Subsidising fossil fuels costs twice as much as renewables

Investment in renewable energy may have hit a record high of $260 billion in 2011, according to Bloomberg New Energy Finance, but fossil fuel subsidies continue to reach over $400 billion a year.

Fossil fuel subsidies are divided between supporting production, roughly $100 billion in 2010, and consumption, which tots up around $300 billion.

The oil industry receives the lion’s share, followed by fossil fuel-generated electricity, gas and coal.

According to the International Energy Agency (IEA), phasing out subsidies for coal, oil and gas could save some 750 million tonnes of CO₂ – as much as Germany’s total annual carbon emissions – by 2015.

But while the G20 pledged to get rid of such subsidies in the ‘medium term’, subsidies are still rising elsewhere, mainly in transitional and developing countries.

The largest subsidisers of fossil fuels are Iran, Saudi Arabia, Russia, India and China. But some nations, including Belgium, France and Japan, are starting to heed the IEA’s call and phase out subsidies for some fossil fuels.

But while subsidies are “enormously wasteful”, according to the IEA’s latest Oil Market Report (OMR), removing them requires a sensitive approach as Nigeria is currently demonstrating.

The nation has removed its gasoline subsidy, which cost the government $8 billion in 2011, sparking strikes and political unrest as prices more than doubled.

The government is now having to partially scale back its subsidy removal to bring gasoline prices back down again.

“In hindsight, a more gradual process might have been advisable,” say the IEA’s OMR. “Nor do the measures seem to have been accompanied by much in the way of public consultation or targeted assistance for the poorest members of society.”

For further information:
www.bnef.com
www.iea.org

24 January 2012

Back