The International Energy Agency (IEA) and the OECD are calling once again for a phase out of fossil fuel subsidies that totalled around $0.5 trillion last year alone.

According to new estimates from the IEA, subsidies for fossil fuels rose nearly $110 billion in 2010 to $409 billion.

G-20 leaders agreed two years ago to phase out subsidies that “encourage wasteful consumption, reduce our energy security, impede investment in clean energy sources and undermine efforts to deal with the threat of climate change”.

According to a new inventory of the financial mechanisms that support fossil fuels in 24 countries drawn up by the OECD, nearly half of the countries identified by the IEA as artificially lowering energy prices to below the full cost of supply are taking steps to rationalise energy prices.

Germany’s subsidies of coal mining are falling, for example, and will be phased out completely by 2018, while France has already phased out its support for the coal industry.

But the US still has subsidies of around $5 billion for energy producers, although the federal budget for next year proposes cutting this to boost revenues by $3.6 billion.

“While this is an encouraging start, much work remains to be done in order,” says IEA executive director Maria van der Hoeven. “It is crucial that countries follow through on their commitments by implementing reforms.”

According to van der Hoeven, subsidies aiming to alleviate energy poverty or promote economic development often miss the mark and instead encourage energy wastage, encourage price volatility and reduce the competitiveness of renewable and energy efficient technologies.

“In a period of persistently high energy prices, subsidies represent a significant economic liability,” she adds.

Without action, fossil fuels could reach $660 billion a year by 2020. The IEA and OECD want to see more progress on reducing fossil fuel subsidies, which would raise national revenues and reduce greenhouse gas emissions, they say.

For further information:
www.iea.org/index.asp

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