The 2015 United Nations Conference on Climate Change (UNCCC) held in Paris this past November has been hailed as a monumental breakthrough on global climate change. What followed out of this conference is now known as the Paris Agreement, which commits all 197 parties of the UNFCCC to nationally determined contributions to reductions in carbon emissions. The agreement is indeed the first of its kind and, as France’s foreign minister Laurent Fabius declared, is a “historic turning point” in efforts against global climate change. Yet for all the ambition of such an agreement the fact remains that the international system consists of discrete entities with at times divergent and at times analogous interests. Such a system is thus bound to act in ways unpredictable and not conducive to the very agreement it has created, as borne out by recent global trends.
Alongside transportation related emissions, carbon-based electricity production is the largest contributor of greenhouse gases. Thus one of the major mechanisms in carbon emissions reduction is the transition from carbon-based fuels—oil, coal, natural gas—to renewable sources of energy such as wind, solar, hydro, and biomass fuels as well as of course conservation. Renewable resources have seen a great influx of investment during recent years of high oil and gas prices, and new technology has allowed costs of such energy to plummet. Wind, solar, and biomass-based electricity is now cost-competitive with most fossil fuels.
Such dramatic transformation of the renewables sector has been possible in part due to the large government subsidies provided to the industry. Most commonly used incentives are consumption and production subsidies, both of which attempt to offset the cost of certain behavior on the part of consumers and producers, respectively. In the U.S., renewable energy subsidies date back to the '70s and have taken on the form of tax breaks and credits which have flickered on and off again for decades.
In July 2015, the wind-energy sector was able to secure an extension on a production tax credit for another two-year period. A similar process awaits the solar-energy sector. Given such constrictions it is not hard to see how unpredictable the business environment of renewable energy can be, with projects repeatedly frozen and investments lost as subsidies come and go. Alternatively, European governments have provided stable subsidies for some time now thus transforming the region into a global leader in renewable energy.
The rapid descent of oil and gas prices in the past year, however, has manifested certain pressures on governments to reduce subsidies for renewable energy in favor of less expensive hydrocarbons. The United Kingdom has significantly cut funding to the country’s “feed-in tariff” system for renewable energy, which requires utilities to buy renewable power at a set rate. Italy and Spain have scaled back subsidies of their own and more cuts are being proposed as we speak. Said policies are forcing local utilities to switch back to carbon-based fuels, effectively reversing gains previously made toward the goal of combating climate change.
Carbon fuels receive subsidies as well. Unlike those of the renewables sector, however, these subsidies have been in place since the very dawn of hydrocarbon production and, in the U.S., are written permanently into the tax code. Furthermore, according to the International Monetary Fund, global fossil fuel subsidies cost governments and taxpayers 5.3 trillion dollars on an annual basis - approximately 10 million every minute. And this number is growing despite pledges by countries to phase out subsidies. In the U.S. alone, the annual post-tax cost of hydrocarbon-based energy subsidies is approximately 700 billion, that is a cost of 2,180 dollars per person. For comparison’s sake, renewable energy receives only 500 billion in subsidies globally.
Eliminating fossil fuel subsidies would cut global demand and subsequently carbon emissions by 20 percent and increase global GDP by 3.6 percent often without adverse effects on employment, according to IMF calculations. Introduced as a measure of promoting equality, energy subsidies have been shown to reward mostly the rich with only 8 percent of the benefit trickling down to the poorest citizens. Thus, cutting hydrocarbon subsidies would not only be an exercise in fiscal responsibility but also an opportunity to invest in areas that matter most to the general populace—infrastructure, health care, education, and renewable energy.
As they stand now, energy subsidies for hydrocarbons are both a drag on the global economy and the most directly palpable danger to our place on this planet. The risks from continued dependence on carbon-intensive energy production are clear and the world’s citizens are increasingly cognizant of this. Ending handouts for fossil fuels and shifting funds towards renewable energy resources is a matter of survival and carries the potential of being a singular achievement on the road away from the hypocrisy of global climate summitry and broken promises, and towards a future of sustainable and conscientious living.
