Fuel Subsidies Are the World’s Dumbest Policy

Many things have gotten harder as the world settles into a protracted spell of low oil prices and sluggish growth — from avoiding deflation to creating jobs. One thing has gotten easier, as well as more urgent: eliminating fossil-fuel subsidies.

At these prices, who can refuse? (Image: G. Osodi/Bloomberg)

At these prices, who can refuse? (Image: G. Osodi/Bloomberg)

Governments have long paid lip service to this idea. The G-20 has been promising to phase out fuel subsidies since 2009, but the measures remain widespread and resilient.

Nations from the U.S. to the U.K. to Russia continue to spend billions on tax breaks and other subsidies for the production of oil, gas and coal. Japan, South Korea and China support massive fossil-fuel projects outside their borders. For years, many countries — including some of the world’s biggest energy producers — have also used subsidies to lower gasoline and diesel prices, supposedly to help the poor.

The sums involved are huge. The International Energy Agency estimates that countries spent $493 billion on consumption subsidies for fossil fuels in 2014. The U.K.’s Overseas Development Institute suggests G-20 countries alone devoted an additional $450 billion to producer supports that year.

These ridiculous outlays would be economically wasteful even if they didn’t also harm the environment. They fuel corruption, discourage efficient use of energy and promote needlessly capital-intensive industries. They sustain unviable fossil-fuel producers, hold back innovation, and encourage countries to build uneconomic pipelines and coal-fired power plants. Last and most important, if governments are to have any hope of meeting their ambitious climate targets, they need to stop paying people to use and produce fossil fuels.

Read more: Bloomberg

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