Fossil Fuel Subsidies: When Taxpayer Dollars Subsidize Environmental Destruction

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Photo By Fotolia/Jim Parkin
U.S. federal energy subsidies valuing $74 billion are given to fossil fuel industries each year. Shifting those subsidies to sustainable industries could help reduce carbon emissions.

As the Earth Council report “Subsidizing Unsustainable Development” pointed out, “There’s something unbelievable about the world spending hundreds of billions of dollars annually to subsidize its own destruction.”

One way to correct this imbalance is by tax shifting: raising taxes in certain situations so the price to carry out environmentally destructive activities begins to reflect their true cost, and offsetting this with an overall reduction in income taxes. Another way to achieve this goal is to shift government subsidies away from unsustainable practices.

On the climate front, scores of countries could cut carbon emissions by eliminating fossil fuel subsidies. We can look to Iran for an example of extreme subsidies, as it has a history of pricing oil for domestic use at about one-tenth the world price, strongly encouraging car ownership and thus gas consumption. If its $37 billion annual subsidy were phased out, the World Bank estimates, Iran’s carbon emissions would drop by a staggering 49 percent. The move would also strengthen the economy by freeing up public revenue for investment in the country’s economic development.

Iran is not alone. The Bank projects that removing energy subsidies would reduce carbon emissions in India by 14 percent, in Indonesia by 11 percent, in Russia by 17 percent and in Venezuela by 26 percent.

Some countries are already doing this. Belgium, France and Japan have phased out all coal subsidies. Germany reduced its coal subsidy from a high of 6.7 billion euros in 1996 to 2.5 billion euros in 2007, and coal use dropped by 34 percent between 1991 and 2006. Germany plans to phase out its coal subsidies entirely by 2018. As oil prices have climbed, a number of countries?—?including China, Indonesia and Nigeria?—?have cut a hefty fiscal cost by eliminating or greatly reducing subsidies that held fuel prices well below world market prices.

While some leading industrial countries have been reducing fossil fuel subsidies?—?notably for coal, the most climate-disrupting fuel?—?the United States has increased its support for fossil fuel industries. Doug Koplow, founder of Earth Track, an organization that tracks environmentally harmful subsidies, calculated in a 2006 report that annual U.S. federal energy subsidies have a total value of $74 billion to these industries. Of this, we, the taxpayers, gave the oil and gas industry $39 billion, coal $8 billion and nuclear $9 billion. Koplow notes that today, these numbers would likely be higher. Even though we face an urgent need to shift to less-polluting, sustainable energy sources and conserve oil resources, Congress has failed to enact much-needed legislation that mandates this, so U.S. taxpayers continue to subsidize the primary contributors to disruptive climate change.

A world facing climate change can no longer justify subsidies to expand the burning of coal and oil. Shifting these subsidies to the development of climate-benign energy sources, such as wind, solar, biomass and geothermal power, will help stabilize the climate. Shifting subsidies from road construction to rail construction could actually increase mobility in many locations while also reducing carbon emissions. And shifting subsidies from building logging roads to planting trees would also reduce emissions while helping protect and restore forest cover worldwide.

In a troubled world economy, tax and subsidy shifts can help governments balance the books, and can provide greater energy efficiency, cuts in carbon emissions, and reductions in environmental destruction?—?a win-win-win situation.

Lester R. Brown is the author of Plan B 4.0: Mobilizing to Save Civilization and World on the Edge.