Incentives to pollute: Difference between revisions

Estimates of fossil fuel subsidies range from $US151 billion to $US235 billion per year globally (in around 2001-2002).^[1] - 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.^[2]

Fuel subsidies and social needs

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

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

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 ^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]

Suggested project

• Research these incentives in other countries (perhaps starting with references given in Riedy's working paper^[1]. Consider other sides of the argument.^{[expansion needed]}
• Investigate the extent of similar market distortions that are bad both from a neo-classical economics perspective, and from green and left-wing perspectives.^{[expansion needed]}
• 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.^[3] Check and document the figures.^{[expansion needed]}

Interwiki links

• Wikipedia:Perverse incentive - an incentive that has the opposite effect of that intended. (Note that "Incentives to pollute" described on this page may not fall into this category, as the intention was to create an unrelated incentive or subsidy, e.g. to support economic activity.

Notes