Fossil Fuels Got Six Times More Aid Than Clean Energy, IEA Says

By Ben Sills

Nov. 9 (Bloomberg) — Fossil-fuel consumers worldwide received about six times more state subsidies last year than were given to the renewable-energy industry, according to the chief adviser to oil-importing nations.

Aid to cut the price of gasoline, gas and coal rose by more than a third to $409 billion as global energy prices increased, compared with $66 billion of support for biofuels, wind power and solar energy, the Paris-based International Energy Agency said today in its World Energy Outlook.

While fossil fuels still meet the majority of world energy demand, the subsidies are “creating market distortions that  encourage wasteful consumption,” the agency said. “The costs of subsidies to fossil fuels generally outweigh the benefits.”

The Group of 20 nations in 2009 pledged to eliminate state aid for oil, coal and natural gas while in the U.S., energy subsidies are becoming an issue in next year’s presidential election after Solyndra LLC went bankrupt with $535 million of loan guarantees by the federal government. Republican contender Rick Perry has pledged to end all federal energy subsidies.

G-20 nations spent $160 billion supporting the production and consumption of fossil fuels last year, led by Saudi Arabia’s outlay of $44 billion, the IEA said in its World Energy Outlook published today. Iran spent the most overall, shelling out $81 billion to support fuel sales.

While governments argue their policies are designed to help the poorest members of society, they generally fail to meet that goal, the IEA said. Just 8 percent of subsidies reached the poorest 20 percent of each country’s population last year.

Benefits Higher-Income Groups

“Fossil-fuel subsidies as presently constituted tend to be regressive, disproportionately benefitting higher income groups that can afford higher levels of fuel consumption,” the report said. “Social welfare programs are a more effective and less distortionary way of helping the poor than energy subsidies.”

Cutting the payments would also help tackle climate change, the report said. Eliminating subsidies by 2020 would cut global energy demand by 3.9 percent in that year, the equivalent of 600 million tons of oil, the report said. The saving would rise to 4.8 percent by 2035.

Perry’s approach may hurt renewable energy more than fossil fuel producers that have $4 billion of annual subsidies written into the tax code. Aid for oil and coal producers would require congressional action to change while aid for wind and solar power will simply expire, according to Michael Graetz, a tax law professor at Columbia University in New York.


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