Global Fossil Fuel Subsidies Still Total More Than $5 Trillion Annually

August 9th, 2017 by Steve Hanley

You hear it all the time: “Government should not be picking winners and losers.” We hear that argument used most frequently to attack government investment in renewable energy research or incentives for consumers to incorporate sustainable technology like electric cars or solar power into their lives. Most of the time, the argument is made by advocates for fossil fuel companies like ExxonMobil and Koch Industries.

That message suggests that only the unfettered exercise of free market principles should by allowed in the sphere of economic activity. The “unseen hand” of the marketplace will reward those who make the best products for the best price and punish those who do not.

There is a charming surface appeal to this argument. First of all, it prevents government from interfering in the marketplace to grant political favors. Second, it suggests that the best possible economic outcomes — higher employment, higher wages, and higher GDP — all will be achieved if only government will get out of the way of business and let pure capitalism work its magic.

The Level Playing Field Fallacy

The fossil fuel companies say all they want is a level playing field. But in fact, they want a playing field that is tilted so far in their favor that no one else has a chance to compete. While bleating about winners and losers and the horrors of government regulation, they are benefiting from trillions of dollars worth of direct and indirect subsidies every year, as a new report in The Guardian highlights.

A study by four economists working for the International Monetary Fund — not exactly a liberal outfit — and published in March in the journal World Development finds that direct and indirect subsidies to fossil fuel companies amount to 6.5% of global GDP. And what does that translate to in terms that ordinary folks can grasp? Right about $5 trillion dollars, the authors say. Yes, trillion.

Direct Vs. Indirect Subsidies

Not all of that is in the form of cash money. Much of it is in avoided costs — things the fossil fuel crowd are responsible for but are excused from paying for. They include “not only supply costs but also environmental costs like global warming and deaths from air pollution and taxes applied to consumer goods in general.”

The authors argue that this broader view of subsidies is the correct view because they “reflect the gap between consumer prices and economically efficient prices.” They do not include such incidentals as the US military, which has been used most often to guarantee access by America and its friends to natural resources, especially oil. Imagine how much that would jack up the real price.

It is impossible for such calculations to be precise. How does one value the economic detriment of illness or shortened lifespan of billions of people who are impacted by changes in the environment? What exactly does a rise of 1 degree in the average temperature of the atmosphere cost the world community?

The answers are necessarily approximations. But the claim by fossil fuel advocates that these factors have no value is plainly wrong and worthy of no consideration. It is just window dressing designed to forestall the final reckoning as long as possible while enriching their masters as long as possible. The report identifies China, the United States, and Russia as the three largest providers of fossil fuel subsidies. Coal leads the list, with oil second.

The Promise Of Renewables

The lesson to be learned from this study is that renewable energy sources such as wind and solar power do not have the environmental impacts of fossil fuels and therefore hold an economic advantage over their fossil fuel rivals.

David Coady, one of the study’s authors, says, “A key motivation for the paper was to increase awareness among policy makers and the public of the large subsidies that arise from pricing fossil fuels below their true social costs — this broader definition of subsidies accounts for the many negative side effects associated with the consumption of these fuels.

“By estimating these costs on a global scale, we hope to stimulate an informed policy debate and provide renewed impetus for policy reforms to reap the large potential benefits from more efficient pricing of fossil fuels in terms of improved public finances, improved population health and lower carbon emissions.”

The Fossil Fuel Gang’s Great Lie

The great lie at the heart of the “government should not be in the business of picking winners and losers” argument is that one of the core constructs of capitalist theory is the idea of “creative destruction.” First expressed by Joseph Schumpeter in 1942, it posits that the “the essential fact about capitalism” is that constant product and process innovation will continuously replace outdated production units with new, more innovative ones.

What the fossil fuel crowd is really saying is they want a special exemption from Schumpeter’s principal. It is a well known human principle that everyone wants to lock the clubhouse door just as soon as they gain admission to the club.

We have seen creative destruction at work in the way laptops replaced the desktop computer, only to be replaced itself by the smartphone. The auto industry is watching in awe as Tesla upends the industry with its innovative electric cars. Solar and wind power are rapidly supplanting traditional energy sources.

What is comes down to is that the fossil fuel interests are trying their hardest to divert our attention from the fact that their business model is under attack and losing ground daily. By advocating against any special attention for their rivals, they are really pleading for special attention for themselves.

It is long past time for the nations of the world to stop propping up these declining industries and embracing the future rather than the past.

Source: The Guardian









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