level diagnostics that seek to ‘assess the investment climate for climate investments’ include a review of the general environment for private investment,” the report concludes. “Such a diagnostic should incorporate a review of local barriers, making it critical to include information on the current status of fossil fuel and other climate-incompatible subsidies.”

 

 
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