Now as the Time to Cut Fossil-Fuel Subsidies, Report Says

Power Plant Air Pollution

By Maura Forrest

February 26, 2015

The elimination of fossil-fuel subsidies could cut global greenhouse gas emissions by at least six to 13 per cent by 2050, according to a new report.

The report, published by the International Institute of Sustainable Development (IISD) and the Nordic Council of Ministers, estimates that global fossil-fuel subsidies to consumers were worth US $543 billion in 2014.

The authors suggest that now is a good time for governments to scale back subsidies, because low oil prices mean the extra cost borne by consumers will be lower than it would have been a year ago.

They also claim that a six to 13 per cent reduction is a conservative estimate, since it is based only on the elimination of subsidies to consumers, not to producers. Subsidies to fossil-fuel producers were not analyzed, as they are more difficult to calculate.

Cutting subsidies also “frees up significant and precious government resources,” which the authors argue should be reinvested in “energy efficiency and sustainable energy for all.”

The report finds that fossil-fuel subsidy reform combined with a carbon tax could lower global greenhouse gas emissions by 23 per cent by 2050.

In December 2014, negotiators at the United Nations climate change talks in Lima, Peru, agreed on a plan that would commit all countries to cutting greenhouse gas emissions. Governments are supposed to reveal how they will achieve that goal by March of this year.

The Lima Call for Climate Action specifically refers to the “phasing down of high-carbon investments and fossil fuel subsidies” as one way to finance emissions reduction strategies. 

The IISD recently reported that nearly 30 countries have implemented fossil-fuel subsidy reforms in the last couple of years. In fact, 2013 was the first year since the economic crisis in 2008 that global subsidies actually fell from the preceding year.

Those countries include India, Russia, and China, but not Canada or the United States. Canada has not revealed new emissions targets since the Lima conference, and according to a recent report from Environment Canada, is not on track to reduce emissions by 17 per cent from 2005 levels by 2020, as the Harper government pledged in Copenhagen in 2009.

In 2014, the IMF claimed that fossil-fuel subsidies in Canada totaled $34 billion, mostly from untaxed externalities like air pollution that end up being paid for by the public.