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Why the Hell Are We Still Subsidizing Fossil Fuels?

Ever notice how much time and energy is spent bitching and moaning about our addiction to fossil fuels? How we whine about high gas prices and fret over a future when global consumption outstrips supply and sends crude prices even higher?

What you probably haven't noticed is this: Worldwide governments are still subsidizing the oil and gas industry with taxpayer funds, and at levels five times greater than global support for energy alternatives. Pretty weird when you think about it.

Let's talk numbers
The global fossil fuel industry is mature by any measure and yet it benefits from $312 billion in consumption subsidies, according to the International Energy Agency's recently released clean energy progress report. Renewables only get $57 billion.

The sheer size of subsidies for fossil fuels are shocking. The disparity between fossil fuels and clean energy subsidies is downright pathetic. And that gap would be even larger under the long-term Republican budget plan released this week by Rep. Paul Ryan. This budget plan rolls back funding and support for all "uncompetitive sources of energy." That means clean energy would lose support, but the subsidies for fossil fuels would remain.

Considering the disproportionate amount that goes to fossil fuels, it's amazing that renewable energy has made any headway at all. Global investment in renewable energy has increased dramatically in the past decade, leading directly to a tenfold increase in installed wind power capacity and large solar energy markets in 10 countries.

Why do we have subsidies to begin with?
Fossil fuels are the backbone of the global economy. So governments spend a lot to support them in two ways.

  • Reducing production costs for fossil fuel companies;
  • Making fuel/energy cheaper for consumers (common in developing countries)
In Europe and the United States, we generally have production subsidies, which artificially inflate the bottom line of a politically powerful industry that already enjoys record-breaking profits. Corporate welfare, in other words.

What happens if subsidies disappeared tomorrow?
Suppose subsidies for fossil fuels disappeared tomorrow. GOP Congressman Joe Barton believes companies like Exxon would go out of business. He argues that subsidies for the industry should remain if you "believe in the free market capitalist system." But that's just silly talk. The industry won't suddenly vanish.

On the contrary, the fossil fuel industry can maintain those profits by raising prices. That will impact consumers who buy gas or even energy-intensive products. Either way, the industry will do just fine. There's no concrete estimate for how much prices would rise if subsidies ended.

But without subsidies, governments (and taxpayers) would be free of an expensive burden. Many folks don't realize that as taxpayers we're already paying more for energy. The U.S. provided $72.4 billion in total subsidies to fossil energy between 2002 and 2008. There are benefits too. Economic modeling studies have found GDP would increase (on a global scale) as much as 0.7 percent a year through 2050 if subsidies were eliminated.

What would happen if all subsidies for all forms of energy ended tomorrow?
Some argue that without subsidies clean energy could immediately displace fossil fuels. Unfortunately, that's a ways off. Clean energy still doesn't provide enough fuel and power to supplant fossil fuels altogether. It will take years, possibly decades, for clean energy to scale up enough to give fossil fuels a run for their money. We best get started.

Some of the other key findings from IEA's report:

  • Coal has been the fastest-growing global energy source for the past decade, meeting 47 percent of new electricity demand.
  • Worldwide renewable power grew an average of 2.7 percent per year since 1990, while traditional electricity generation -- much of it from coal -- grew 3 percent per year over the same time period.
  • Biofuels have grown steadily, but still only represent 3 percent of global road transport fuel consumption.
Photo from the TVA