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

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).

Alternative uses of subsidies

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

• 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.^[5] Check and document the figures.^{[expansion needed]}

See also

• Incentives for sustainability

External 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.
• Greenlivingpedia:Government subsidies for fossil fuel use in Australia - total fossil fuel subsidies worth almost $9 billion have been identified by research in Australia.

Notes