The first thing people need to do when having a debate is to define their terms. In the case of fossil fuel subsidies, a failure to define terms has muddied the waters considerably when it comes to determining which governments are continuing to subsidize fossil fuels and which are not.
A report from the European Commission dated January 9 claims the UK provides more subsidies to fossil fuel companies than any other country in Europe. The UK government hotly denies the charge. Who’s right and who’s wrong? It depends on how you define “subsidies.”
Joan Walley, chair of the UK environmental audit select committee from 2010 through 2015, tells The Guardian, “Back in 2013-14 the environmental audit select committee found that ‘energy subsidies in the UK are running at about £12bn a year, much directed at fossil fuels.’ It concluded that ‘the absence of any internationally agreed definition of what constitutes energy subsidy has provided a way for the government to reject — erroneously in our view — the proposition in some areas that it provides energy subsidies.’
“Our subsequent recommendations set out a clear way forward for much needed transparency and a public debate on the rationale and justifications for energy subsidies in the UK. Five years on, instead of continuing to deny fossil fuel subsidy, the government could usefully revisit our measured report and recognize that the majority of subsidies are off-budget — externalities that do not appear in national accounts as government expenditure. The time for action is long overdue.”
The European Commission report found that the UK, France, the Netherlands, Sweden, and Ireland all gave more to fossil fuels than to renewables, according to The Guardian. The UK subsidies were highest of all nations, due in large part to its 5% VAT on domestic gas and electricity bills. The VAT on those items should be 20%, which is the rate on all other purchases.
The government does not dispute the Commission’s figures but claims the reduction in the VAT is not a subsidy as defined by the International Energy Agency. “We do not subsidize fossil fuels,” a government spokeswoman said. “We’re firmly committed to tackling climate change by using renewables, storage, interconnectors, new nuclear and more to deliver a secure and dynamic energy market at the least possible cost for consumers.”
Shelagh Whitley of the Overseas Development Institute scoffed at the government’s claim that it does not subsidize fossil fuels. “They are lying. It’s absurd. They are playing games and continuing to prop up a centuries old energy system,” she said according to another Guardian article.
Whitley went on to say the definition of subsidies according to the World Trade Institute, which is accepted by the UK and 163 other nations, includes “government revenue that is otherwise due, foregone or not collected” such as reduced tax rates. Other countries, such as Germany and Italy, call such tax breaks subsidies, she said and noted the UK also gives tax breaks to oil and gas operators in the North Sea.
The Guardian report notes the chancellor Philip Hammond stated last September that the government has forfeited billions of pounds by opting not to increase taxes on gasoline and diesel fuel. “The fuel duty freezes since 2011 have meant that the exchequer has forgone around £46 billion in revenues through to 2018-19.” The taxes not collected amount to “about twice as much as we spend on all NHS nurses and doctors each year.” If that’s not a subsidy, it’s hard to imagine what is.
The government claims citizens would not be able to afford their utility bills if the standard VAT rate was imposed but that argument fell on deaf ears at the ODI, where Ipek Gencsu, an expert on subsidies said, “There are better ways to help on heating costs in the UK, such as installing insulation measures.”
Craig Bennett, CEO of Friends of the Earth CEO, agrees. “Spiraling climate change is going to cost people and our economy huge sums of money, through the damage, disruption and instability it causes,” he says. “So it’s astonishing that the UK government is still throwing taxpayers’ money at some of the world’s largest oil and gas companies. Ministers must switch funding to rapidly boost energy efficiency and renewables.”
Europe Fossil Fuel Subsidies Continue at 2008 Levels
Despite lofty pledges and flowery words at the the COP 21 climate summit in Paris in 2015, the European Commission report found that total subsidies for coal, oil and gas among EU nations remained about the same level as they were in 2008. Germany, Spain, and Italy all provided more subsidies to renewable energy than fossil fuels. Germany led all nations in renewable support at €27 compared to only €9.5 billion for fossil fuels.
“However, despite this and the international commitments made in the context of G20 and G7, fossil fuel subsidies in the EU have not decreased,” the report said. “EU and national policies might need to be reinforced to phase out such subsidies.” Total fossil fuel subsidies by EU nations were €55 billion in 2016, the latest year for which data is available. “This is a very high number, given we are reaching the deadline for some of their [phase out] promises,” said Ipek Gencsu of the Overseas Development Institute.
It is clear that some progress has been made but not nearly enough to meet the promises made in Paris in 2015. The grip of fossil fuel companies on the purse strings of national governments throughout Europe and the world is as strong today as it ever was. They may try to disguise their activities by arguing about semantics, but the Earth has no time left for word games.
Even today, as the polar ice caps disintegrate before our eyes, there is little sense of urgency about the rapidly approaching environmental calamity. Not even the words of the IPCC 6 report, the latest US National Climate Assessment, and the European Commission seem able to breakthrough the “business as usual” cocoon we have built around ourselves.
A tip of the CleanTechnica hat to Are Hansen.
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