Governments across the G20 countries are estimated to be spending $88 billion every year subsidising exploration for fossil fuels. Their exploration subsidies marry bad economics with potentially disastrous consequences for climate change. In effect, governments are propping up the development of oil, gas and coal reserves that cannot be exploited if the world is to avoid dangerous climate change.
Fossil fuel subsidies have allowed energy exporting countries to distribute resource revenue, bolstering legitimacy for governments, many of which are not democratically elected. But subsidy benefits are dwarfed by the harmful consequences of encouraging uneconomic use of energy. Now, with consumption posing a threat to long-term exports, governments face a heightened need to raise prices that have come to be viewed as entitlements.
The EU biofuels industry has increased its use of palm oil by 365 per cent over 2006-2012, from 0.4 to 1.9 million tonnes per year. The additional demand can be linked primarily to the growth in biodiesel production stimulated by government policies (primarily purchase mandates) during the same period. The increase in palm oil consumption in the biofuels sector has amounted to 1.6 million tonnes, or 80 per cent of the total increase in palm oil consumption in Europe (1.9 million tonnes) over 2006-2012.
The ability to undertake any meaningful subsidy reforms, either nationally or multilaterally, is hampered by a basic lack of knowledge about the extent of support to the sector and where information on this support might be held. This multi-country research effort identifying and classifying different sources of data on fossil-fuel subsidies has begun to characterize the extent and nature of subsidy programs, identifying the analytical challenges that need to be overcome in order to de-subsidize.
Consumer subsidies to oil consumption depress the visible price of fossil fuels to end users, and with it their incentive to substitute alternative fuels or conservation. Understanding which countries mute price adjustments in oil products, and to what degree, is important in mapping out the options and trade-offs for reform.
Matthew Saunders and Karen Schneider. Australian Bureau of Agricultural and Resource Economics. June 2000. Australia is only one case in this international overview of problems with subsidies. AUSTRALIA, CANADA, UNITED STATES, JAPAN, EUROPEAN UNION, FORMER SOVIET UNION, EASTERN EUROPE, CHINA, INDONESIA, KOREA, THAILAND, INDIA, SOUTH AFRICA, MIDDLE EAST, MEXICO, ARGENTINA.