Fossil fuel subsidies rising despite reform effort

The IEA’s top economist told reporters in Paris that subsidies could reach $660 billion in 2020 absent better reforms, according to Reuters.

The Paris-based IEA and the Organisation for Economic Co-operation and Development (OECD) released a joint analysis Tuesday that follows the G-20’s 2009 pledge to phase out subsidies that encourage waste, hinder energy security and impede development of renewables and climate change initiatives.

Total subsidies for production and consumption of fossil fuels were about a half-trillion dollars in 2010, the groups said.

The IEA and OECD have created a nifty website that tracks fossil fuel subsidies by country.

In the U.S., political battles have focused on billions of dollars in tax subsidies that support production of oil, natural gas and coal.

The White House and many Capitol Hill Democrats are pushing to end the tax breaks, but have been thwarted thus far by Republicans and oil-state Democrats.

The IEA and OECD on Tuesday sounded new calls to phase out production and consumption subsidies, arguing that “removing inefficient subsidies would raise national revenues and reduce greenhouse-gas emissions.”

“Both developing and developed countries need to phase out inefficient fossil fuel subsidies. As they look for policy responses to the worst economic crisis of our lifetimes, phasing out subsidies is an obvious way to help governments meet their economic, environmental and social goals,” said OECD Secretary-General Angel Gurria in a statement.

“For this to succeed, we need well-targeted, transparent and timebound programs to assist poor households and energy workers who might be adversely affected in the short term. OECD and IEA data and analysis can help guide the process,” Gurria said.

The agencies said there have been positive steps to curb both production and consumption subsidies, noting for instance Germany’s ongoing phase-out of coal mining subsidies, and projections that Mexican consumer subsidies will fall with plans to better target them for low-income households.

IEA Chief Economist Fatih Birol said there has been progress on the consumption side in several key countries.

From the Reuters piece:

In 2010, Birol had forecast that fossil fuel subsidies would reach $600 billion as early as 2015 without further reforms. He said the slower rate of growth was partly due to efforts in certain major countries including China.

“This is thanks to the improvements in India, China, Russia. They have made significant efforts. We have to be fair,” he said.