U.N. Study: Scrapping Fuel Subsidies Can Help Fight Global Warming and Boost World Economy

Oil Barrels photo

When Prices Are Low, They Want Subsidies, When Prices are High, They...
A U.N. report released yesterday shows that if subsidies on fossil fuels (which we already wrote about: Hidden Oil Subsidies: We Need to END Them) were abolished, it could "cut world greenhouse gas emissions by up to 6 percent" and also nudge up world economic growth.

Reuters explains: "Subsidies on oil, gas or coal are meant to help the poor by lowering the price of energy but the report, issued on the sidelines of a 160-nation U.N. climate meeting in Ghana, said they often backfired by mainly benefiting wealthier people."

Crude Oil Pipeline photo

Good for Environment and Economy
According to the study, subsidies for energy, which almost all go to fossil fuels, add up to $300 billion a year or 0.7% of world gross domestic product (GDP). The impact of cancelling these subsidies wouldn't be a 0.7% bounce in the world GDP, but the study estimates a 0.1% world GDP increase.

Subsidies were biggest in Russia, with about $40 billion a year spent mainly on making natural gas cheaper, ahead of Iran with $37 billion. China, Saudi Arabia, India, Indonesia, Ukraine and Egypt also had big subsidies on fuels.

"Some countries spend more on subsidies than on health and education combined ... they stand in the way of more environmentally friendly technologies," Kaveh Zahedi, climate change coordinator at UNEP, told a news conference.

Another example of a negative side-effect of fuel subsidies is that industrial fishing is advantaged over small-scale fishing.

The study adds that some smarter subsidies, like targeted tax breaks, financial incentives or other market mechanisms could generate benefits for the economy and environment. If you take less from people, or put money back in their pockets, they can decide where to use it (fuel, or elsewhere). If you simply hold down the price of fuel, everybody - including the wealthy - will use more of it.

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Scrapping fuel subsidies can help climate: U.N. study

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