The Big Subsidy Question
The leaders of the 20 major world economies just met in China, as part of the G20. One of the issues on the table was how to get rid of national subsidies to energy industries that emit greenhouse gases, mainly with the objective of gearing public finance towards facing the climate challenge.
The $$$ signs related to the topic make it a juicy story: recurring numbers grow beyond the 400 billion USD figure annually.
Our industry often comes up in the debate. We are blamed for enjoying large subsidies – an accusation that causes confusion among many industry veterans who have never seen a cent of public money in their global, decades-long careers.
To have an objective discussion about a complex and somewhat philosophical topic, we developed some questions and answers.
I will leave to those interested the exploration of the details (you can find the document here (while it mainly refers to Europe, much of the analysis is valid for the rest of the world as well).
I will here bring up two points, as food for thought.
First, IOGP favours removing subsidies for all types of energy (unless, of course, they are aimed at supporting the early Research and Development staged for innovative technologies). Oil and gas are actually among the largest sources of government revenue worldwide. The graph below gives a taste of the order of magnitude for Europe (EU and Norway):
Second: most of the big $$$ signs that appear in the debate refer to consumption subsidies. This is money that doesn’t go to the companies producing oil and gas (hence the shock of my veteran colleagues), but rather – directly or indirectly – to the people using those products: the consumers. This money flow can arguably be viewed more as a component of broader welfare policies, rather than a help to energy production. Here’s how it works:
In the graph below, you can see where most of the subsidies are, according to the mapping of the International Energy Agency:
While the graph clearly shows the complexity of the problem, it is important that high level summits such as the G20 discuss the issue and draft a way forward. In their latest communiqué, the leaders show continued commitment:
“We also reaffirm our commitment to rationalize and phase-out inefficient fossil fuel subsidies that encourage wasteful consumption over the medium term, recognizing the need to support the poor. We welcome G20 countries’ progress on their commitments and look forward to further progress in the future.”
About Alessandro Torello
Alessandro is IOGP’s EU Communications Manager. Before joining IOGP in 2013, he was a journalist for over seven years, covering energy and climate issues for The Wall Street Journal/Dow Jones in Brussels, and the transport industry in Italy for Bloomberg before that. Alessandro has a background in international relations, with a degree from the School of Advanced International Studies (SAIS) of the John Hopkins University in Washington, D.C.
