GSI/UNEP conference report finds fossil-fuel subsidy reform “complex” and challenges “sobering”; ~1% of global GDP spent on fossil-fuel subsidies
23 January 2011
Although momentum behind reforming subsidies for fossil fuels (for both consumers and producers) worldwide has gained significant momentum during the past few years, and although the benefits of subsidy reform seem evident, countries’ experience of reform and the challenges involved are “sobering”, according to a recently published report from a conference convened on the subject last year by the Global Subsidies Initiative (GSI) and the United Nations Environment Programme (UNEP).
In 2008, a report by UNEP called for the elimination of fossil-fuel subsidies, concluding that such subsidies often lead to increased levels of consumption and waste; place a heavy burden on government finances; can undermine private and public investment in the energy sector; and do not always end up helping the people who need them most. (Earlier post.) In September 2009, the G-20 announced a commitment to phase out inefficient fossil-fuel subsidies that encourage wasteful consumption. Following that announcement, G-20 Leaders agreed to national plans to implement subsidy reform (June 2010) and have asked international organizations to review and assess members’ progress against their commitments (November 2010), according to the conference report.
The two-day conference, “Increasing the Momentum of Fossil-Fuel Subsidy Reform: Developments and Opportunities” brought together country delegates and experts from international organizations, NGOs, universities and the industrial sector. The event featured representatives from international organizations such as the OECD, UNEP, World Bank, WTO and OPEC, as well as international forums such as G-20, APEC and the Friends group of countries that support reforming fossil-fuel subsidies, who shared and reviewed their perspectives and activities. The discussions focused on five key themes:
- Latest research on the scale and impacts of fossil-fuel subsidies
- Recent international political developments
- Issues and options for overcoming the political obstacles to reform
- Necessary elements of effective reform strategies
- Opportunities for international collaboration
The conference report summarizes the presentations and discussions of the two-day conference and includes a resource list of relevant documents and research reports.
In conclusions based on the closing remarks of Mark Halle, Director of Trade and Investment, IISD, the report notes that while the conference provided a rich and complete debate on the complex issue, “some aspects of fossil-fuel subsidy reform are more complicated than they look on the surface.” Some of the main lessons drawn from the report include:
Fossil-fuel subsidies absorb serious amounts of money. For example, at peak oil price in 2008, Indonesia was spending 40% of its budget on transport fuel—more than health, education and infrastructure development combined.
When Sir Nicolas Stern said that governments would need to spend 1 per cent of global gross domestic product (GDP) to stabilize greenhouse gas emissions at 450 parts per million, people balked at the amount. And yet 1 per cent of global GDP is what we are spending on fossil-fuel subsidies.
Subsidies may be well-intended, but often do not meet those objectives. Broad-based consumer subsidies are not well targeted to benefit the poor, and the longer the subsidy is in place, the worse it becomes, as other interest groups divert or misuse the subsidy. For other subsidy types, the report noted, there is usually very poor alignment between the policy purpose and the way the subsidy is spent.
Understanding the impacts of subsidies is somewhat of a new field for many countries. It can have a steep learning curve, but despite mistakes, identifying the challenges and overcoming them will improve with experience. Fossil-fuel subsidy reform is such an extraordinarily important issue, that subsidy reformers need to move beyond the challenges.
The way in which reform is sold politically is absolutely crucial for success. Politicians need to be shown that reform will not only save their countries money but can also give them a political boost.
There is no a single way forward for subsidy reform. Governments and organizations need to cooperate, share information and build coalitions. The impact as a group will be much bigger than working individually.
And yet now, subsidy reform is recognized as critical for addressing the policy challenges of our future: (i) the need to rethink how our economies are organized and transition to a green economy; and (ii) the need to reduce greenhouse gas emissions and move to cleaner forms of energy to address climate change. These two challenges provide a fantastic opportunity to build subsidy reform into the public policy agenda that cannot be missed.
Resources
It all depends on the relative political and financial power of the interested lobbies. To replace fossil fuel and corn lobbies with green lobbies will take time and $$$$$ and more people will have to understand that we live in a special type of democracy. For the people by the people has taken a very special meaning.
Posted by: HarveyD | 23 January 2011 at 09:30 AM
US oil has been subsidized for a century. There are seven registered oil lobbyists for each DC legislator. A similar 7:1 ratio for drug, medical insurance, etc lobbyists and the US executives are world's the highest paid.
The US consistently produces the world's worst fleet miles per gallon and least medical value.
"For the people by the people has taken a very special meaning." indeed. But since corporations have legal personhood - all is well..
Posted by: kelly | 23 January 2011 at 11:21 AM
Well some examples of oil subs.... they have a massive sub of fuel prices for farmers.. also for most mass transit fleets... also for developing domestic supplies they often either garantee a base price or they sub the oil.. same with nat gas...
Also quite often they sub a refinery to keep jobs by keeping a refinery open or keeping it in a place the oil company would rather not have it.
Same with alot of the infrastructure involved.. pipelines and whatnot.. they pay for a sub optimal placement or a extra jobs on the site with tax breaks and subs...
Same sort of crap happened with the massive suv.truck tax breaks...
But then you have china .. they are subbing fuel so much its insane. I know one country was subbing fuel so much it only cost 7 cents a gallon.... babble.
And there are likely 2-3000 committes dealing with it all wasting yet more millions or billions every year..
But there is no way your gona get change.. the farm lobby and oil lobby are huge and so are several other lobbies that depend on these rivers of red ink.
Posted by: wintermane2000 | 23 January 2011 at 11:49 AM
You're not going to get change because politicians are afraid of disrupting the economy.
Posted by: danm | 23 January 2011 at 12:34 PM
Governed by all powerful lobbies is much the same as being governed by Lords and Kings.
The notion that (us) the people are involved, via free elections, is closer to a masquerade than reality.
We have come full circle in the last two centuries.
The only perceived difference is that we believe that we can change the elected puppets and that we couldn't change the Lords and Kings. The truth is that we can't change the Lobbyists (our real leaders) any more than we could change the Lords and Kings.
The only way to bring back (Government by the people for the people) would be to break the ties between lobbies $$$ and candidates. To do that, all direct and indirect election contributions should be banned. All elections should financed with public funds on a pro-rata basis and be limited to something between $2 and $5 per voter. All election expenses should controlled and candidates who spend more than the accepted norms should be disqualified for 20+ years.
It looks drastic but there are not too many other ways.
Posted by: HarveyD | 23 January 2011 at 12:37 PM
I found this in a 12 year old study:
"The majority of people paying just over $1 for a gallon of gasoline at the pump has no idea that through increased taxes, excessive insurance premiums, and inflated prices in other retail sectors that that same gallon of fuel is actually costing them between $5.60 and $15.14. When the price of gasoline is so drastically underestimated in the minds of drivers, it becomes difficult if not impossible to convince them to change their driving habits, accept alternative fuel vehicles, or consider progressive residential and urban development strategies."
http://www.icta.org/doc/Real%20Price%20of%20Gasoline.pdf
Posted by: ai_vin | 23 January 2011 at 12:40 PM
The only way to get members of Congress to eliminate fossil fuel subsidies (or raise gas taxes) is to change the Constitution to mandate single term limits (e.g. one five year term for everyone), and that's not going to happen. The corruption has been institutionalized. Fossil fuel policies will not change until the oil runs out.
Posted by: ChrisL | 23 January 2011 at 12:54 PM
ChrisL - Right on! I have been saying that for years. I would not change the length of terms.
Bribery would not work if you couldn't run for reelection.
Posted by: Lucas | 23 January 2011 at 02:27 PM
To begin with the massive subsidies and mandates for renewable energy and ethanol and other bio- fuels should be eliminated. Coal is free and cheaper to collect than wood and oil is free and cheaper to collect than coal and uranium is free and much cheaper to collect than oil; so why should free solar energy get subsidies or be preferred above nuclear. Biomass would start to collect if humans were eliminated from the earth who eat it all up figuratively and literally.
A Startrek of the entire human population of the earth is needed to allow it to recover for a billion years. But humans will still be radioactive at any distance from the earth as were the first humans upon the earth and all their ancestors.
Almost all of the money spent for oil goes to the speculators including the US government which knows how to make cheap fuel for planes and automobiles but insists upon believing in a false religion that is being promoted by oil speculator money. Evidence of the false religion is the continuing allowance of very high fuel inefficient motorway speeds. Not one notice about a new "efficient" engine includes the chart of the fuel consumption per mile showing how inefficient fast speeds are per mile traveled for each automobile and truck.
There is a nearly 20% VAT tax on nuclear power in France and probably England as well. That does not sound like subsidy. Cheap energy is needed for the functioning of industry and farms. National governments should own the electricity supply system or have close regulation of it to avoid ENRON type extortion; they can even make a profit for the functioning of government. It would also avoid a great interest expense of money on capital. Bhopal was hundreds of times more deadly and dangerous than Chernobyl.
Cheap fossil energy is the only reason that there are as many people on the world as there is now. Stop all of the ships and trains and planes and trucks and tractors, and famine would eliminate much productive time and people even in the UK. ..HG..
Posted by: Henry Gibson | 23 January 2011 at 03:09 PM
So far, the comments are 9 for 9 that subsidies are wrong and should be eliminated.
"The truth is that we can't change the Lobbyists (our real leaders) any more than we could change the Lords and Kings."
Perhaps this is because a Lord or King had only owned a thousand surfs each. A $billionaire can own tens of thousands - and a few Lobbyists.
It's a sad 9/9 commentary that subsidies and corruption can't change in the US democracy.
Then again, history has seen "let them eat cake" governance before..
Posted by: kelly | 24 January 2011 at 11:29 AM
Then again, history has seen "let them eat cake" governance before..
Yeah but this time around it's the serfs of the Kock brothers; http://theweek.com/article/index/206405/the-billionaire-koch-brothers-tea-party-puppetmasters
who are yelling "if ballots won't work, bullets will!"
http://www.mediaite.com/online/forget-palin-heres-some-real-violent-rhetoric-from-radio-host-if-ballots-dont-work-bullets-will/
Posted by: ai_vin | 24 January 2011 at 04:22 PM
please forgive the typos
Posted by: ai_vin | 24 January 2011 at 04:24 PM
ai_vin, those are some disturbing links that aren't likely to help the beyond feudal extremes of poverty and wealth.
Since there's been "another side", it's been wrong. But this Fox News/Tea Bag “vitriolic rhetoric”, where a different opinion is 'absolute evil to be hated and annihilated' has no place in US politics(or a world of nuclear tech, bio-weapons, etc).
Your second link even skipped simple armed individual action and went straight to inciting domestic militia insurrection.
Posted by: kelly | 25 January 2011 at 09:56 AM
Lucas, bribery works just fine for one-term offices. All you have to do is offer someone a nice, cushy job if they'll vote for your interests. When they'll need a job no more than 6 years from now, that's going to be a lot more of a draw than if they could sit in the House for 50 years.
Posted by: Engineer-Poet | 25 January 2011 at 12:48 PM
kelly, yes it's disturbing but the real danger is the links the tea party has with the Surpreme Court; http://www.youtube.com/watch?v=xk7wMCNprBw
Posted by: ai_vin | 25 January 2011 at 05:26 PM
If the current trend continues, one or two trillionaires and less than 1000 billionaires will become the effective leaders sometime during the current century.
Elections will become more and more meaningless. Of course, those new leaders will introduce new laws and regulations required to support their interest.
Everybody will have the privilege and the honor to pay: for clean air, for going to jail, to go to school, for health care, for drinking water, for cleaner energy, for protection, for TV, for radio, for Internet, to use roads and bridges, etc.
The majority will not be able to afford all essential services and will have to go deeper and deeper in debt and pay the new leaders 18%+ interest or go bankrupt.
It is a bright future!
Posted by: HarveyD | 27 January 2011 at 05:10 PM
http://inhabitat.com/harvard-study-reveals-coal-energy-to-be-one-of-the-most-expensive-forms-of-power/
Posted by: ai_vin | 18 February 2011 at 08:39 AM