IEA, OECD call for fossil fuel subsidy reforms

By OGJ editors

Governments and taxpayers spent about $500 billion last year supporting the production and consumption of fossil fuels, and removing inefficient subsidies for those fuels would raise national revenues, according to analyses by the Organization for Economic Cooperation and Development and the International Energy Agency.

Subsidies to fossil-fuel consumers often fail to meet their intended objectives of alleviating energy poverty or promoting economic development and instead create wasteful use of energy, contribute to price volatility by blurring market signals, encourage fuel smuggling, and lower the competitiveness of renewable energy sources and energy efficient technologies, the agencies said.

“In a period of persistently high energy prices, subsidies represent a significant economic liability,” said IEA Executive Director Maria van der Hoeven, noting that IEA estimates subsidies that artificially reduce the price of fossil fuels amounted to $409 billion in 2010, almost $110 billion higher than in 2009. This is based on the IEA's global survey to identify economies that artificially lower end-user prices for fossil fuels to below the full cost of supply.

The agencies say that phasing out fossil-fuel subsidies will provide an impetus for investment, growth, and jobs in renewable energy and energy efficiency. Despite the benefits of phasing out fossil-fuel subsidies, reform efforts have been hampered by a lack of information on the support measures in place, particularly in OECD countries.

So to help governments understand the nature and scale of their policies supporting fossil fuels, the OECD has compiled its “Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels.” With information on more than 250 mechanisms that support fossil fuel production and use in OECD countries, the inventory, which will be updated regularly and expanded over time to include more countries and more support mechanisms, covers 24 countries that account for about 95% of OECD's total primary energy supply.

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