OECD: Fossil fuel subsidies added up to at least $373bn in 2015?

CarbonBrief is at fossil fuel subsidies, which I last seem to have covered in 2015 in Fossil fuels subsidised by $10m a minute, says IMF?, and if your calculator is rusty that's $5.3 tr a year. That's more than a factor of 10 difference, which you'd expect CB to notice. They sort-of do, with The [OECD] report also does not include any estimates for the cost of externalities – such as climate change – resulting from the use of fossil fuels, as the International Monetary Fund (IMF) has previously included. But that's it. Note that calling not costing an externality a subsidy was one of my major objections to the previous report. Now I look a little harder, the "subsidies" in this report may be the "pre-tax subsidies" of the previous; see the blue diamonds in fig 4 of the previous.

Before wading into the detail there's another thing to explore (beyond me making the habitual whinge that they don't provide a convenient link to the report they're talking about) which is the word "subsidy". Last time (see my link) we had a big discussion about what might meaningfully be called a subsidy. This time, the source report OECD Companion to the Inventory of Support Measures for Fossil Fuels 2018 (at least, I assume that's their source, I can't be sure, see rant previous) somewhat interestingly uses the word "support" not "subsidy", at least in their headline. Is this a semantic game or does it matter? If the OECD has deliberately chosen a different word, it would be nice to think they probably have a good reason. But it isn't clear that they do have; if they explain the distinction they are trying to make, I failed to find it (and, for example, fig 1.3 is headlined fossil fuel support in Indonesia, but the caption reports subsidy data). CarbonBrief uses the word "support" 59 times and the word "subsidy" 35 times, but as far as I can see show no awareness of any difference. So, I shall ignore the distinction and use the word "subsidy".

An example of how slippery the concept of "subsidy" is, is provided by figure 1.2, for the column for France, which shows a huge increase in support for Coal. Foot note 2 helpfully explains this: France introduced a "carbon tax component in fuel taxation" in 2015, but energy-intensive things not covered by the ETS and that were subject to possible "carbon leakage" pay pre-2015 tax rates. This counts as support. And in a sense it is; but it would probably be more accurately be described as "non-penalisation". And of course the industry itself has not had its tax position changed at all by this measure, yet it shows as a huge change.

Another is something not in the OECD report, but in the CarbonBrief report, is specific report to UK fossil fuel support. This notes that The UK defines fossil fuel subsidies as government action that “lowers the pretax price to consumers to below international market levels”. Therefore, the UK government argues that it does not provide any fossil fuel subsidies. CB notes that this is similar to the definition used by the IEA; but then continues Definitions of “fossil fuel subsidy” aside, the OECD inventory documents a significant level of support for fossil fuels in the UK. So, that's a bit confusing.

Some things are unambiguous subsidies: where the government supplies fuel at prices below market rates. Those are stupid and should be stopped, obviously. The report notes Mexico and Indonesia moving in this direction. On the producer side, the report tells me that Germany subsidies hard-coal production (this OECD report says  As production costs remain well above revenues, the company gets substantial government subsidies). That's mad, obviously, and shouldn't happen.

There's another oddity, on page 18, where they discuss (with approval) France and Belgium "phased out fossil fuel subsidies" by removing the tax differentiation between Petrol and Diesel. But this doesn't make sense: diesel is more CO2-efficient, and so should indeed be taxed less? Ah, but although the report cares deeply about the Paris agreement etc. etc., CO2 is not it's measure; all they care about is differentials? I don't really understand their thinking on this point and they don't really explain themselves. They seem to regard any (tax) that differentiates between petrol and diesel as a subsidy; would they regard tax differentials between petrol and coal as a subsidy?

There appears to be a concept of "efficient" and "inefficient" fossil fuel subsidies. Unfortunately the last sentence of the Exec Summary notes that there is no consensus as to when a subsidy might be "inefficient". So although people promise to phase out "inefficient" subsidies (as you'd rather hope; why have them in the first place?) this may not mean very much. Section 1.2 discusses this; the implication is that subsidies that encourage wasteful use are "inefficient".

Overall the report isn't really telling me what I'd like to see. I'd like to see total subsidies split up into different classes, and by different countries, in a more useful way. Figure A.1 (I've belatedly got that far) partially answers that.


Maggie, head of a truncated Lents. Caius bumped Downing to go second, but would not have caught Maggie even if the other two days had happened; it took them until past the railway bridge to get Downing. See more.


Unknown said...

The last time I looked at this systematically (meaning I got paid by a client...) the numbers seemed very much in line with your commentary in this post.

Global spending on primary energy was (back then) $5 trillion, spending on renewables was $500 bn, and spending on solar at the time was $50 bn, which I thought was an interesting symmetry.

The vast majority of spending classed as subsidy was artificial pricing for consumer purchase of petroleum products, with Iran being one of the largest subsidizers, Venezuela another.

It is of course in the interest of polemicists to inflate the 'subsidy' given to fossil fuels by throwing in some things that are not really subsidies to the generation or consumption of power from fossil fuels. When I looked at US figures the amount of real support provided fossil fuel companies was surprisingly similar to the support provided renewable generators i.e., wind, solar and biofuels. I doubt very much if that holds worldwide and the numbers may have changed in either direction since then (2010).

Governments provide very real support to fossil fuel companies. It is a legitimate subject for discussion and debate. Much of that support is revenue willingly foregone by the government provided in the way of favorable tax treatment.

That debate is not helped by exaggerating the numbers involved.

Tom Fuller said...

Oh--my antivirus software rendered me anonymous. Previous comment by Tom Fuller

William Connolley said...

I like to think I'd know Harold Clancy Everet's smoke.

William said...

There's lots of subsidies for the use of fossil fuels Tom beyond direct production related tax incentives. There are things like building and maintaining strategic reserves that are physical, but the biggest is the implicit subsidy of allowing our lungs to be filled with toxins. How do we assign a value to that? Perhaps if we ask, if it wasn't associated with car use, how much would you charge *me* for permission to fill *your* lungs with toxins every day? If your answer is anything but a trivial amount, which is unlikely as it is your lungs, then multiplied across the planet the implied subsidy is so huge that anything given to renewables is a rounding error.

William Connolley said...

> the biggest is the implicit subsidy of allowing our lungs to be filled with toxins

That's not what I'd describe as a subsidy; and further even if it was, it would be a subsidy to consumers not FF companies. If you read the post, you'll see that I think that explains the difference between this number, ~500 bn, and the other number, ~5 tr.

William said...

If filling lungs with toxins were to be disallowed, less petrol/diesel would be sold, don't you think? So suppliers would make less profit. The difference between before and after the ban is the effective subsidy.

William Connolley said...

But why is it a subsidy to the FF companies? They are not burning the FFs. Consumers are, in the case of cars. If the FFs were more expensive, consumers would correctly be the ones paying.

William said...

Because the FF companies make profits that otherwise would not be available to them. Consumers may pay with their health instead of (or in addition to) with money, but they do pay, so they do not receive a subsidy (in OECD countries).

Was the report talking specifically about subsidy to FF companies or subsidies in general? I'd have to actually read it to know. The distinction doesn't seem important to me. Both increase the size of the market or lower the price (which is perhaps the same).

F. Schweizer said...

The "fossil fuel subsidies" are mainly fuel-price controls by governments, like in Venezuela, Iran, etc.. The state takes money from rich taxpayers and gives it to rich and poor people when they buy fuel. Poor people benefit, and (maybe) rich ones and the energy companies; wasting may be encouraged.e
Subsidies of "renewable energy" are paid manly by electricity-users and given to rich people who can invest in solar panels or wind-mills or biogas-plants. Only rich people benefit and mostly poor people are forced to pay. There is no benefit to "nature" or the commonweal.

William Connolley said...

The fossil subsidies are usually mostly captured by the better-off rather than the poor.

I'm not ready to agree that renewable subsidies are worthless. Wasteful, yes, but they have contributed to the development of renewables.