The World's Poor are Hurt Not Helped by Fossil Fuel Subsidies

Governments argue that fossil fuel subsidies are designed to help the poorest members of society, however, this is not borne out by the research.  The true beneficiaries of these subsidies are wealthier people and wealthier nations not the poor.

According to an IEA report, more than 85 percent of these subsidies go to middle and higher end income earners while only 8 percent of the aid is reaching the poorest 20 percent. These subsidies encourage energy consumption as people with the lowest incomes tend to be lower energy users and rarely drive.

"Fossil-fuel subsidies as presently constituted tend to be regressive, disproportionately benefiting higher income groups that can afford higher levels of fuel consumption," the report said. "Social welfare programs are a more effective and less distortionary way of helping the poor than energy subsidies."

Fossil Fuel Industry Pays Legislators to Protect their Subsidies

Image credit: The Price of Oil

The fossil fuel industry spends tens of millions of dollars each year to defend subsidies. This is part of their longstanding practice of buying influence so that they can shape political outcomes.

The Price of Oil quotes research that estimates the fossil fuel industry gets a 5,800 percent return on these investments in the form of fossil fuel subsidies. Estimates of the value of U.S. federal subsidies (excluding climate and health impacts) to the domestic oil and gas industry range from $4 billion a year, to $41 billion annually. One recent comprehensive study of U.S. energy subsidies identified $72.5 billion in federal subsidies for fossil fuels between 2002-2008, or just over $10 billion annually. Taxpayers provide $7bn a year for fossil fuel subsidies on public lands.

What Would Happen if Fossil Fuel Subsidies Were Redirected Towards Renewable Energy?

Subsidies are at the heart of energy issues. Clean power receives a tiny fraction of this money while the fossil fuel industry continues to reap the lion's share.  Fossil fuel subsidies are four to ten times larger than those given to renewable energy.

Governments around the world gave about $490 billion in subsidies to the fossil fuel industry in 2014 and only $112 billion in subsidies for renewable power generation.  Governments are planning on continuing their preferential allocation of resources to fossil fuels. According to the IEA, over the next 25 years, only 15 percent of the G20's investment in energy will be devoted to renewables.

Ending Fossil Fuel Subsidies is a Crucial First Step

Ending fossil fuel subsidies is the first step towards addressing climate change. We know that the climate crisis is a genuine emergency and we also know that fossil fuels are the leading cause, hence transitioning away from them is central to addressing the crisis we face.

"The first step towards that is to stop supporting the industry with our public dollars," Stephen Kretzmann, the executive director of Oil Change International is quoted as saying in a Center for Biological Diversity press release. "These subsidies are a raw deal for American taxpayers, and a disaster for our climate."

The Energy Paradox: Environmental Defence on Canada's Escalating Oil Subsidies

Both Canada and the province of Alberta want to have it both ways. They want to be climate leaders and major oil and gas exporters.  The Canadian federal government and the provincial government in Alberta provide massive subsidies to the oil and gas industries in the form of tax breaks, fiscal support and direct grants.  Canada is the largest provider of government support for oil and gas production per unit of GDP in the G7.

After decreasing federal payments to Big Oil by $150 million in 2017 Justin Trudeau's Liberal government appears to have changed direction in 2018. Last May the Canadian government announced it was going to buy Kinder Morgan's Trans Mountain pipeline for $4.5 billion. Last December the Liberals announced that they were giving oil and gas companies $1.65 billion in new grants, loans and financial supports. This is in addition to Export Development Canada, the country’s export credit agency, that provides, on average, $10 billion in government-backed support for oil and gas companies every year.