Fossil Fuel Subsidies Are Huge on a World Scale

By Editors

Last week’s Annual Energy Outlook from the International Energy Agency in Paris talked extensively about the large subsidies for fossil fuels and how they must be ended if the world is to make a transition away from carbon and avoid climate change. Many Americans may have found this puzzling. Except for some obscure tax advantages, we don’t offer outright subsidies for fossil fuel consumption. In the rest of the world, however, such subsidies are common, even pervasive, especially in developing countries.

The strategy is pursued as with other staples such as food and housing as well. First the government attempts to hold down costs through price controls. This raises consumption but dries up production. So the government must also step in and either subsidize production or, more commonly, simply take over the supplying industry. The effect is to offer a minimum level of consumption to the broad majority of people for the targeted commodity while subtracting resources from other parts of the economy. The US did something very similar by subsidizing housing mortgages and then virtually taking over the mortgage industry through the government-dependent entities Fannie Mae, Freddie Mac and the Federal Housing Administration. The impact on the rest of the economy was signficant.

Iran leads the world in fossil fuel subsidies with nearly $68 billion (bottom scale), 40 percent for oil (pink bar) and the remainder in natural gas (lavender) and electricity (blue). Saudi Arabia provides $35 billion in oil and electricity subsidies and Russia comes in third with $33 billion for electricity and natural gas. China and India rank fourth and fifth, with China being one of the few countries that subsidizes coal (purple).

The percentage of the economy dedicated to fossil fuel subsidies is represented by the pale blue diamond, with the scale at the top. Uzbekistan leads the world with its $11 billion in gas and electric subsidies representing almost one-third of the economy. Iran’s subsidies for gas, oil and electricity represent 20 percent of its economy while Turkmenistan's abundant gas supplies are subsidized to the level of 13 percent. Only the Ukraine and China significantly subsidize coal. Altogether such subsidies amount to $312 billion worldwide, with oil subsidies making up half the total.

Notably absent from the list are the United States and other advanced nations. The Western countries may do many things wrong in their economies but they are not subsidizing fossil fuel consumption.

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