Oil Tax Subsidies Reach $409 Billion Globally — And They're Crushing the Economy

According to the International Energy Agency's analysis of energy subsidies, global subsidies for fossil fuels totaled $409 billion in 2010. On the other hand, spending on biofuels, solar energy, and wind power totaled $66 billion during the same year. While this is an increase compared to the previous year, it still stands as only 1/6th of the subsidies given to fossil fuels.

The typical rationale for subsidizing fossil fuels is that it will alleviate poverty by providing cheaper energy to individuals with lower income, thus promoting economic growth. However, the results show that only 8% of subsidies actually reach the poorest 20% of each of the countries. This means that rather than alleviating poverty, these subsidies are in fact benefitting higher-income groups that can already afford high levels of fuel consumption.

Furthermore, they distort energy markets by artificially lowering the prices of fossil fuel energy, encouraging wasteful consumption and increasing harmful emissions. Removing these artificial pricings would increase the public response to high gas prices, creating an urgency and demand for cheaper, cleaner, and less volatile alternatives.

According to the IEA, eliminating subsidies for fossil fuels by 2020 would cut global energy demand by 3.9%, which is the equivalent of reducing oil use by 600 million tons. This massive reduction would cut CO2 emissions by 1.7 gigatons — the equivalent to the current total emissions in Germany, France, Italy, and the UK. By the year 2030, the savings would equal 2.5 gigatons of CO2. Furthermore, redistribution of subsidies to clean alternative energy technologies would aid them in becoming as cost-effective as fossil fuel energy. This would allow for a gradual transition from fossil fuels to alternative energy without sacrificing economic gain.

From a report by the California Energy Commission, the average cost of electricity per kwH is $0.074-$0.088 for coal, $0.087-$0.346 for natural gas, $0.116-$0.312 for solar, and $0.06 for wind. Wind is already a cheaper option than coal and natural gas, and while fossil fuel energy prices are projected to increase going into the century as supplies decrease prices for solar and wind are projected to decrease.

Studies performed by the Brookhaven National Lab project solar energy to reach economic competitiveness by 2020, with a price of $0.10 per kwH. Furthermore, the prices of energy do not currently reflect the environmental damage associated with the energy source. The combination of widespread research and development and increased subsidies for alternative energy would allow solar and wind energy to become both the economically and environmentally sensible options.

Essentially, the current government allocation of funds to help the energy industry is inefficient — both economically and environmentally. Oil companies who hold a near-monopoly of the industry get billions of dollars, while also providing a relatively price-volatile resource. If the playing field was evened, and the already price competitive wind and nuclear industries could be given the chance to grow at faster rates, America comes that much closer to a green future with no emissions and self-made energy.

Even solar could come closer to competitive pricing if allowed more funding for innovation and time to establish itself as an industry. While it may not be easy, or soon, this transition is absolutely necessary for our country. 

How much do you trust the information in this article?

Jatin Khanna

Performance Engineer at First Solar. Politically Moderate, leaning toward whatever side promotes healthy policies for sustainable economic growth, clean energy, and equal rights for all.

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