Emissions Could Drop If Energy Subsidies Were Cut
By Leigh Teixeira
A paper was published recently stating that a simple way to cut down on climate change is cut subsidies for energy use. The paper argues that by doing this could mean emissions are cut by as much as 13 per cent.
The International Energy Agency made similar statements in the past albeit a much smaller amount of emissions will be cut. The paper refers to different subsidies than that mentioned by the International Energy Agency.
As pointed out by the International Energy Agency, about £500 billion is spent to subsidise the use of carbon based fuels each year. If these subsidies were stopped it would benefit many. The problem with a number of the subsidies is that itís given by countries that produce oil or arenít that well off.
When looking at information on 176 countries throughout the world, pre tax subsidies for electricity, coal, petroleum products and natural gas were estimated in 2011 to be a massive $480 billion. Thatís around 0.7 per cent of the global GDP. Most of the subsidies goes to petroleum based products. Around half of these subsidies is in North African countries and the Middle East where fuel exports make up 21.8 per cent of the local governmentís revenue.
When you include subsidies offered on taxes charged for energy you get to a much higher figure of about $1.9 trillion. The tax charged on energy is well below the rate that is charged on other consumables. In the UK, the tax on domestic heating is 5 per cent rather than the usual 20 per cent. The 15 per cent that isnít being charged is considered a subsidy. On the other hand, some goods like newspapers arenít taxed at all so you can say that energy is actually taxed more than some consumables.
By saying that a Pigou Tax which isnít charged is actually a subsidy seems a bit far-fetched. One should consider what the right amount that should be charged as a carbon tax so that the Pigou Tax is correct. Different people have made remarks on what it should be, the suggested amount ranges from as little as $5 to as much as $1000 per tonne of carbon dioxide.
If you say that it is a subsidy then you can say that so many other things that can be considered subsidised. In 2012, an environmental group in the UK stated that fuels which were carbon based got huge subsidies just because they were taxed so little. If this can be considered true then renewable energy in the UK got a much larger subsidy of about £40 billion each year. This is because renewable energy isnít taxed the same as carbon based energy is taxed.
For green energy is not taxed in the same way as carbon based energy: it does not pay fuel duty, the climate change levy, petroleum excise tax and so on and so on. If green energy is not taxed as much as carbon based energy then green energy must, but the definitions above, be receiving a tax subsidy compared to carbon based energy. And thatís the problem with some of these wilder calculations of subsidy.
Yes, in a strict sense, we can indeed say that the absence of a Pigou Tax which ought to be there is indeed a subsidy. But when we make that argument, and the related one of being taxed differently from other consumption goods, then we enter a nightmare of calculations about what is taxed, what isnít and how they all should be, and leave obvious gaps for people to make cheap shots about the subsidies to renewable.
It is agreed that the IEA numbers: that $500 billion really does need to go and the world will be a better place when it does. The rest that this paper is talking about? Not so sure at all.
Head Office: EATON HOUSE, STATION ROAD, LEEDS, LS20 8XB Company Registration: 4704157 Vat Registration: 817013852