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PRI's Environmental News Magazine

Fossil Fuel Subsidies

Air Date: Week of

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At the recent G20 Summit in Pittsburgh, President Obama stated the importance of taking a hard look at fossil fuel subsidies. New reports suggest these subsidies contribute to global warming by encouraging the production of cheap fuels. Host Jeff Young talks with Stephen Kretzmann, the director of Oil Change International, about the PresidentÂ’s proposal.


CURWOOD: ItÂ’s Living on Earth. IÂ’m Steve Curwood.

YOUNG: And IÂ’m Jeff Young. At the G20 economic summit in Pittsburgh, President Obama challenged other world leaders to take a fresh look at the support their governments give to fossil fuels.


YOUNG: Recent reports from the International Energy Agency and other institutions point out the scale of those largely hidden subsidies and how they contribute to global warming.

ItÂ’s an area Steve KretzmanÂ’s studied for decades at the Institute for Policy Studies and now with the advocacy group Oil Change International. So I asked Mr. Kretzman what exactly these subsidies are.

KRETZMAN: This is basically money thatÂ’s given by governments to either subsidize the cost of production, thus lowering the cost of production for producers like oil and coal, or subsidize the cost of consumption, thus lowering the cost of consumption for consumers around the world, i.e., keeping the price of gas artificially low.

Steve Kretzmann is the Executive Director of Oil Change International

YOUNG: So give us a sense of the scale Â– how much money are we talking about?

KRETZMAN: On an annual basis, globally, there are at least $250 billion dollars in global fossil fuel subsides, and some people will think that number is closer to $400 billion.

YOUNG: And these are mostly, what in the form of tax breaks, or direct payments, or what?

KRETZMAN: Most of the subsidies are on the consumption side, keeping the price of gas low and the price of energy affordable for people in developing nations. But, thereÂ’s also some very substantial subsidies on the production side, predominately in the United States and Europe. In the US, thereÂ’s a great study that came out last week that shows that we give at least $70 billion dollars on an annual basis to the fossil fuel industry.

YOUNG: And how does that level of subsidization compare to what we give to say, uh, renewable energies: wind, solar, things like that.

KRETZMAN: We still subsidize fossil fuels at a much higher rate than we do true renewables. You know, solar, wind, efficiency, these things get about 12 billion on an annual basis, as compared again to 70 for fossil fuels. So thatÂ’s a really imbalanced energy market. A few years back, there was a study of climate change, in particular, and it was noted by Nicholas Stern, who was the World BankÂ’s chief economist, that climate change is the greatest market failure of all time, and that the subsidies Â– the fossil fuel subsidies Â– are the major reason for this market distortion.

President Obama

YOUNG: Well, the PresidentÂ’s proposal got a pretty immediate response from some oil-producing states. HereÂ’s what Senator Lisa Murkowski, Republican from Alaska, had to say.

MURKOWSKI: I think it is important to determine what is a subsidy and what is a tax incentive. Raising taxes on the fuels that we currently depend on would likely result in higher consumer prices and would only impact our ability to produce those fuels domestically instead of importing them.

YOUNG: What do you make of that statement from Senator Murkowski?

KRETZMAN: First of all, IÂ’m not really sure why the industry would need additional incentive. This is one of the most profitable industries on the planet, and why they need to use tax dollars to additionally incentivize them doesnÂ’t really make any sense. And itÂ’s time to start using our public money to encourage the energy of the future, not the energy of the past.

YOUNG: But, it seems to me she does hit on a couple of key concerns here that are valid. ThereÂ’s the very real likelihood that this would result in increased prices for consumers.

KRETZMAN: I think access to energy and access to the services that energy provides Â– transport, light, heat, etc. Â– is very important and itÂ’s something that we wanna absolutely guarantee and help to facilitate for all people. How that energy gets generated is not really something that most people are attached to. Most people donÂ’t really care that theyÂ’re, you know, lighting their or heating their, homes with a coal-fire power plant as opposed to a centralized solar power plant.

YOUNG: They donÂ’t care where it comes from, but they care how much it costs, and if you yank these subsidies out from under them, itÂ’s going to cost more, isnÂ’t it?

KRETZMAN: Well, it depends. If you effect a transition time, and at the same point youÂ’re subsidizing the cleaner energy production, maybe you end up actually with cheaper energy on the other end. I think everyone recognizes that itÂ’s in no oneÂ’s interest to jack up the price and make energy or transport unaffordable to Americans or anyone else in the rest of the world. What we want to do is make sure this energy is actually produced in a clean way that is sustainable.

YOUNG: And what about the notion that we would just encourage more import rather than domestic production of oil?

KRETZMAN: The oil industry has every incentive to find more oil domestically because itÂ’s much cheaper to transport it if you produce it domestically, and bring it to market in the United States, which is the largest oil market in the world. ThatÂ’s going to give them much higher profit margins, and thatÂ’s all the incentive they need.

YOUNG: Give me a sense of why this matters for climate change. What kind of greenhouse gas emissions are really buried in these subsidies, in these tax breaks?

KRETZMAN: The greenhouse gas implications of this proposal to remove subsidies are actually quite profound. There was a study from OECD earlier this year that showed that for the $300 billion dollars in subsidies that were identified in that study, if they were taken away, you would get a 10 to 12 percent reduction, globally, in greenhouse gases.

YOUNG: Steve Kretzman is with the group Oil Change International. Thanks for your time.

KRETZMAN: Thanks very much for having me.



For more information on Oil Change International, click here


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