The Fossil-Fuel Welfare State

While world leaders gather in Warsaw to fight climate change, their governments spend half a trillion dollars on carbon subsidies. 

A man fills up a public bus in Kolkata, India in August. The Indian government has considered reducing its fuel subsidies to improve its finances. (Rupak De Chowdhuri/Reuters)

When we talk about the Great Energy Shift to a shiny green future, keep in mind that there’s plenty of green bankrolling the dirty power past. That point was driven home yesterday by the release of a report detailing the extent governments subsidize fossil fuels.

Global subsides for fossil fuels paid to companies and individuals reached more than half a trillion dollars in 2011, the latest year full data was available, according to an analysis from the Overseas Development Institute (ODI), a UK-based nonprofit that advocates rolling back such incentives.

In the 11 wealthy nations that make up the Organization for Economic Cooperation and Development, ODI estimates subsidies for fossil fuels range from $55 billion to $90 billion annually. In 2011, that figure reached $74 billion, or $112 for every person. No coincidence that the G20 group of nations accounted for 78% of the world’s carbon spew in 2010.

“While governments have pledged to avoid dangerous climate change, their approach to fossil fuel support is taking economies in the other direction,” states the report, issued days before world leaders gather in Warsaw for the latest round of climate change talks. “Instead of raising the price of carbon emissions, they are subsidizing firms to over-produce and consumers to over-use carbon-intensive fuels.”

In some countries, such subsidies for oil, natural gas and coal exceed 10% of gross domestic product.

Spending by rich countries on fossil fuel subsidies outstrips outlays to help developing countries develop renewable energy and cope with climate change by a margin of 7 to 1.

Governments in developing countries themselves help subsidize fossil fuels, often by lowering the cost of gasoline and electricity for their citizens. (According to the ODI, in countries such as Egypt and Pakistan fossil-subsidies exceed their national deficit.) In fact, such consumer subsides often far exceed spending on health care. Of course, subsidizing fossil fuel use only exacerbates health problems by exposing people to higher levels of pollution.

National governments aren’t the only culprits in such fuelish behavior. International lenders such as the World Bank also promote fossil fuel projects over carbon-free energy. More than 75% of energy financing in developing countries went to fossil fuel projects, according to ODI. The World Bank, for instance, actually boosted spending on fossil fuel projects to $2.7 billion last year.