The World's Poor are Hurt Not Helped by Fossil Fuel Subsidies

Governments argue that fossil fuel subsidies are designed to help the poorest members of society, however, this is not borne out by the research. The true beneficiaries of these subsidies are wealthier people and wealthier nations not the poor.

According to an IEA report, more than 85 percent of these subsidies go to middle and higher end income earners while only 8 percent of the aid is reaching the poorest 20 percent. These subsidies encourage energy consumption as people with the lowest incomes tend to be lower energy users and rarely drive.

“Fossil-fuel subsidies as presently constituted tend to be regressive, disproportionately benefiting 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.”

Impediment to renewable energy

Not only do fossil fuel subsidies not help the poor they actually impede the growth of renewables. This is particularly true for rural poor, where renewable energy would be both well suited and highly competitive.

“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,” former Executive Secretary of the UN Framework Convention Christiana Figueres said.

Green climate fund

Fossil fuels subsidies are harmful to both the poor and poorer nations. Wealthy nations spend as much as 40 times more money on fossil fuel subsidies than they invest in the Green Climate Fund to help poor countries adapt to global warming. Eight industrialised nations (Australia, Canada, France, Germany, Italy, Japan, the United Kingdom and the United States) spend a combined $80 billion a year on public support for fossil fuel production, but have pledged only about $2 billion a year to the Green Climate Fund, Oil Change International said.

“Eliminating fossil fuel subsidies could be a massive double win,” Alex Doukas, said Oil Change International’s senior campaigner, said. “It would stop a huge waste of public money that’s driving the climate crisis, while at the same time freeing up money that can help poor countries adapt to the impacts of climate change and make the shift to renewable energy.”

Climate costs

Almost all economists agree that climate change hurts the economy. This view was presented in a 2018 article in the Bulletin of Atomic Scientists, titled, Benefits of curbing climate change far outweigh costs, by Dana Nuccitelli. In fact global warming has been hurting the economies of poorer countries for about 40 years.

The medical costs alone justify climate action. A recent WHO report concludes that the health gains from meeting the terms laid out in the Paris Agreement would more than make up for the financial costs. The Lancet report points to the costs of inaction. “About 712 climate-related extreme events were responsible for US$326 billion of losses in 2017, almost triple the losses of 2016,” the report says. What makes this even more troubling is the fact that almost all of these losses occurred in uninsured low-income countries.

Urgent priority

In 2015 a coalition of eight national governments (Costa Rica, Denmark, Ethiopia, Finland, New Zealand, Norway, Sweden and Switzerland), with the support of the International Institute for Sustainable Development (IISD), called the phasing out of subsidies an urgent priority.

“Accelerating the reform of fossil-fuel subsidies is therefore an urgent priority,” the coalition known as Friends of Fossil Fuel Subsidy Reform wrote In a communiqué. “The International Monetary Fund views that fossil fuel prices should reflect not only supply costs but also environmental impacts like climate change and the health costs of local air pollution. The majority of fossil-fuel subsidies are also socially regressive, with benefits disproportionately skewed toward middle- and upper-middle income households…”[removing subsidies would also] free up financing for sustainable development and support both national and international environmental priorities. At the same time, accelerated subsidy reform needs to be undertaken alongside measures that protect the poor and vulnerable groups from the impact of higher energy prices.”

The brunt of climate impacts are being felt by people who have contributed
the least to the climate crisis and who can least afford to deal with
it. Fossil fuel subsidies are not a solution, in fact they are a central part of the problem.