Fossil Fuel Subsidies
Fossil fuel companies benefit from $5.3 trillion a year in global subsidies, equivalent to $10 million a minute every day, according to a 2015 report from the International Monetary Fund (IMF). This massive subsidy exists because fossil fuel companies do not pay the costs imposed on governments by burning fossil fuels. These costs come in the form of air pollution and events like floods, droughts and storms that result from climate change.
G20 countries alone spend $542 billion a year in subsidies for the production of fossil fuels, according to a report by the Overseas Development Institute and Oil Change International. These subsidies are delivered through direct spending and tax breaks, investments in major state-owned fossil fuel enterprises, and public finance from majority government-owned banks and financial institutions. While leaders of the G20 countries pledged in 2009 to phase-out ‘inefficient’ fossil fuel subsidies, evidence points to a publicly financed bailout for some of the world’s largest, most carbon-intensive and polluting companies.
In addition to movements to keep fossil fuels in the ground, one response to ongoing subsidies is a tax on carbon. While the idea has gained little purchase in the United States, some countries have successfully implemented a carbon tax. Carbon is now taxed in some form in Ireland, Australia, Chile, Sweden, Finland, Great Britain, New Zealand and Canada (British Colombia and Quebec).
A carbon tax is a fee assessed on the carbon content of fuels. Because of the strict proportionality between fuels’ carbon content and their carbon dioxide emissions when burned, a carbon tax is effectively a tax on the carbon dioxide emissions from burning fossil fuels. Thus, carbon tax is shorthand for carbon dioxide tax orCO2 tax — or, one could say, for a carbon pollution tax.
In 2006, the City of Boulder, CO set an important precedent by putting in place a tax on carbon from electricity. As of 2016, citizens in six U.S. states are campaigning to enact a state-wide carbon tax: Washington State, Oregon, New York, Massachusetts, Rhode Island and Vermont. California has a cap-and-trade system for carbon, which is different than a carbon tax but also designed to limit emissions. Cap-and-trade systems set a maximum level of pollution and distribute emissions permits to polluting firms.
Below are some key organizations and initiatives related to fossil fuel subsidies and carbon taxes. The Carbon Tax Center also lists other organizations supporting a carbon tax, as well as the best articles, presentations and videos about the topic.
Reports & Articles
See Oil Change International’s resources page for more reports about fossil fuel subsidies.
How Large Are Global Energy Subsidies?
This IMF working paper found that energy subsidies are projected at US$5.3 trillion in 2015, or 6.5 percent of global GDP. Most of this arises from countries setting energy taxes below levels that fully reflect the environmental damage associated with energy consumption.
Empty promises: G20 subsidies to oil, gas and coal production
This report by Oil Change International and the Overseas Development Institute finds that G20 country governments are providing $452 billion a year in subsidies for the production of fossil fuels. They argue that this continued support for fossil fuel production marries bad economics with potentially disastrous consequences for the climate.
The Fossil Fuel Bailout: G20 Subsidies for Oil, Gas and Coal Exploration
This 2014 report by Oil Change International and the Overseas Development Institute finds that governments across the G20 countries are spending an estimated $88 billion every year subsidizing exploration for fossil fuels. This report was the first to document the scale and structure of fossil fuel exploration subsidies in the G20 countries.
Time to Change the Game: Fossil Fuel Subsidies and Climate
This report from the Overseas Development Institute documents the scale of fossil fuel subsidies and sets out a practical agenda for their elimination in the context of the global goal of tackling climate change.
Carbon Tax in Broader U.S. Fiscal Reform: Design and Distributional Issues
This report from the Center for Climate and Energy Solutions examines the issues and options for designing a carbon tax in the United States. It reviews the rationales for a carbon tax in the context of broader fiscal reform, explains the design issues, describes the potential revenue and environmental benefits, and explores options for using the revenue.
Unburnable Carbon 2013: Wasted Capital and Stranded Assets
This report from the Carbon Tracker Initiative shows the gross inconsistency between current valuations of fossil fuel assets and the path governments have committed to take in order to manage the huge risks of climate change.
Addressing Climate Change Without Impairing the U.S. Economy
This report from the U.S. Climate Task Force examines the the effects of a carbon tax to address climate change with the least cost to the world’s economies and with the smallest burdens on their people. They propose applying a tax to the use of any form of energy based on its carbon content and recycling the revenues to: provide tax relief for the people and businesses using the energy and paying the tax, support climate-related research and development, and deploy climate-friendly fuels and technologies.
Cap and Trade: A Critical Review
This article examines the relative attractions of a carbon tax, a “pure” cap-and-trade system, and a “hybrid” option (a cap-and-trade system with a price ceiling and/or price floor). A key finding is that exogenous emissions pricing (whether through a carbon tax or through the hybrid option) has a number of important attractions over pure cap and trade.
Straighten Up and Price Right: The Political Life and Times of a Carbon Tax in the United States
This 2016 honors thesis from Wesleyan University student Nicholas Murphy explores the coalitional and institutional politics of carbon pricing initiatives in the United States. It draws upon the political history of U.S. environmental policy, polarization studies, institutional theory, climate change denialism, and a series of interviews with various political actors to explain the current political situation surrounding carbon pricing. It is written with emphasis on the contemporary moment for climate change policy based on the assertion that the Environmental Protection Agency’s impending authority over greenhouse gas emissions has made national climate action as close to inevitable as it has ever been.
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