Removing fossil fuel subsidies will not reduce CO2 emissions as much as hoped
02/08/2018
Removing fossil fuel subsidies would have only a small effect on CO2 emissions and renewable energy use, new research has shown. The largest emissions savings would be in oil and gas exporting countries, where fewer poor people would be affected, and subsidy removal can be aided by currently low oil prices.
Fossil fuel subsidies amount to hundreds of billions of dollars worldwide, and removing them has been held up as a key answer to climate change mitigation. Unfortunately it is not the silver bullet many had hoped, according to the research published this week in the journal Nature*.
Removing fossil subsidies would only slightly slow the growth of CO2 emissions, with the result that by 2030 they would only be 1-5% lower than if subsidies had been maintained, regardless of whether oil prices are low or high.
Professor Loïc BERGER
Loic Berger, professor at IÉSEG School of Management, and one of the co-authors of the research, which has been led by the International Institute for Applied Systems Analysis in Austria, explains that there are a number of possible reasons for this small effect.
These include the fact that subsidies are often applied to oil, gas & electricity. Removing them, therefore can lead to a switch to coal (which is emissions intensive). The paper also notes, for example, that the rate per unit of energy is not high enough to have a big effect on global energy demand.
Although the global effect on emissions is low, the impact varies between regions. The largest effects of removing subsidies were found in areas that export oil and gas, such as Russia, Latin America, and the Middle East and North Africa. In these regions, the emissions savings caused by subsidy removal would either equal or exceed their climate pledges. Developing economies, which are not major oil and gas exporters would generally experience much smaller effects of removing the subsidies. Some of the models used even suggested a rise in emissions for some regions, such as Africa and India, as a result of switching from unsubsidized oil and gas to coal.
Subsidy removal and the poor
The regional differences highlight one very important aspect of subsidy removal that needs to be taken into consideration: the impacts on the poor. Many fossil fuel subsidies were put in place to help those with lower income, and despite the fact that most of the money goes to the rich, the poorer you are, the more of your household budget comes from these subsidies, so their removal would have a much larger impact on daily life.
For instance, removing subsidies means that the switch to modern fuels may become out of reach for many poor people, the results show. As a consequence they are stuck using firewood or charcoal, which both emit more greenhouse gases and are damaging to health.
Fortunately, the highest numbers of poor people are concentrated in the regions where removal of subsidies will have the weakest effect on CO2 emissions. Removing subsidies in richer oil and gas exporting regions would therefore provide significantly greater emissions savings and have a less detrimental impact on the poor. This is facilitated by today’s low oil prices.
Ultimately, these results do show benefits of removing fossil fuel subsidies, especially in certain regions, but care is needed for implementation.
“We’re not saying: don’t get rid of subsidies, we’re saying that we need to be aware that it might have less of an effect than hoped, and it could have a disproportionally large effect on the poor,” says Keywan Riahi, study co-author and IIASA Energy Program director. “But well-designed policies can achieve subsidy removal without affecting the poor. A scheme being trialed in India, for example, removed subsidies on cooking gas in general but continues to support the poorest households through rebates.”
*Jewell J, McCollum, D Emmerling J, Bertram C, Gernaat DEHJ, Krey V, Paroussos L, Berger L, Fragkiadakis K, Keppo I, Saadi N, Tavoni M, van Vuuren D, Vinichenko V, Riahi K (2018). “Limited emission reductions from fuel subsidy removal except in energy exporting regions.” Nature.
The study received funding from the European Union’s Seventh Programme FP7/2007-2013 No 308329 (ADVANCE).