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Fossil-Fuel Subsidies: Why We Crunched Numbers

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Cars blur on the highway near Riyadh, Saudi Arabia. Photo by Bakar_88/Flickr, Creative Commons license

Something crucial was missing from the first-ever global inventory of tax breaks for oil companies and other fossil-fuel subsidies when the Organization for Economic Cooperation and Development released it last fall. The report detailed all the subtle and not-so-subtle supports for production and consumption of oil, coal, and natural gas in 24 nations, including the world’s most advanced economies—all the OECD countries where data was available. And yet, OECD never totaled the numbers.

“Caution is required in interpreting the support amounts and in aggregating them,” the OECD warned. At the same time, the International Energy Agency (IEA) released its latest analysis on nations with the largest fossil-fuel subsidies, including some of the major energy exporters. The same worries apparently did not apply to the latter group, as IEA named names, added numbers, and ranked countries, with Iran topping the list with $80 billion in 2010 subsidies.

Even though the two lists are indeed quite different, as are the methodologies behind them, we added up the available figures in the OECD inventory and displayed and detailed both sets of countries for readers to explore here:

Since the IEA was addressing primarily “consumption” subsidies, government supports that make the price of gasoline and other fuels artificially cheap for citizens, the calculations were relatively straightforward and consistent from country to country. IEA just subtracted the difference, or “gap,” between the price consumers paid in each high-subsidy country and the actual price on the world market. That gap expands or contracts depending on global oil prices, the size of the discount citizens enjoy, and the size of a nation’s population.

Fossil-fuel subsidies are much more complex in countries with more advanced and diverse economies than in the oil-reliant states. They involve complicated tax breaks, like the methods oil companies can use to deduct their exploration and production costs. Research and development investments in fossil fuels are counted, as are targeted programs to aid consumers in buying fossil fuel.  Australia, for example, spent $5 billion on fuel tax credits in 2010 that went primarily to businesses operating heavy trucks, as long as they meet certain environmental criteria. In the United States, low-income home energy assistance, which totaled $2.9 billion in 2010, is counted by OECD as a fossil subsidy, since it goes primarily to natural gas utilities to pay winter heating bills.

There can be debate about the merit or value of these subsidies. And, indeed, as OECD points out, tax breaks are quite different country to country, and must be viewed as relative to the overall tax burden in a particular country. But first, people need to gain an understanding of what fossil-fuel subsidies are, why they pose a hazard for both economies and the environment, and at a most basic level: What is the size of the problem?

With fossil-fuel subsidies high on the agenda at Rio+20, the United Nations Conference on Sustainable Development in Rio de Janeiro, environmentalists around the world plan demonstrations and a “twitterstorm” today, using the hash tag #endfossilfuelsubsidies to raise awareness.We decided to do our part to aid in understanding, by adding up the numbers that are available now—with all their limitations. Also, in this photo gallery, we take a closer look at the nations with the largest subsidies and their reform efforts:

Better data, more comparable data, and more transparency is needed so that populations around the world can better understand why fossil-fuel subsidies ratchet up energy waste and carbon emissions, and so often fail in helping the poor.