Obama wants worldwide end of fossil fuel subsidies

Sep 23, 2009 - Seth Borenstein - Seattle Times

President Barack Obama is calling on the world to end massive government subsidies that encourage the use of fossil fuels blamed for global warming.

The president, who is set to host the G-20 economic summit opening Thursday in Pittsburgh, will propose a gradual elimination, with the time frame to be determined, according to White House officials.

"Later this week, I will work with my colleagues at the G-20 to phase out fossil fuel subsidies so that we can better address our climate challenge," Obama said Tuesday at the United Nations global warming summit.

Mike Froman, Obama's national security adviser for economic affairs, said the main value of the proposal would be if it were multilateral. He declined to say if Obama was willing to go it alone and try to eliminate such subsidies just in the United States.

Many countries, including the United States, provide tax breaks and direct payments to help produce and use oil, coal, natural gas and other fuels that spew carbon dioxide, the chief greenhouse gas. Eliminating those would provide "a significant down payment" toward the U.S. goal of cutting fossil fuel emissions in half by 2050, Froman said.

The costs of these subsidies are estimated in the tens of billions of dollars annually worldwide. In the U.S. alone, the federal government gave $72 billion in subsidies to the fossil fuel industry between 2002 and 2008, according to a study by the Environmental Law Institute.

The subsidies encourage the burning of fuel that leads to global warming and other pollution, Froman said. Eliminating the subsidies would help slow global warming, reduce health problems from pollution, make the United States more energy-independent and foster economic growth, he said.

Fossil fuel industry officials said the idea did not make sense and would hurt U.S. energy security. Environmentalists cheered the idea as a constructive use of free markets.

The Organization for Economic Cooperation and Development said in a report last week that removing fossil fuel subsidies could reduce greenhouse gas emissions by more than 10 percent in 2050. OECD is a Paris-based international organization with 30 democratic countries as members, including the United States and most of Europe.

"Removing environmentally harmful subsidies to energy consumption and production would be an important first step," OECD Secretary-General Angel Gurria said. "It would also improve economic efficiency. For instance, the budgetary savings could be used to reduce other distorting taxes or to alleviate poverty in a more targeted and efficient way."

The biggest energy subsidies in non-OECD countries are in China, India, Brazil and Russia, according to the OECD. Twenty of the largest non-OECD countries spend more than $400 million in fossil fuel subsidies that could be spent elsewhere, Froman said.

In 2008, countries that subsidized fossil fuels increased their consumption by one million barrels of oil, while those that didn't reduced their consumption by about 1.5 million barrels, Froman said.

In the U.S. the biggest fossil fuel subsidies are tax breaks, the foreign tax credit and the credit for production of nonconventional fuels that add up to $29.4 billion over six years, according to the Environmental Law Institute report.

"We found that there is significantly higher subsidies of fossil fuels than of renewables" even though fossil fuel firms are more established, said study author John Pendergrass. "Some of it is going to companies making record profits."

While big oil companies make large profits, most American oil and natural gas producers are small and independent, said Jeff Eshelman, spokesman for the Independent Petroleum Association of America.

Eliminating subsidies "would be a direct hit on small independent businesses right away, the ones that are really providing America with its energy." Eshelman said small producers tap 90 percent of U.S. wells, but that only translates to about 20 percent of oil Americans use.

Ending the subsidies could hurt development of crucial technology, such as carbon sequestration from coal plants, that is needed to fight global warming, said Frank Maisano, a Washington spokesman for coal utilities, oil refineries and wind developers. He said it also could hurt fuels that are homegrown.

Administration officials said Obama's proposal would not affect subsidies for climate friendly development, like carbon sequestration from coal plants.

But Frank O'Donnell, president of Clean Air Watch, a Washington environmental group, said there is "no greater cause of climate change than fossil fuels. There's no greater cause of that than artificial subsidies. It's a great idea to eliminate those subsidies and let the marketplace work."
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On the Net:
Organization for Economic Cooperation and Development: http://www.oecd.org/
Environmental Law Institute: http://www.eli.org/
Independent Petroleum Association of America: http://www.ipaa.org/