What Would Happen if Fossil Fuel Subsidies Were Redirected Towards Renewable Energy?

Subsidies are at the heart of energy issues. Clean power receives a tiny fraction of this money while the fossil fuel industry continues to reap the lion’s share. Fossil fuel subsidies are four to ten times larger than those given to renewable energy.

Governments around the world gave about $490 billion in subsidies to the fossil fuel industry in 2014 and only $112 billion in subsidies for renewable power generation. Governments are planning on continuing their preferential allocation of resources to fossil fuels. According to the IEA, over the next 25 years, only 15 percent of the G20’s investment in energy will be devoted to renewables.

Two recent studies support the contention that ending our use of oil gas and coal could solve the climate crisis. The transition away from fossil fuels towards renewable energy is already underway. However, we need to expedite the process. One of the fastest ways we can do this is by ending fossil fuel subsidies and redirecting these subsidies to renewable energy. This would allow carbon pricing schemes to work better, reduce health hazards from air pollution and promote job growth.

Simply removing subsidies for fossil fuels would benefit renewables as dirty energy subsidies are inversely correlated with the growth of clean energy. Redirecting subsidies from fossil fuels to clean energy and efficiency would provide immense environmental and social benefits. Redirecting such subsidies would significantly reduce greenhouse gas emissions.

A recent study shows that if we immediately phased out fossil fuels, we have a 64-66 percent chance of keeping temperatures from increasing more than 1.5 C. We have known that we need to end fossil fuel subsidies for many years. As explained a decade ago in the Leader’s Statement from the G20 Pittsburgh Summit, fossil fuel subsidies are inefficient, they “encourage wasteful consumption, reduce our energy security, impede investment in clean energy and undermine efforts to deal with the threat of climate change”.

Christina Figueres, the former Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC), was instrumental in bringing about the positive outcome at COP21. She has repeatedly spoken out against fossil fuel subsidies. “These subsidies contribute to the inefficient use of fossil fuels, undermine the development of energy efficient technologies, act as a drag on clean, green energy deployment and in many developing countries do little to assist the poorest of the poor in the first place,” Figueres is quoting as saying in a book called “Making the Switch“.

Right now fossil fuel prices are artificially low because they include subsidies and do not reflect environmental and health impacts. If we were to end fossil fuel subsidies it would allow increasingly cost-competitive renewable sources of energy to out-compete dirty energy.

While IEA figures show that government subsidies for fossil fuels are around 10 times greater than those for renewable energy, when we factor in climate and environmental costs, then the fossil fuel subsidies increased another 10 times to nearly $5 trillion a year according to the IMF. The IMF in partnership with the World Bank has said:

“Subsidies distort resource allocation by encouraging excessive energy consumption, artificially promoting capital-intensive industries, reducing incentives for investment in renewable energy, and accelerating the depletion of natural resources.”

What would happen if we diverted subsidies away from fossil fuels and towards renewables? We would be well on our way to addressing the climate crisis while at the same time we would improve air quality.