“Rethinking Energy Subsidies” – Wall Street Journal, 27 March 2013

While climate change remains a large global issue, the world’s leaders have had a hard time addressing it. In a critique of the world’s subsidies, the International Monetary Fund (IMF) announced that energy subsidies might be to blame — that they both hinder and worsen climate change debate and subsequent actions.

Energy subsidies are a large part of global government funds, annual budgets often reaching into the billions. There are a few reasons why governments don’t curtail their energy subsidies: most people don’t understand the disadvantages of subsidies; energy producers protect them; and they are mistakenly thought to help the poor.

Energy subsidies allow residences and businesses to pay less than production and distribution costs. Energy subsidies also boost the use of fossil fuels, and force governments to cut spending in other areas of their budgets, like education and health. The IMF reported that if the world lowered its energy consumption, then we would meet 25% of our goals established at the 2009 Copenhagen Climate Change Conference. We are currently nowhere close to any of those goals.

It is frequently argued that energy subsidies also aid the poor. The IMF reported that, “the richest fifth of households in low- and middle-income countries, garner six times the energy subsidies as the poorest fifth.” Those in lower income brackets, who don’t own things like cars or A/C units, use less energy, and therefore use less subsidy; while those in higher income brackets with multiple cars and A/C units use more energy, and receive more subsidy.

Because energy subsidies push down the prices of gas, cooking fuel, electricity, etc., people tend to use more of them, which inevitably leads to severe environmental impacts. Undervaluing energy costs are also severely detrimental to countries that use a lot of energy, costing major economies — those that are prone to using more energy — $1.41 trillion per year.

Economically speaking, subsidies rarely work as a long term solution, since selecting what to subsidize is often not objective, and subject to undue political and personal influence. Experience has shown that it is difficult to monetize effects of climate change. People and societies only implement what is practical and pocketbook-economical.

Developed and Written by Dr. Subodh Das and Tara Mahadevan

May 6, 2013

Phinix LLC

Copyright 2013. All rights Reserved by Phinix, LLC.

www.phinix.net    skdas@phinix.net

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