Subsidies for fossil fuels make competition from renewables a rigged game

The Global Green Growth Forum (3GF) tackles fossil fuel subsidy reform
© C. Lepisto, cartoons by Karen Leth, Sketchy Banana, and DrawMore

In spite of generating clean energy from sustainable sources, renewables still have to compete against fossil fuels economically. They are competing in a rigged game, though.

Government subsidies to fossil fuels reached $523 billion in 2011, up almost 27% from 2010, according to the latest data available from the International Energy Agency (IEA). That figure reaches $620 billion with subsidies for production added in.

Compare that to IEA's estimate of $88 billion in subsidies for renewable energy in 2011. That means policy makers give fossil fuels a 6-fold leg up against the technology that we should in fact be favoring hands down.

This “enormous policy misalignment” (in the words of moderator Mark Halle, IISD) rated a plenary at this year's Global Green Growth Forum (3 GF) going on now in Copenhagen.

© C. Lepisto, cartoons by Karen Leth, Sketchy Banana, and DrawMore

Hurting the poor?

Subsidy protectionists rally to the claim that the poorest populations will suffer if fuels subsidies are lifted; governments fear even to the point that revolution could ensue. Developing countries offer around $500 billion in subsidies according to Simon Upton, of the OECD, while $55-90 billion support consumers of fossil fuels in developed nations. Each of these subsidies represents a unique "political economy context" -- balancing social welfare against economic and environmental policy. The differences make a single formula for the reform of fossil fuel subsidies elusive.

But there are better political instruments to help the poor during the energy transition, the panelists note. Ultimately, renewables benefit social equality more than fossil fuels, which funnel the subsidies ultimately into the hands of the wealthier segments of society.

Rachel Kyte, Vice President at the World Bank, asks how do you educate people who believe they are benefiting from subsidies over the voice of the lobbyists to convince them they are not benefiting? She discusses World Bank strategy: tools have been developed to step in and help when a government asks for help, to take advantage while the window of opportunity opens. So far, 15 countries have participated. The next steps: identifying the countries where the impacts can be biggest and encouraging them to come forward to learn about reform.

View from the governments

Robert Ichord, Deputy Assistant Secretary, Department of State, US was invited to the plenary to reflect fossil fuel subsidy reform plans in the USA, which include a proposal to congress calling for the phasing out of fossil fuel subsidies in the US. Ichord summed up progress:
“We face a difficult situation in Congress, as you all witnessed."

Dr. Andin Hadiyanto, Advisor to the Minister of Finance in Indonesia reflected an even more complex situation in his country, receiving kudos from other participants for making headway against difficult political currents.

What does the oil company say?

Helle Kristoffersen, Senior Vice President with the petrochemical giant Total represented industry at this plenary. Perhaps she surprised attendees with her words:
"Reform is a plus."

Kristoffersen explained that her company supports free markets, and does not believe in subsidies. She notes that TOTAL believes in the quality of their products, but that higher quality products (cleaner burning, etc.) are "not rewarded in a subsidy environment."

So fossil fuel reform seems to be a case of simple political will: government can use other forms of subsidy to ensure social cohesion, companies want a free market, and politicians -- certainly the ones with loud voices in the USA -- want government out of the subsidy business. What are we waiting for?

This article is part of a series on how public private partnerships featured at the Global Green Growth Forum (3 GF) lead us toward real and tangible solutions to sustainability problems the world faces.

© C. Lepisto, cartoons by Karen Leth, Sketchy Banana, and DrawMore

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Tags: Copenhagen | Ecological Economics | Economics | Renewable Energy