Towards a grand deal on subsidies and climate change

Abstract

Recent studies have identified public subsidies as a principal cause of unsustainable development. Worldwide, governments are spending up to $U950 billion a year on subsidies. Many of these public subsidies fail to serve their purpose and in fact, often turn out as policy failures as they further distort trade and cause environmental harm. The energy sector is among the most subsidized sectors in the world, receiving over $U240 billion per annum of public subsidies. This article highlights current energy subsidies and their implications. The article examines: (i) the global size and distribution of energy subsidies in industrialized and developing countries; (ii) the impact of these subsidies on the economy, equity and the environment and their role as barriers for sustainable development; (iii) the political economy behind public subsidies and the various political and institutional barriers and lock‐in mechanisms that cause subsidies to become entrenched in economic and public structures; and (iv) proposals for effective subsidy reform in energy policies, suggesting a global strategy to eliminate energy subsidies. OECD governments are in a position to take the lead, and the UN Framework Convention on Climate Change presents an excellent opportunity of striking a political grand deal and linking the reform of energy subsidies to a meaningful participation of developing countries to the Kyoto Protocol. Moreover, if sinks are to be included in the clean development mechanism (CDM), it is crucial to include the removal of forestry subsidies in the grand deal.

Estimates of energy subsidies in China and impact of energy subsidy reform

“…DOE (1999) computed that the total federal energy subsidies in 1999 amounted to $6.2 billion -equivalent to over 1% of the total value of energy supply in the US. De Moor (2001) valued that the annual global energy sector received over $240 billion in public subsidies, including at least $151 billion allocated to fossil fuels. Riedy and Diesendorf (2003) estimated $6.54 billion per year in financial subsidies to fossil fuel in Australia.…”

Subsidies for electricity-generating technologies: A review

“…19731973IEA (2008b) Nuclear 1957-1971, 1973, 1980, 1985, 1990, 1995, 1999-20011960Goldberg (2000; IEA (2003b) Wind 1980, 1990, 1995, 19981980IEA (2003b; WWEA (2008) PV 1971, 1973, 1980, 1985, 1990, 1995, 19991971IEA-PVPS (2008; IEA (2003b, c, 2007) CSP 1990, 1995, 19981990IEA (2003b, c, 2008b) Geothermal 1960, 1971, 1980, 1985, 1990, 1995, 1999-20011960IEA (2003b, c) Biomass 1971, 1973, 1980, 1985, 1990, 1995, 1999-20011971…”

“…Subsidies comprise all measures that keep prices for consumers below market level or keep prices for producers above market level or that reduce costs for consumers and producers by giving direct or indirect support (de Moor, 2001).…”

“…This is partly due to the lack of a common definition for different types of subsidies, and partly due to the disparate nature of data providers, both geographically and over time. A number of studies exist that attempt to quantify energy subsidies either for the US or EU regions (COM, 2002;de Moor, 2001;EEA, 2004;EIA, 2007;Eurelectric, 2004;Goldberg, 2000;Koplow, 1993). None of these studies are directly comparable since they define and categorise subsidies in their own unique way (Goldberg, 2000).…”

“…This amount is among the highest subsidies provided to any sector of the global economy (de Moor, 2001). Amongst the various electricity-generating technologies, it is sometimes thought that renewable energy technologies receive a disproportionally large share of financial support when compared to their currently installed generating capacity (Taylor, 2008;UIC, 2005), and sometimes the same is thought about coal-fired and nuclear power (de Moor, 2001;Goldberg, 2000;Lovins, 2006;Reidy and Diesendorf, 2003). However such statements are often not supported by comprehensive and consistent information.…”