Thursday, February 01, 2007

Subsidizing Our Destruction

The Earth Policy Institute estimates that the world's governments subsidize environmentally destructive activities by $700 billion a year.

Iran provides an extreme example, providing $3.6 billion annually to keep oil prices low. The World Bank estimates that if this subsidy were phased out, it would cut Iran's carbon emissions by nearly half. Energy subsidies in Venezuela, Russia, India, and Indonesia increase carbon emissions between a tenth and a quarter. A study by the U.K. Green Party tabulated the subsidy to the country's airline industry at $391 per resident.

In the U.S., a 2002 study by Green Scissors, a coalition of environmental groups, calculated that subsidies for the energy industry totaled $33 billion over 10 years, with the oil and gas industry getting $26 billion, coal $3 billion and nuclear $4 billion. In 1999, Donald Lubick, U.S. Treasury Assistant Secretary for Tax Policy, claimed that the oil and gas industry "probably has a larger tax incentive relative to its size than any other industry in the country." A 2001 study by Redefining Progress showed that U.S. taxpayers were subsidizing auto use by $257 billion a year.

A few countries have started reducing their carbon subsidies. Belgium, France and Japan have phased out all subsidies for coal. Germany cut its coal subsidy inhalf between 1989 and 2002, lowering its coal use by 46%. China cut its coal subsidy by two thirds from 1993 to 1995, and more recently put a tax on high sulfur coals.

But these few examples are an inadequate beginning for a world faced with much sooner than expected global warming effects. These huge carbon subsidies must be transformed into subsidies for renewable energy and a sustainable economy. Only then will we begin to make progress in our efforts to ward off environmental catastrophe.


At 10:43 AM, Blogger Kiran said...

Good post, but I have just one point to make.

Energy subsidies in India are a mixed bag, but overall the trend is towards conservation, rather than profligacy. Farmers used to get electricity almost free in many states in India (as they still do in many countries in the world), though that is changing now. Kerosene is subsidised in India, but only the public distribution variety, which though misused hardly amounts to a sizeable proportion of the power consumption of the nation. Commercially sold kerosene is not subsidised. On the contrary, taxes make up more than half the price of petrol/gasoline at the retail stations. Diesel and aviation fuel are similarly heavily taxed, and are more expensive that in the US (and India is a much poorer country).

A relatively small proportion of the population benefits from energy subsidies, and almost none at the urban level. Automobiles in India are among the most fuel efficient in the world, though not among the lowest polluting. But that is compensated to some extent by the forcible movement of commercial vehicles in major cities to using natural gas, which pollutes far less. India is also among the leading countries in wind power generation capacity, though it's total estimated potential is very small (just 0.1 TW, compared to 3.8 TW in the US). The E&Y country attractiveness index rates India as the second best country in the world to invest in renewable technology.

Not that India is doing everything right, but India is definitely not in the league of Iran, Venezuela and Russia in energy profligacy. On the contrary it is one of the more conscientious countries in the world on that front.


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