Fossil Fuel Subsidies Top $450 Billion Annually, Study Says

The report underscores the obstacles the world faces in transforming the global energy economy just weeks before critical Paris climate treaty talks.

View of smokestacks at a thermal power plant near Seoul. Credit: REUTERS/Jo Yong-Hak

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The governments of the world’s 20 largest economies spend more than $450 billion annually subsidizing the fossil fuel industry, a new analysis has concluded, four times more than what they spend on renewable energy.

The report by Oil Change International, a Washington-based advocacy organization, and the Overseas Development Institute, a British research group, calculates the amount of money the G20 nations provide to oil, gas and coal companies through tax breaks, low cost loans and government investments. It comes just weeks before country representatives convene in Paris to forge a climate deal that aims to put the global energy economy on a path to zero emissions, and it underscores the obstacles this effort faces.

“If the G20 leaders want to be credible ahead of the Paris talks, they need to show they’re serious,” said Alex Doukas, a senior campaigner at OCI and one of the authors of the report. “Handing money to fossil fuel companies undermines their credibility.”

Doukas said phasing out subsidies should be a top priority because it hinders the transition to clean energy at the scale needed.

Researchers at Oil Change International tracked three main ways in which governments subsidize fossil fuel companies:

  1. National subsidies: Direct spending by governments to build out fossil fuel infrastructure and tax exemptions for investments in drilling and mining.

  2. State owned companies: Government-owned oil and gas companies that benefit from government involvement.

  3. Public financing: Investments in fossil fuel production through government-backed banks and other financial institutions.

The subsidy data was collected from sources including government budgets and commercial databases. Doukas cautioned that some of the subsidies were not easily quantifiable and the figures in the report are likely underestimates. Still, the report gives a picture of the magnitude of the investments in fossil fuels, he said.

Countries vary in how they subsidize the fossil fuel industry. In China, for instance, a majority of the oil and gas companies are owned by the state and it invested more than $75 billion a year in 2013 and 2014 in fossil fuel production.

The vast majority of subsides to the industry in the U.S., on the other hand, are through tax breaks. The U.S. provided at least $20 billion a year in tax exemptions for fossil fuel companies in 2013 and 2014.

Scientists have warned that if the worst effects of climate change are to be avoided, global temperature rise must be kept under 2 degrees Celsius. In order to do that, researchers have estimated that we must keep at least three quarters of the global fossil fuel reserves in the ground.

“Exploration subsidies [in the U.S.] are particularly pernicious,” said Doukas. “At the very moment when we know we have to keep three-fourth of the fossil fuels in the ground, we’re using public money to incentivize their development.”

The Oil Change International’s analysis follows a report by the International Energy Agency this week that concluded that the world’s transition to a low-carbon energy is too slow. Low oil prices and an increasing reliance on coal in developing countries has impeded the growth in renewables, the agency found.

The IEA has also estimated that countries spent $121 billion in 2013 on renewable energy. That figure is about a quarter of the amount spent on fossil fuels in the G20 countries alone, according to the OCI-ODI analysis.

“Fossil fuel subsidies are public enemy number one for the growth of renewable energy,” Fatih Birol, head of the IEA, told the Guardian. “I don’t understand some countries—they have renewable energy programs and at the same time they have subsidies for fossil fuels. This is, in my view, myopic.”