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Incentives to pollute

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Estimates of fossil fuel subsidies range from $US151 billion to $US235 billion per year globally (in around 2001-2002),[1] or 2.5 times more than renewables.[2] This is an incentive to use polluting, greenhouse-gas-producing fossil fuels instead of clean renewable energy. As it has been argued:

The real problem is that electricity produced in Australia from fossil fuel such as coal is subsidised to the tune of an astounding $8.9 billion, so it is far too cheap. If these subsidies were removed, and a carbon tax applied to polluting energy producers, then renewable energy would successfully compete and the free market would steer us in the right direction of reducing greenhouse gas emissions.[3]

Fuel subsidies and social needs[edit]

Fuel subsidies have been practiced particularly in the developing world,[1] where fuel is considered a basic need, and particularly in oil-producing countries.[verification needed] Where a fixed price was used, through a government monopoly, this meant that as oil prices rose, people paid the same amount with no increased incentive to economize, while the subsidy increased dramatically. This may mean a loss of revenue for the government for oil-exporting nations, or a heavy expenditure if importing.

Indonesia is one example of this. When the government finally increased the price in 2006, this caused much opposition in the populace; the rise in prices it was offset by a grant made to poorer families of a flat amount of money, but the negative effect was still significant.[verification needed] Indonesia's dilemma was made more difficult by the fact that its economy was still struggling after the 1998 monetary crisis, and the fact that it had become a net importer of oil.[verification needed]

Estimates of fossil fuel subsidies and global carbon emissions[edit]

World fossil fuel subsidies and global carbon emissions, 1992, Bjorn Larsen and Anwar Shah (The World Bank, Policy Research Working Paper Series, Number 1002). See also Larsen's 1994 paper, World Fossil Fuel Subsidies and Global Carbon Emissions in a Model with Interfuel Substitution (The World Bank, Policy Research Working Paper Series, Number 1256).

Subsidies that Encourage Fossil Fuel Use in Australia[edit]

Note below the Australian Conservation Foundation's year 2000 proposal for an Australian national inquiry into environmentally damaging government programs and subsidies and environmental tax reform. Government commitment is one of the criteria - has this become any easier with the moves to "Government 2.0" and opening of government data?

PhD candidate Christopher Riedy examined fossil fuel subsidies in Australia, in Subsidies that Encourage Fossil Fuel Use in Australia.

Excluded subsidies:

  • Military operations to secure fuel supplies
  • Diesel fuel rebate scheme, which is an exemption of a road tax for those not using roads.

Subsidies examined in this study include:

  • Fossil fuel producer subsidies
    • Greenhouse gas abatement program
    • Non-recovery of public agency costs
    • Petroleum exploration tax concessions
    • Research and development
    • Direct subsidies to fossil fuel development projects
  • Fossil fuel consumer subsidies
    • Diesel fuel rebate scheme
    • Exemption from excise for alternative fuels
    • Concessional rate of excise for fuel oil, heating oil and kerosene
    • Concessional rate of excise for aviation fuel
    • Excise free status for condensate
  • Electricity subsidies
    • Subsidised supply of electricity to aluminium smelters
    • State energy supply concessions
    • Electricity pricing structures
    • Subsidies for centralised generation
  • Road transportation subsidies
    • Subsidy identification
    • Road network costs
    • Previous estimates of road user subsidies
    • Road user revenue
    • Determining appropriate revenue
    • Additional road transportation subsidies
About 58% of the total fossil fuel subsidies identified are perverse subsidies.W Removal of these perverse subsidies can provide a ‘double dividend’ of greenhouse abatement and improved economic performance. However, this ‘double dividend’ will only be delivered if careful planning is conducted to ensure that the disruption caused by subsidy removal is minimised and steps are taken to ensure equitable treatment of all parties...
The Australian Conservation Foundation (ACF) has proposed a national inquiry into environmentally damaging government programs and subsidies and environmental tax reform. ACF estimates that a broad-reaching inquiry would cost about $10 million over a year to 18 months. Fossil fuel subsidies would only be one of the areas examined (Krockenberger, et al., 2000). Government commitment to such an inquiry would be essential if its recommendations were to be successfully implemented.
An inquiry of this sort could access information that was not readily available for this research and would have access to far greater resources to improve subsidy estimates.[1]


Karl Kruszelnicki (Australian popular science author and frequent radio guest) states "The coal companies get a subsidy of $400 million a year for diesel for their trucks … the thing about coal is we know where it is, we know how to dig it up, and we know that other countries will buy it. Why should it be subsidised when there is no risk in that industry?"[4]

Alternative uses of subsidies[edit]

Subsidies could be simply canceled, for environmental and economic benefit, or they could be redirected to programs with a positive effect. Some ideas (based on a Crikey.com.au article) are found on the talk page: Talk:Incentives to pollute #A few notes on more effective uses of subsidies

Suggested project[edit]

  • Research these incentives in other countries (perhaps starting with references given in Riedy's working paper[1]. Consider other sides of the argument.[Suggested project]
  • Investigate the extent of similar market distortions that are bad both from a neo-classical economics perspective, and from green and left-wing perspectives.[Suggested project]
  • It has been claimed that "Tasmanian loggers will also receive close to $150 million this year in public subsidies," at the same time as the Australian govt will give $200 million to fight illegal logging in Asia.[5] Check and document the figures.[Suggested project]

See also[edit]

Interwiki links[edit]

Notes[edit]

  1. 1.0 1.1 1.2 1.3 This information comes from Subsidies that Encourage Fossil Fuel Use in Australia, (PDF version) Working Paper CR2003/01, January 2003, by Christopher Riedy, PhD Candidate, [Institute for Sustainable Futures] at the University of Technology, SydneyW.
  2. STUDY: U.S. subsidises fossil fuels 2.5 times more than renewables, Sebastian Blanco, Autoblog Green, Sep 19th 2009.
  3. These words are by Appropedian Peter Campbell in his blog post, Remove $8.9 billion fossil fuel subsidies to combat climate change, February 20, 2007.
  4. http://www.greenleft.org.au/2007/732/37956
  5. Crikey.com.au, 30 Mar 2007, letter from John Hayward in response to Saving SE Asia's forests at the expense of our own?, and private email correspondence with Chriswaterguy. The $150 million figure was attributed to "actuary Naomi Edwards based on both recurrent and special grants at present."