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Energy subsidies

Gero Rueter / al
March 4, 2014

Billions of euros are spent on subsidies for fossil fuel producers. But just how much? The International Energy Agency says annual subsidies are about 400 billion, but the IMF puts the figure at a trillion euros.

A coal power plant in Germany, with coal in the foreground (Copyright: Fotolia)
Image: Fotolia/blumenkind

Back in 2009, at the G20 summit in Pittsburgh, leading heads of state decided that subsidies for oil, gas and coal would slowly have to be cut worldwide. The closing statement of the meeting reads:

"The inefficient subsidization of fossil fuels supports wasteful behaviour, complicates investments in clean energy sources and undermines efforts to fight the dangers of global warming.”

Move forward five years and international organizations such as the World Bank, the International Monetary Fund (IMF) and the International Energy Agency (IEA) continue to report the problem of fossil subsidies around the globe. Depending on the calculation method used, estimates of the amount of fossil fuel subsidies worldwide varies between 400 billion ($548 billion) and 2.6 trillion euros per year.

According to IEA data, fossil fuel energy use is subsidized to some extent in just about all countries with oil and gas deposits. Countries like Iran, Saudi Arabia, Russia, Venezuela and Nigeria rank their fossil fuels well below the market price for electricity, transport and heating within their own state.

About a quarter of global subsidies for oil and gas, the IEA says, are accounted for by importing countries. In order for energy to be affordable for the population, imported fossil fuels are also kept cheap in countries like India, China and Indonesia.

Swantje Küchler in a press conference
Swantja Küchler is an economist from Green Budget GermanyImage: FÖS

The problem of fossil fuels

Swantja Küchler, an economist from Green Budget Germany, told DW that money from German state budgets is used to keep prices low. She explained that tax breaks exist for the fossil fuel industries too and pointed out that Germany provides state aid to the coal industry.

"This is direct assistance so German coal will be cheaper," Küchler said. And farmers "only have to pay about half of the amount of tax on diesel".

Within scientific and political circles, the costs incurred by burning fossil fuels is greatly disputed. Carbon dioxide emissions have a knock-on effect across society, primarily through climate change.

"It is estimated to be about 80 euros per ton of CO2," says Küchler. "The price has never previously been determined, but instead it's passed on to society." The worldwide cost on the climate is around 2.7 billion euros per year, Küchler estimates.

Some institutes and experts classify these as-yet unpaid climate costs as fossil subsidies and include them in their calculations. Others leave them out. That would explain the huge discrepancies between figures from the IMF and the IEA, says Küchler. She is currently comparing international studies, in an attempt to pinpoint costs represented in the published figures.

Germany also guilty

Germany and many other EU countries keep a record of their subsidization levels of fossil fuel industries. The OECD also monitors subsidies worldwide.

Economic scientists, energy experts and politicians are in agreement that fossil fuel subsidies don't just speed up damage to the climate, they also interfere with competition. The phase-out of fossil fuel subsidies is actually an important instrument in tackling climate change, says Achim Steiner of the UN Environment Program.

Offshore wind farm BARD
Germany supports a shift to renewables, but gives about five times the amount of funding to fossil fuelsImage: picture-alliance/dpa

"If we compare the different energy providers on price right now, then we can see renewables will overtake fossil fuel suppliers very quickly," Steiner told DW.

According to Germany's Federal Environment Agency, the country set aside 52 billion euros for fossil fuel subsidies in 2010. That represented about a sixth of the German national budget. By comparison, in the same year renewable energy was subsidized to the tune of around 10 billion euros.

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