Limited emission reductions from fuel subsidy removal except in energy-exporting regions

Abstract

Hopes are high that removing fossil fuel subsidies could help to mitigate climate change by discouraging inefficient energy consumption and levelling the playing field for renewable energy. In September 2016, the G20 countries re-affirmed their 2009 commitment (at the G20 Leaders' Summit) to phase out fossil fuel subsidies and many national governments are using today's low oil prices as an opportunity to do so. In practical terms, this means abandoning policies that decrease the price of fossil fuels and electricity generated from fossil fuels to below normal market prices. However, whether the removal of subsidies, even if implemented worldwide, would have a large impact on climate change mitigation has not been systematically explored. Here we show that removing fossil fuel subsidies would have an unexpectedly small impact on global energy demand and carbon dioxide emissions and would not increase renewable energy use by 2030. Subsidy removal would reduce the carbon price necessary to stabilize greenhouse gas concentration at 550 parts per million by only 2-12 per cent under low oil prices. Removing subsidies in most regions would deliver smaller emission reductions than the Paris Agreement (2015) climate pledges and in some regions global subsidy removal may actually lead to an increase in emissions, owing to either coal replacing subsidized oil and natural gas or natural-gas use shifting from subsidizing, energy-exporting regions to non-subsidizing, importing regions. Our results show that subsidy removal would result in the largest CO emission reductions in high-income oil- and gas-exporting regions, where the reductions would exceed the climate pledges of these regions and where subsidy removal would affect fewer people living below the poverty line than in lower-income regions.

Fossil fuel supply and climate policy: exploring the road less taken

“…Removal of subsidies for fossil fuel supply is another economic strategy that governments can pursue. Governments subsidize fossil fuel exploration and extraction to the order of 18 to 70 billion per year, depending on how subsidies are defined, an order of magnitude less than subsidies to fossil fuel consumption, but nonetheless significant (Bast et al 2015;OECD 2017;Jewell et al 2018). Producer subsidies can take many forms, from tax credits on exploration and production equipment, to direct payments per unit of output, to sub-market-rate leasing of nationally owned lands (Koplow et al 2010;OECD 2013;Aldy 2013).…”

“…Producer subsidies affect the quantity and pace of fuels supplied to regional or global markets. This means that their removal could ultimately reduce fuel consumption and CO 2 emissions (Anderson and McKibbin 2000;Erickson and Lazarus 2013;Lunden and Fjaertoft 2014), though researchers may come to differing conclusions about the extent and significance of impact (Allaire and Brown 2012;Jewell et al 2018;Metcalf 2018).…”

Subsidizing extinction?

“…One concrete step is investment in subsidy accountability, a research trajectory that is vastly interdisciplinary. We imagine teams of ecologists, independent advocates, policy wonks, economists, and, importantly, forensic accountants—all tracking subsidies, forecasting the positive or negative environmental and social effects of their redirection or elimination (e.g., Jewell et al., ) and holding governments to account.…”

Swapping Fossil Fuel Subsidies for Sustainable Energy

“…In the last few years there has been a growing awareness among governments as well as an increasing number of studies suggesting a significant link between carbon emissions and the presence or removal of fossil fuel subsidies. Research estimates that the removal of all fossil fuel subsidies would lead to a global decrease in carbon emissions of around a quarter (between 0.5 to 2 Gt or between 1 and 4%, globally by 2030) of the combined emissions reductions currently proposed by countries as part of the Paris Agreement (of between 4-8 Gt from fossil fuels and industry) (Jewell et al, 2018). Further research indicates potential reductions of between 6.4-8.2% by 2050 as against "business as usual" scenarios (BAU) (Schwanitz et al, 2014;Burniaux & Chateau,2014).…”