Fossil fuel subsidies undermine renewables
By Paul Hanley, The StarPhoenix July 27, 2010
Canadian taxpayers are paying somewhere in the neighbourhood of $2 billion in subsidies to highly profitable oil, gas and coal companies every year. Worldwide, oil subsidies alone are estimated at $667 billion annually, though some estimates put the subsidy figure much higher.
To put this into perspective, worldwide subsidies to oil companies are equivalent to more than twice the global contribution to foreign aid and three times the amount invested globally in renewable energy.
The subsidies go to some of the most profitable companies in the world: The top five earning publicly traded oil companies, for example, reap $156 billion in profits annually.
Among the many reasons to object to subsidies is that they create an artificial advantage for dirty fossil fuels over clean energy sources. They make it appear that green energy is significantly more costly to develop than it really is, relative to other energy sources.
Currently, oil and gas companies enjoy several federal government support programs in Canada including programs that allow them to transfer tax-deductible expenditures back and forward as they see fit. Some of the programs include the Canadian Exploration Expenditures and Canadian Development Expenditure programs, a resource allowance, scientific, research and development tax credits and flow-through shares.
There is a movement underway to end these unfair and unwise subsidies. In 2006, the Department of Finance published a plan called Advantage Canada that committed to "enhancing the overall fairness and neutrality of the tax system," meaning that reducing tax breaks to favoured sectors should be part of the government's tax policy.
Then in 2009, Canada joined the other G20 nations to commit specifically to removing subsidies to fossil fuels. A recently leaked Finance Canada memo, which recommended the removal of subsidies, pointed out that there is no clear rationale why Canadian oil and gas producers should continue to receive these benefits.
While a number of subsidies have been reduced or are being phased out in Canada, total fossil fuel subsidies are actually up about 80 per cent from earlier this decade, according to research from the Pembina Institute.
Ecojustice, a Canadian environmental NGO, claims that in the last two years Canada has spent as much on oil and gas subsidies as on ameliorating climate change.
Removing fossil fuel subsidies worldwide would, according to a report by the International Energy Agency (IEA), result in reducing oil consumption by 850 million tonnes (6.7 billion barrels) by 2020, the combined consumption of Japan, South Korea, Australia and New Zealand, or 13 years of oil sands production at current rates of extraction.
According to the OECD, a careful phase-out of fossil fuel subsidies could be a low-cost way to reduce greenhouse gas emissions. According to new OECD analysis based on data from the IEA, ending fossil fuel subsidies could cut global greenhouse gas emissions by 10 per cent from the levels they would otherwise reach in 2050 under a "business as usual" scenario.
The subsidy figures presented so far do not include another category of subsidies called externalities. Externalities include indirect subsidies that result from avoiding the cost of dumping pollutants, such as greenhouse gases, into the environment.
You and I are charged a fee to dump our garbage in the landfill or our wastes into a sewer; coal and oil companies can dump their carbon dioxide and other pollutants into the atmosphere at no cost, which amounts to a massive subsidy that will ultimately be paid by average citizens.
Relatively speaking, renewables sources like wind or solar power are pollution free. When we properly account for all costs, including subsidies and externalities like pollution, renewable energy sources become cost effective. They are certainly more deserving of subsidy than fossil fuels.
Removing subsidies for fossil fuels would reduce energy consumption and lower greenhouse gas emissions. In addition, making fossil fuel companies pay to release greenhouse gases through a carbon tax would make renewable energy sources competitive and usher in a new era of cleaner energy.
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