Are The Days Of Fossil Fuel Subsidies Numbered?

The multi-billion-dollar global fossil fuel industry might be getting just a little bit worried.

In recent days, some of the biggest guns in the world of finance have all had the industry in their sights, calling for a cut back on fossil fuel subsidies and the fast-tracking of carbon trading schemes, or for the wider application of taxes on carbon.

Jim Yong Kim, head of the World Bank, and Christine Lagarde, managing director of the International Monetary Fund (IMF), held a joint news conference in which they stressed that climate change must be the main priority of both institutions.

“It is important that our two institutions always have climate change, environmental issues and price setting at the forefront of our agenda,” Lagarde said. “We have got to think about it every day.”

Establishing a proper price for carbon and removing energy subsidies were the IMF’s priorities, Lagarde said.  “If you do it the right way, you can put subsidies where they are needed.”

Jim Yong Kim said the priorities for the World Bank were to invest in sustainable energy for all, well-designed cities, and what he called smart agriculture. He said cutting fossil fuel subsidies was often “politically difficult”, but there were encouraging signs around the world from the implementation of carbon taxes.

image via Shutterstock

image via Shutterstock

Angel Gurria, the head of the Organisation for Economic Co-operation and Development (OECD), joined in the chorus, saying governments must take immediate action aimed at pricing carbon and abolishing fossil fuel subsidies.

“According to the latest International Energy Agency [IEA] estimates, subsidies to fossil fuel consumers in developing and emerging economies totalled US$ 523bn in 2011,” Gurria said.

“In many countries, these subsidies are used as a substitute for poverty relief. That is understandable, since energy is one of the fundamental basic human necessities.

“But such subsidies are generally poorly targeted, and instead end up being captured overwhelmingly by better-off households who can afford larger cars and houses that consume more energy. These subsidies are bad for the economy, bad for the environment, and also bad in terms of social justice.”

Meanwhile, a report by a group of academics at Oxford University has warned the fossil fuel industry that it could not afford to ignore a growing high-profile campaign urging investors to withdraw their cash from companies involved with fossil fuels.

Others point out that if meaningful action is to be taken on climate change, the bulk of fossil fuel company assets have to stay in the ground. This means that industry conglomerates are grossly overvalued and a carbon bubble is likely to burst in the near future.

The World Bank and a number of other financial institutions announced earlier this year that they were scaling back or stopping altogether funding for new coal-fired power projects. The US administration also said it would stop investing in coal projects overseas.

But it’s unlikely that the fossil fuel industry will be heading for the bunkers any time soon.

The World Bank still provides multi-million-dollar funding for fossil fuel projects. The US might have stopped funding coal projects overseas, but its coal exports are booming like never before. And in Britain there were calls this week for the abolition of subsidies – not for fossil fuels but for the renewable energy industry.

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4 Comments

  • Reply October 17, 2013

    shacharerez

    Carbon trading is a “solution” that was dreamed up by the same people who are causing the problems and want to distract us with a “solution” that will enable them to continue to do business as usual, just with a ‘green’ label. If you want to understand the carbon trading issue, see this video from the people who made “The Story of Stuff”. http://www.youtube.com/watch?v=pA6FSy6EKrM

    • Reply October 19, 2013

      COJeff

      Please don’t get your information from youtube. I’ve seen this video a hundred times and it irks me every time. It offers no solution to our looming crisis (other that eliminating capitalism, which is a preposterous claim in all reality), it gives false info, and in doing so does not give the full scope of what is actually happening. I implore you to actually do some research into cap and trade, and understand what it actually is, and what it is doing. Market solutions + policy change = the only legitimate way out of this mess.

      • Reply October 19, 2013

        COJeff

        Also, I believe the article refers to carbon taxes…not cap and trade. Which are not the same thing.

  • Reply October 20, 2013

    David Martin

    What does the phrase “a proper price on carbon” mean?

    It’s not easy to get a proper price on anything. Getting a proper price on CO2 or other GHG’s implies that you have some way of valuing a stable atmosphere. I don’t think it’s possible. I think we should dump the idea and the meaningless phrases that go with it.

    Carbon trading is favored by the World Bank, IMF, JPMorgan and every other financial institution that thinks they can game the system. It’ll never be more than a meaningless derivative market that doesn’t get any real work done.

    If polluters don’t clean up their own mess, they should pay taxes.or fees to those that do clean it up. So tax the bad stuff – coal, oil, nukes, gas – and use those revenues to subsidize good stuff – solar, wind, small scale hydro, healthcare.

    Thinking we can privatize everything is a major flaw. You can put up fence around land and privatize that, Water is difficult but a little more doable. Atmospheric gases are impossible to privatize. Trying to create a market for trading them is a fool’s errand.

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