Fossil fuel subsidies

2017-01-19

in Economics, Politics, The environment

When discussing policy options for countering climate change, ending fossil fuel subsidies is often presented as an obviously desirable option: why should we be providing public money to fossil fuel companies or fossil fuel users when both are damaging the planet so rapidly and profoundly?

Of course, subsidies are always likely to be defended by the people who enjoy them, sometimes on the basis of social justice claims. You see this particularly with arguments that low-income people need to heat their homes, travel to work, etc. I was once on a radio show where the host asked me to justify fossil fuel subsidies and went on to claim that nobody had ever been able to explain to him why they still exist. I told him that I didn’t think it was difficult to explain at all: anything which has a welcome material impact on the lives of politically influential groups ranging from farmers to refinery operators will lead to lobbying and political pressure, just like all the inefficient exemptions in the tax codes of the world which are vigorously championed by those who benefit.

Recent developments in Mexico, reported by The Economist, highlight the political and social risks associated with reducing fossil fuel subsidies:

In Mexico, rioting sparked by the government’s withdrawal of petrol subsidies as part of its liberalisation of the energy industry left at least six people dead. Petrol prices increased by up to 20% at the start of the year, leading to many knock- on price rises in goods and services. Roads have been blocked and shops looted.

So many personal and economic activities have come to be deeply fossil fuel dependent that any change to the regime governing them risks creating huge controversy and governmental unpopularity. In the long run, we need governments to set up the conditions where people essentially have to live low-carbon lives, but achieving the transition will involve many ethical and political challenges.

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. January 31, 2017 at 6:21 pm

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