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Fossil Fuels on the Take

Money spent to subsidize the consumption of fossil fuels (as opposed to production) worldwide fell from $500 billion to $325 billion in 2015. It is one step on the long road to combating climate change. We wonder: Which of the following energy categories receives the greatest global consumption subsidies annually?

A. Coal
B. Natural gas
C. Electricity
D. Oil

A. Coal … is not correct.

Coal now receives the smallest amount of consumer subsidies among the so-called “legacy” fuels. All told, direct consumer subsidies for coal purchases amounted to just $1 billion across the entire world in 2015, according to the International Energy Agency’s 2016 World Energy Outlook.

Coal is also subsidized indirectly in other ways, particularly in terms of electricity generated from coal. (The United States alone gives more than $1 billion in subsidies to coal-fired electricity producers.) The $1 billion in global consumption subsidies to coal counts only price subsidies for direct home and business uses of coal for energy, which is increasingly uncommon.

Most consumers and businesses do not purchase coal itself for energy, but some use coal for heating.

In the United States, coal heating – once common – was largely phased out for liquid fuels long ago. China, for its part, has moved to prohibit coal heating altogether in metropolitan areas for health safety reasons, after once providing it for free to homes.

Reforms and cuts to consumer fossil fuel subsidies have a number of benefits. These include incentivizing energy efficiency investments, energy technology innovation and public transit usage. It also frees up public dollars to invest in more sustainable systems, while more accurately pricing the public health consequences of fossil fuels.

Finally, fair pricing for costly and damaging fossil fuels simply allows clean and safe renewables to compete in the marketplace.

Beyond increasingly limited consumer subsidies, coal also costs national governments hundreds of billions of dollars annually in environmental and public health damage as well as in foregone revenue from tax breaks to the producers.

B. Natural gas … is not correct.

Natural gas price subsidies remain large, both by dollar value and by the share of the market affected. $80 billion in subsidies were spent in 2015. These funds are spent to reduce the cost of 25% of all gas consumption worldwide. Natural gas is used in power generation, heating and as a transportation fuel.

Taking advantage of a decline in natural gas prices, some countries have pursued the opportunity of naturally low prices to make significant reforms and cuts to their natural gas subsidies.

Argentina, for example, in 2016 raised the subsidized prices of natural gas to residential and industrial users, as well as of natural gas as a transportation fuel.

At least 30 countries have undertaken reforms to consumer fossil fuel subsidies of all kinds since 2014 – including India, Nigeria, Egypt, Venezuela, Saudi Arabia and Angola.

C. Electricity … is not correct.

17% of global electricity use was directly subsidized in 2015 at the final point of sale, at the consumer level, for a total price tag of $100 billion. This amounts to a de facto subsidy for fossil fuels in most countries, since electricity production remains largely fossil-fueled.

Electricity price reforms were one of the most common subsidy reforms in 2015 and 2016, affecting more than a dozen countries.

In 2016, Indonesia, the world’s fourth-most populous nation, announced a shift to target electricity subsidies exclusively to low-income and vulnerable households.

Reducing subsidies at the end-user price level encourages improvements in home or business energy efficiency by raising consumer awareness.

D. Oil … is correct.

Consumers benefitted from subsidies spent on oil-based fuel prices (for transportation, heating and other purposes) for a total of $145 billion worldwide in 2015, according to the IEA’s World Energy Outlook.

This makes oil the most heavily subsidized fossil fuel, although only 11% of global oil consumption was affected directly. (Oil consumption in many countries is taxed, rather than subsidized, if not offered at market rates.)

The biggest factor in the 2015 decrease in consumer oil and gas price subsidies was simply the rapid fall in open market prices for the two commodities, but some countries did enact reforms.

Iran is the biggest provider of subsidies paid out for fossil fuels – of any kind – in the world ($52 billion in 2015). The country thus accounts for 16% of the global total. In 2016, the government moved to eliminate guaranteed allotments of subsidized gasoline for motorists, which will remove a major oil subsidy in Iran.

Saudi Arabia is not far behind Iran as the second-largest fossil fuel subsidy provider ($49 billion). At the end of 2015, the Saudi government announced that the artificial prices of gasoline, natural gas and electricity would all be allowed to rise by varying degrees. Subsidies to diesel and kerosene – both oil-based fuels like gasoline – were also changed.

Russia and Venezuela spend roughly half as much as Iran on fossil fuel subsidies ($30 billion and $20 billion, respectively, as of 2015). Russia, however, did not reform its subsidy regime in 2015, whereas Venezuela cut subsidies to gasoline, diesel, natural gas and electricity prices.

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