The TRUTH about fossil fuel subsidies.

Fossil Fuel Subsidies: What's the Deal?

The video discusses fossil fuel subsidies and their impact on the industry, consumers, and the environment. It explains the two main types of explicit subsidies and how they affect producers and consumers.

Types of Explicit Subsidies

• There are two types of explicit subsidies: production subsidies and consumption subsidies.

• Production subsidies include tax breaks, direct government payments, state loans at low interest rates, or provision of resources like land and water to fossil fuel companies at below-market rates.

• Consumption subsidies keep fuel prices artificially low for final consumers by fixing prices below the true market rate.

• These policies can have a perverse effect of keeping fossil fuels artificially competitive against low emission alternatives.

Impact on Industry

• Fossil fuel companies have been hitting record profits in recent years despite increasing concerns about climate change.

• In 2022 alone, fossil fuel consumption subsidies roughly doubled to well over a trillion dollars.

• Production subsidies are most common in Western industrialized countries where they're increasingly locking in large long-term infrastructure like oil pipelines and gas fields that could become stranded assets as we transition towards renewable technologies.

Impact on Consumers

• Consumption subsidies insulate consumers from ballooning prices but keep fossil fuels artificially competitive against low emission alternatives.

• Public awareness of these subsidies increased during 2022 when prices for fossil fuels were extraordinarily high and volatile due to geopolitical tensions.

Implicit Subsidies

• Implicit subsidies are hotly debated because they refer to externalities not accounted for in market pricing such as environmental damage or health impacts caused by pollution.

• The IEA is working on figures for global production subsidies for 2022 which will be available in September 2023.

Fossil Fuel Subsidies and Their Impact on the Economy

This section discusses how fossil fuel subsidies can hinder economic growth, contribute to climate change and premature deaths from local air pollution, and are not well targeted at the poor. Removing subsidies and using the revenue gained for better-targeted social spending, reductions in inefficient taxes, and productive investments can promote sustainable and equitable outcomes.

Negative Impacts of Fossil Fuel Subsidies

• Fossil fuel subsidies promote inefficient allocation of an economy's resources.

• They encourage pollution contributing to climate change and premature deaths from local air pollution.

• They are not well targeted at the poor - mostly benefiting higher income households.

Positive Outcomes of Removing Fossil Fuel Subsidies

• Removing subsidies can lead to better-targeted social spending, reductions in inefficient taxes, and productive investments.

• It would also reduce energy security concerns related to volatile fossil fuel supplies.

Examples of Successful Removal of Fossil Fuel Subsidies

• The Philippines, Indonesia, Ghana, Morocco have all introduced cash transfers and social support that effectively compensate for the removal of fossil fuel subsidies.

• Egypt has successfully reduced its fossil fuel subsidy spending from 7% to 2.7% by communicating every stage of the transition to its citizens so that they understood how and why the changes were taking place.

Challenges with Removing Fossil Fuel Subsidies

This section discusses some challenges associated with removing fossil fuel subsidies, including the potential negative impact on poorer populations and the risk of job losses.

Negative Impact on Poorer Populations

• India decreased its subsidies for liquefied petroleum gas (LPG), resulting in higher prices that were manageable for relatively wealthy urban citizens but damaging for poorer rural families.

• The plan was to provide free LPG cylinders to those rural populations that would insulate them somewhat from higher costs, but the government underestimated how many cylinders would be needed and it didn't provide enough. As a result, people had no choice but to go back to burning wood and other biofuels which led to higher carbon emissions - precisely the opposite of what the policy was designed to achieve!

Risk of Job Losses

• Just stripping out a layer of financial support that has become a fundamental bedrock of corporate fiscal security doesn't usually prompt the leaders of those businesses to cut their own salary packages and tell their shareholders the annual dividends will have to be slashed!

• Governments need to ensure there's a plan in place to mitigate those redundancies. Denmark provides us with a potential template in this case.

Implicit Subsidies

This section discusses implicit subsidies and how they have split market analysts into two distinct camps.

Implicit Subsidies

• Market analysts are split into two distinct camps when it comes to implicit subsidies.

Fossil Fuel Subsidies

This section discusses the real level of subsidy being enjoyed by fossil fuel companies and how it is calculated.

Real Level of Subsidy

• The real level of subsidy being enjoyed by fossil fuel companies would have worked out at 5.9 trillion dollars in 2020, or 6.8 percent of global GDP, rising to 7.4 percent by 2025.

• Only eight percent of the 2020 subsidy is explicit subsidization of supply costs.

• 92 percent is made up of environmental costs and foregone consumption taxes.

Impact on Global Emissions

This section discusses the impact that raising fuel prices to "fully efficient levels" could have on global emissions.

Reduction in Emissions

• If all countries raised their fuel prices to what they call 'fully efficient levels', then the result would be a 36% reduction in projected global fossil fuel carbon dioxide emissions by 2025.

• This reduction is actually in line with the reductions needed by 2030 to keep atmospheric warming to between 1.5 and 2 degrees Celsius this century.

Oil and Gas Investments

This section discusses estimates for oil and gas investments that are incompatible with IPCC, IEA pathways.

Estimates for Investments

• Estimates show that the capital and operational expenditures for the exploration and extraction of oil and gas in new fields, incompatible with IPCC, IEA pathways, are expected to reach $570 billion dollars a year by 2030.

• These investments would suffice to bridge the entire investment gap for wind and solar by 2030.

Conclusion

This section concludes the video.

Short Break

• The speaker will take a short break next week to do a few early spring tidy up jobs around their home and garden.

Thank You

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