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The $523 Billion In Fossil Fuel Subsidies Is Money We’re Not Spending On Renewables

Why can’t we solve climate change? Because we keep throwing money at oil and coal.

The $523 Billion In Fossil Fuel Subsidies Is Money We’re Not Spending On Renewables
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One of the hardest problems in halting climate change is the way countries continue to subsidize the problem. Fossil fuels are the main cause of global warming. And yet, every year, governments hand out huge inducements to keep producing the stuff.

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According to a new report, public subsidies for fossil fuels totaled $523 billion in 2011. That’s six times the level of support for the renewable energy industry, despite those technologies being less mature than oil and coal.

Among richer countries, the top 11 heaviest carbon emitters spent $74 billion in subsidies in 2011, with Russia, the United States, Australia, Germany, and the United Kingdom handing out the most. That’s $112 per adult in those countries, the report says.

In the U.S., subsidies in 2011 included a $1 billion fuel tax exemption for farmers, $1 billion for the Strategic Petroleum Reserve, and $500 for fossil fuel R&D. In all, they totaled $13.1 billion, including tax expenditures, says the report from the Overseas Development Institute, a British think tank.

The report argues that governments are “shooting themselves in both feet” by subsidizing “the very activities that are pushing the world towards dangerous climate change.” At the same time, they’re “creating barriers to investment in low-carbon development,” it notes.

The richest countries are not the only offenders, however. Nations like Pakistan, Egypt, and Indonesia spend more than twice as much on fossil fuel subsidies as on health. The ODI says the poorest 20% of households typically receive just 7% of overall handouts.

But the ODI may be underestimating the true size of the subsidies in the U.S., depending on how you look at it. Earlier this year, the International Monetary Fund calculated subsidies at $502 billion, a figure which includes the true cost of carbon emissions calculated at a price of $25 a ton. By that measure, global subsidies equal $1.9 trillion, it said.

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While looking after the genuinely poor, governments should cut handouts as soon as they can, the report advises. “Phasing out fossil fuel subsidies would create a win-win scenario. It would eliminate the perverse incentives that drive up carbon emissions, create price signals for investment in a low-carbon transition and reduce pressure on public finances.”

About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.

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