Bridges Weekly Trade News Digest • Volume 14 • Number 22 • 16th June 2010

New Data Show Energy Subsidies Vastly Higher than Estimated

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World spending on energy subsidies topped US$557,000 million in 2008, according to a brief released on 9 June by the International Energy Agency (IEA). Their numbers showed subsidies to be 75 percent higher than previous estimates.

The world’s spending on subsidies also showed a massive increase from the previous year, which the IEA placed at US$342,000 million.

OECD Secretary-General Angel Gurría strongly criticised this level of spending, calling it a “wasteful use of scarce budget resources,” according to Agence France-Presse.

While the IEA brief recommends cutting these trade-distorting energy subsidies, it stressed that policies to reduce or eliminate subsidies for electricity, kerosene, and liquefied petroleum gas (LPG) should not restrict access to essential energy services for the poor.

The IEA estimates that phasing out these subsidies between 2011 and 2020 would decrease global energy demand by 5.8 percent and cut carbon dioxide emissions by 6.9 percent. Their work shows that the price increases resulting from this reduction will lead to improved efficiency in energy use, along with a switch to alternative energy sources.

The IEA studied 37 countries to produce the brief. These countries combined represent 95 percent of global subsidised fossil-fuel consumption.

The IEA is an intergovernmental organisation that acts as an energy policy adviser to its 28 member countries. Its analysis will be incorporated into a larger report, which is being compiled jointly by the IEA, the OECD, the World Bank, and OPEC in preparation for the G20 summit taking place from 26-27 June in Toronto.

This report is being prepared due to a request made by G20 leaders at their meeting in Pittsburgh in September of last year. At that meeting, leaders agreed to “rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption.” Leaders also asked these organisations to collaborate in providing “an analysis of the scope of energy subsidies and suggestions for the implementation of this G20 country initiative.”

The OECD also released two background papers on this subject last month in preparation for the G20 Summit.

Meanwhile, the EU is getting ready to consider a blanket energy tax that could make renewable fuels less expensive than traditional sources of energy, giving consumers an added incentive to switch from fossil fuels to less harmful alternatives (see related story, this issue). The European Commission has drafted a document outlining the potential timetable for this tax, along with how much of a contribution it might make toward meeting the EU’s climate goals.

ICTSD reporting; “Cutting fuel subsidies will cut CO2 emissions: OECD,” AGENCE FRANCE-PRESSE, 9 June 2010; “IEA counts $550bn energy support bill,” FINANCIAL TIMES, 6 June 2010.