IEA Opposed To Cheap Energy For Developing Nations

By Paul Homewood

h/t Robin Guenier

Once again, the IEA is trying to stir things up re “fossil fuel subsidies”:

Worldwide fossil fuel consumption subsidies almost halved between 2012 and 2016, from a high point in 2012 of more than half a trillion dollars. But the estimate crept higher again in 2017, according to new data from World Energy Outlook 2018, and the run-up in the oil price in 2018 is putting pricing reforms under pressure in some countries.

The new data for 2017 show a 12% increase in the estimated value of these subsidies, to more than $300 billion. Most of the increase relates to oil products, reflecting the higher price for oil (which, if an artificially low end-user price remains the same, increases the estimated value of the subsidy). In 2016, for the first time, the value of subsidies to fossil-fuelled electricity were higher than for oil. The 2017 data sees oil return as the most heavily subsidised energy carrier.

Fossil fuel consumption subsidies are in place across a range of countries. These subsidies lower the price of fossil fuels, or of fossil-fuel based electricity, to end-consumers, often as a way of pursuing social policies including energy access.

There can be good reasons for governments to make energy more affordable, particularly for the poorest and most vulnerable groups. But many subsidies are poorly targeted, disproportionally benefiting wealthier segments of the population that use much more of the subsidised fuel.

Such untargeted subsidy policies encourage wasteful consumption, pushing up emissions and straining government budgets. Phasing out fossil fuel consumption subsidies is a pillar of sound energy policy.

The period of high oil prices from 2010-2014 provided strong motivation for many oil-importing countries to pursue subsidy reform. The fall in price that began in 2014 presented the opportunity. A host of countries, from India to Indonesia and from Mexico to Malaysia, have implemented pricing reforms in recent years.

https://www.iea.org/newsroom/news/2018/october/hard-earned-reforms-to-fossil-fuel-subsidies-are-coming-under-threat.html

Every time a report like this comes out, Greenpeace and co leap up and down, pretending that taxpayers are actually handing money over to wicked oil companies.

In fact, as the IEA admit, these are “consumer subsidies”, and not “producer subsidies”. The latter are, of course, what we are paying to wind farms in this country, to enable them to compete with fossil fuels.

By contrast, consumer subsidies are given to keep prices down for the consumer, in this case energy, which may or may not come from fossil fuels.

The IEA explain their methodology below:

The IEA estimates subsidies to fossil fuels that are consumed directly by end-users or consumed as inputs to electricity generation. The price-gap approach, the most commonly applied methodology for quantifying consumption subsidies, is used for this analysis. It compares average end-user prices paid by consumers with reference prices that correspond to the full cost of supply. The price gap is the amount by which an end-use price falls short of the reference price and its existence indicates the presence of a subsidy.

https://www.iea.org/weo/energysubsidies/

My first reaction is just what the hell does any of this have to do with the IEA?

If, for instance, the Indian government wants to subsidise the price of electricity, so that its citizens are able to afford to run air conditioners, then that is up to them, and nobody else.

Similarly, if Iran wants to subsidise natural gas to enable its people to survive in winter, what right does the IEA to criticise?

The Report actually notes that such subsidies can be beneficial, but then ludicrously go on to complain that some richer people might benefit as well:

There can be good reasons for governments to make energy more affordable, particularly for the poorest and most vulnerable groups. But many subsidies are poorly targeted, disproportionally benefiting wealthier segments of the population that use much more of the subsidised fuel.

In reality, energy taxes are one of the most regressive taxes of all. Removal of subsidies would have the same effect.

Subsidising energy for industry is also seen to be important by many countries, who would worry about the loss of competitiveness if they were withdrawn.

The IEA, of course, has ulterior motives, and could not give a toss about the wellbeing or livelihoods of ordinary people in developing nations, where all of the subsidies are concentrated. No EU country appears on the list, nor the US, Canada or Australia:

https://www.iea.org/weo/energysubsidies/

That is because the IEA is set up under the auspices of the OECD, the rich nations club.

Originally the IEA was designed to help countries co-ordinate a collective response to major disruptions in the supply of oil, such as the crisis of 1973/4.

In theory, its four main areas of focus are:

Energy Security: Promoting diversity, efficiency, flexibility and reliability for all fuels and energy sources;

Economic Development: Supporting free markets to foster economic growth and eliminate energy poverty;

Environmental Awareness: Analysing policy options to offset the impact of energy production and use on the environment, especially for tackling climate change and air pollution; and

Engagement Worldwide: Working closely with partner countries, especially major emerging economies, to find solutions to shared energy and environmental concerns.

https://www.iea.org/about/ourmission/

However, it no longer seems to care about energy security, fostering economic growth or eliminating energy poverty.

Instead, it appears to have an overarching remit to tackle climate change. If there was any doubt at all about this, check out Fatih Birol’s despair last week at the news that CO2 emissions were continuing to climb.

And as far as he is concerned, developing countries can go to hell.