Why Are We Still Subsidizing Fossil Fuels?

Jim Motavalli

Jim Motavalli | Nov 05, 2013

Why are we still using hundreds of billions from taxpayers worldwide to shore up oil, gas and coal producers--many of them hugely profitable--from windfall profits? The question seems apt in the early 21st century, as we’re deep into recognizing the peril that burning oil and coal poses for our planet, and only a virtual halt in such emissions will stabilize the carbon dioxide in the atmosphere.

Traffic on Los Angeles' 405 highway, 99.5 percent of it gasoline powered. (Flickr/MacAppsAddict)
Traffic on Los Angeles' 405 highway, 99.5 percent of it gasoline powered. (Flickr/MacAppsAddict)

According to a new Overseas Development Institute report out of London, government subsidies for fossil fuels topped $500 billion globally in 2011. And contrary to what you might think, these giveaways are increasing, not on the wane.
As we subsidize oil production in countries like Nigeria (where a popular refrain goes, “The flames of Shell/Are flames of hell”) we’re paying the majority of the money to the richest 20 percent of the population—it’s no grassroots subsidy, more like payouts to the plutocracy. According to the International Monetary Fund, the poorest 20 percent typically receive less than seven percent of the benefits.
It’s kind of appalling, given that last statistic, that more than 75 percent of energy projects supported by international financial institutions are for fossil fuels. The World Bank alone lent $2.7 billion for such projects from 2012 to 2013. Needless to say, wind and solar—though a bright spot in some parts of the world—are still struggling for available capital.  
The fossil fuel subsidies have the effect of warping the economy in many parts of the world. The big bucks for oil easily top spending on health and education in some developing countries. Phasing out the government welfare in the wealthier parts of the world by 2020 would seem to be an achievable goal. Right now the money supporting oil production dwarfs the allocations to fight climate change by a factor of seven to one.
It’s difficult to argue that the Western world will come crashing down without oil, gas and coal support. The demand for oil remains robust internationally, and—thanks to fracking—the natural gas market is booming. And oil companies are raking it in. As the Atlantic reports, "Between drilling and refining, Exxon's U.S. operations alone earned $7.5 billion after taxes in 2012. California-based Occidental Petroleum Corporation, one of the so-called 'independent' oil companies and the top oil driller in Texas, raked in $7.1 billion via its oil and gas division." By the way, oil prices have been falling (to under $3 per gallon in some places) but that's not because of those around-forever subsidies--it's the international spot market (and maybe a bit of price manipulation here and there).
The industrial leaders grouped together in the Organization for Economic Co-operation and Development (OECD) spend an average of $55 to 90 billion each supporting oil now. Just 11 countries spent $74 billion in 2011, with the largest amounts from Russia, Great Britain, Australia and Germany. Together, these 11 emitted 11.6 billion tons of carbon dioxide, with an average subsidy of $7 per ton.

Oil derricks near Bakersfield, California. Subsidies are available. (Tango McEffrie/Flickr)
Oil derricks near Bakersfield, California. Subsidies are available. (Tango McEffrie/Flickr)

It makes sense to target the richer countries in the G20 because, collectively, they produce 78 percent of carbon emissions. Argues ODI, “If governments are to keep their promise to avoid dangerous climate change by holding global warming to the two-degree commitment, they need to make carbon emissions progressively more  costly through a clear and explicit price on [those] emissions.”
The logic is there, but I’m less than optimistic that this will happen. In the U.S., for instance, we exempt farmers from fuel taxes to the tune of $1 billion, use another billion to shore up the strategic reserve, and $500 million to encourage fossil fuel research and development. All those things have powerful allies in Congress. 

The IMF, target of conspiracy theorists the world around, actually supports ending fossil fuel subsidies. It totals up the payments and then adds in the negative effects of burning oil, coal and natural gas, and comes up with a $2 trillion annual bill. Congressional Democrats and President Obama don't need convincing, but any legislation would receive withering fire in the Republican-controlled House. The influential Washington-based Hill newspaper says any such proposal would be "dead in the water." That's just "the way it is," as Bruce Hornsby might say.

Here's President Obama, in 2011, decrying oil company windfall profits and calling for an end to subsidies. Two years later, we're still paying them out:

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