Should Governments End Fossil-Fuel Grants to Tackle Climate Change?

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Should Governments End Fossil-Fuel Grants to Tackle Climate Change?

Both opinion articles from the Scientific American and the NZ Stuff are both saying the same thing: Governments must end fossil-fuel subsidies if it is serious about addressing climate change.

Phasing out the US government’s annual fossil-fuel industry subsidy of $400 billion seems like a no-brainer when it comes to tackling the climate crisis. Even the World Bank and International Monetary Fund agree (Supran, Erickson, Koplow et al, 2020).

According to the IMF, the total global fossil fuel subsidy is $US 5.2 trillion, equal to 6.5 % of the global GDP (Loomis, 2020).  

Supran, Erickson, Koplow et al (2020) present the following:

  • A study in 2018, showing that the effects of subsidy reforms are small and limited in terms of carbon emissions, created a limbo and have all the press asking if it’s worth doing it.
  • Another study in the same year has refuted this claim, by showing that ending subsidies would result in 500m to 2 billion metric tons of carbon dioxide removal – equivalent to a quarter of the total emissions pledges by all countries participating in the Paris Agreement.
  • This figure is by no means small or limited. Aside from reducing emissions, this single policy approach would bring strong environmental, health, and fiscal benefits.
  • This policy approach should also include subsidies like federal tax break to all oil fields targeting new capital investments allowing them to drill more new wells, another analysis of other fossil-fuel subsidies also shows that without it, “oil production could be unprofitable at the level at which prices may hover in a low-carbon future.”.
  • Government subsidies of fossil fuel vary around the world and fossil-fuel production and consumption are supported in hundreds of ways. Revenue boost from subsidies promotes political activities and more drilling.
  • Government subsidizing fossil-fuel activities also gives out a signal that fossil fuels are beneficial for society.

The article cited another study on the social tipping points for climate stabilization to which it concluded that redirecting subsidies to renewables and removing subsidies from fossil-fuel technologies is the tipping point for fossil-free energy to take off (Supran, Erickson, Koplow et al, 2020).

The US Department of Energy says that 40 years ago subsidies have a large effect on capital formation and oil production in the US which means more GHG emissions. However, the age of fossil-fuel investments and subsidies should come to an end if we are serious about preventing a climate crisis (Supran, Erickson, Koplow et al, 2020).

In New Zealand, Loomis in an opinion piece in Stuff NZ said that while the government claims that they provide subsidies to the fossil fuel industry, the fact is that in the past 10 years the government has spent $237m of taxpayers funds as a special treatment for the fossil fuel industry. In 2017, the NZ government gave $87.6m as direct subsidies and other support to the oil and gas industry (Loomis, 2020).

Loomis (2020) expressed further:

  • This also includes the $4m in government support to activities with links to fossil-fuel production and consumption, tax breaks of another 5 years for owners of non-resident drilling rigs and seismic vessels.
  • Also, Loomis says that Dr Megan Woods, NZ’s Minister for Energy and Resources has continued to grant extensions to existing exploration permits under the Crown’s Minerals Act (CMA) while banning new offshore exploration permits.
  • According to the Petroleum Exploration and Production Association of New Zealand (PEPANZ), if the Minister were to refuse further fossil fuel work extensions, all 30 existing exploration permits would end by 2022 and few onshore permits would remain by 2035. Also, the government needs to withdraw all taxpayer support for this dying industry and accelerate the country’s shift to renewable-based energy if it is serious in addressing climate change.

Policy reforms on fossil fuels or scrapping it all together could well be another front where climate change battle can be fought and won.  There is no shortage of research that shows the benefits of transitioning into green energy such as health and environmental benefits, and the opportunity of switching to cleaner and renewable energy.  The answer is up to our government leaders, policy and decision-makers.

Sources:

Supran, G., Erickson, P., Koplow, D., et al. (2020, February 24). Fossil-Fuel Subsidies Must End. Scientific American. Retrieved from https://blogs.scientificamerican.com/observations/fossil-fuel-subsidies-must-end/

Loomis, T. (2020, February 26). Climate crisis means ending government fossil fuel support. Stuff. Retrieved from https://www.stuff.co.nz/environment/climate-news/119750244/climate-crisis-means-ending-government-fossil-fuel-support

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