$312 Billion Fossil Fuel Subsidies Artificially Inflate Energy Demand

As Group of 20 leaders gather in Seoul for their latest summit, the International Energy Agency reports that global fossil fuel subsidies added up to US$312 billion in 2009, down from a whopping $558 billion in 2008. Compare those numbers to the paltry current global support for renewables (still under US$60 billion in 2009) represented in this IEA graph:

The IEA is urging the G20 to end this lopsided support for fossil fuels, for solid economic reasons.

Fossil-fuel subsidies result in an economically inefficient allocation of resources and market distortions, while often failing to meet their intended objectives…

said the agency in its World Energy Outlook released Tuesday (catch the rocking video here). Reducing those subsidies would have a “dramatic effect” on global demand.

G20 countries have resisted cutting back on fossil fuel subsidies because of the short term results: higher energy prices and reduced economic activity. This is a short-sighted approach, argues the IEA, because the subsidies distort markets and artificially disadvantage conservation and clean energy alternatives. According to the report,

Eradicating subsidies to fossil fuels would enhance energy security, reduce emissions of greenhouse gases and air pollution, and bring economic benefits.

Fossil fuel interests – the coal industry most recently – have begun to use the specter of the global poor being denied energy due to reduction in fossil fuel subsidies, but IEA points out that very few of the subsidies actually reach the poor. Shifting energy subsidies toward cleaner sources of energy and conservation would actually provide far greater benefits to those who spend the largest proportion of their income on energy, by allowing them to do more with less energy (for example, heat or cool a well-insulated home with fewer costly kilowatt hours or BTUs) and stabilizing fuel costs. To put it another way, roofing a sub-Saharan african village with photovoltaics is a lot better for the villagers over the long term than hooking them up to a coal plant.

Where oil is concerned, IEA says,

The message is clear: if governments act more vigorously than currently planned to encourage more efficient use of oil and the development of alternatives, then demand for oil might begin to ease soon and, as a result, we might see a fairly early peak in oil production. That peak would not be caused by resource constraints. But if governments do nothing or little more than at present, then demand will continue to increase, supply costs will rise, the economic burden of oil use will grow, vulnerability to supply disruptions will increase and the global environment will suffer serious damage.

IEA is a Paris-based autonomous agency created in 1974 with two missions: to promote energy security amongst its member countries through collective response to physical disruptions in oil supply and to advise member countries on sound energy policy. If you care about global energy policy and what would have to happen for the planet to meet the goals set at Copenhagen, the World Energy Outlook is required reading.

This entry was posted in climate change, Coal, energy efficiency, Green building, Renewable energy. Bookmark the permalink.

3 Responses to $312 Billion Fossil Fuel Subsidies Artificially Inflate Energy Demand

  1. Pingback: Tweets that mention $312 Billion Fossil Fuel Subsidies Artificially Inflate Energy Demand | Plains Justice Today -- Topsy.com

  2. Ecotretas says:

    You should check out what the 312 billions really mean at http://ecotretas.blogspot.com/2010/11/world-energy-outlook-2010.html


  3. @ Ecotretas: The IEA graphs show Iran, Saudi Arabia, Russia, India and China as the top 5 fossil fuel subsidizers. Considering how global energy markets are, I don’t think it matters all that much where the subsidies are coming from. According to a recent analysis by the US-based Environmental Law Institute (see (http://www.renewableenergyworld.com/rea/news/article/2009/11/the-federal-energy-subsidy-scorecard-how-renewables-stack-up), the US subsidized fossil fuels by US$72 billion from 2002-2008, versus $29 billion for renewables, of which $16.8 billion went to corn ethanol. In my humble opinion, that’s enough to have a market distorting effect. I’m not sure what your point is.

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