Subsidizing Fossil Fuels Causes Air Pollution

The World Health Organisation’s (WHO) Manifesto for a healthy and green COVID-19 recovery, released in May, is in many ways an astonishing document, speaking briefly and plainly to the many global problems we face and how we need to respond.

But perhaps the most astonishing and heartening part is the last of its six-point prescription: “Stop using taxpayers money to fund pollution,” addressing “subsidizing the fossil fuels that are driving climate change and causing air pollution”.

Direct and Hidden Subsidies

Globally, the International Energy Agency (IEA) reports, fossil fuel subsidies vary widely each year, largely based on the price of fossil fuels, reaching a peak of almost $440 billion (figures in USD) in 2018, “more than double the estimated subsidies to renewables”.

In 2019, they were almost $320 billion, with the decline “related in large part to lower average fuel prices over the course of the year.” In 2020, because of the economic impact of COVID-19, they may fall as low as $180 billion.

In 2019, the largest component of direct subsidies was to the oil industry ($150 billion), followed by electricity ($115 billion), natural gas ($50 billion) and coal ($2.5 billion). As a result, noted the IEA, “consumers receiving these subsidies paid on average around 85 per cent of the competitive market reference prices for the energy products concerned.”

However, these are only direct costs. What gets overlooked – deliberately, one has to assume, since it is so obvious – are the “costs generated by health and other impacts from such pollution.” These costs amount to indirect or hidden subsidies since the fossil fuel industry – like so many industries – does not carry the cost of the health, environmental and social impacts of their activities.

These costs are enormous: The WHO states: “Including the damage to health and the environment that (fossil fuels) cause brings the real value of the subsidy to over $5 trillion per year.” The $5 trillion estimate (which amounts to about 6 per cent of global GDP) comes from the International Monetary Fund (IMF). In fact, the IMF finds, “under-charging for domestic air pollution (accounted) for about half of the total subsidy and global warming about a quarter.”

These and other indirect or hidden subsidies are not reflected in the price. If they were, the IMF reported, “Efficient fossil fuel pricing in 2015 would have lowered global carbon emissions by 28 per cent and fossil fuel air pollution deaths by 46 per cent and increased government revenue by 3.8 per cent of GDP.”

Canada's Fossil Fuel Subsidies

Canada is not innocent of these outrageous fossil fuel subsidies. According to the International Institute for Sustainable Development (IISD) in Winnipeg, federal subsidies to the fossil fuel industry were at least CA$600 million in 2019 but that “does not include tax provisions, subsidies for the Trans Mountain project, or subsidies resulting from credit support to fossil fuel producers.” Nor does it include provincial subsidies that “also account for billions each year and, on the whole, outpace federal subsidies.”

An Aug. 12 article in the National Observer by Barry Saxifrage and Chris Hatch used the Energy Policy Tracker developed by the IISD and its partners to examine Canada’s fossil fuel subsidies. They found that “Canada has committed nearly ten times the G20 average per capita – for a total of $12 billion so far this year in new fossil fuel support.” They also point out that Canadian governments have only committed one-tenth as much to supporting clean energy.

Small wonder we are on track to miss not only the ambitious 1.5 C target for global warming but the 2 C target of the Paris Accords. Clearly governments everywhere are either not truly understanding the situation, or – since that seems unlikely – ignoring it. In doing so, they are ignoring the suffering of millions of people exposed to air pollution and the millions more that will be harmed by climate change in the coming decades.

There is an urgent need for full-cost accounting and pricing, both for the fossil fuels industry and for all other health-damaging industries. And if we are going to subsidize energy at all, let’s switch all subsidies to clean and renewable energy and conservation rather than continuing to pay for pollution.

This article was first published in the Victoria Times Colonist