Published on March 15th, 2017 | by Joshua S Hill0
New Research Needed To Better Expose Social & Economic Cost Of Energy Subsidies
March 15th, 2017 by Joshua S Hill
Better research is needed to reveal the impact that energy subsidies for electricity, fossil fuels, and transport have on social welfare, economic growth, and technological innovation, says a new paper.
We have regularly reported on the disastrous impact of energy subsidies — specifically those supporting the fossil fuel industry — and the way in which they have artificially kept floundering energy sources, such as coal, a viable energy source. Of course, fossil fuel energy sources are not the only ones receiving energy subsidies, but along with nuclear they have remained one of the leading recipients of subsidies, resulting in artificially low, non-market rate prices.
A report from late 2015 published by the Overseas Development Institute and Oil Change Institute showed that G20 nations are providing $452 billion annually in fossil fuel production subsidies, despite numerous pledges to cut or wipe out such subsidies altogether. A year later, following another G20 meeting, China and the United States both voluntarily published peer reviews of their current fossil fuel subsidies, revealing that together the two countries are providing over $20 billion in fossil fuel subsidies.
According to a new paper, headed up by researchers from the University of Sussex and published in the journal Economical Economics, energy subsidies have come at an extremely high cost to both governments and taxpayers. The article reviewed global energy subsidies, and presented “evidence that energy subsidies could reach into the trillions of dollars each year.”
The researchers pointed to India as one example, a country which spends as much on fuel subsidies for kerosene and liquid propane as it does on education. India subsidizes fossil fuel energy consumption by $21 billion every year — approximately $16 per person. And considering that 500 million Indians live on less than $2 per day, this says a lot.
Additionally, the massive amounts of money being spent on fossil fuel subsidies aren’t benefiting the millions of poorest households the subsidies were intended to benefit, because they have less money to spend on fuel and electricity in the first place. This worked out, in 2010, so that less than $2 billion of the many billions spent on energy subsidies ended up benefiting the poorest 20% of the population. The subsidies actually ended up benefiting wealthier households.
The report also concluded that energy subsidies tend to have “substantial carbon footprints” because they are focused more on subsidizing fossil fuels like coal and petroleum. As subsidies lower the price, production and consumption increase at rates which do not necessarily match the market rate that would exist sans-subsidies.
“Energy subsidies have emerged to become one of the most polemic, pervasive, and political energy policy tools,” the authors of the report said in their introduction. “On the one hand, their often-stated justification is that subsidies help target public resources into neglected areas of infrastructure and development; can spur much-needed innovation; and/or are instrumental at achieving various social or technological goals” — though this is quickly being revealed to be misleading at best.
“On the other hand, many subsidies serve almost no discernible public good — and in some ways, they can do considerable bad,” the authors continue, going on to quote Kiyo Akasaka, former United Nations Deputy Secretary General: “Subsidies often introduce economic, environmental, and social distortions with unintended consequences. They are expensive for governments and may not achieve their objectives while also inducing harmful environmental and social outcomes.”