Blog / 17 februari 2018

Abolishing oil and gas subsidies is definitely effective

On 7 February, Dutch newspaper Trouw published an article on abolishing subsidies for fossil fuels. The article claimed that the measure would only generate a limited climate benefit. Yet the study on which the article is based shows the opposite. Niels Hazekamp (Both ENDS) and Laurie van der Burg (Overseas Development Institute, ODI) wrote a short opinion article on the issue.

Although the title of the study, 'Limited emission reductions from fuel subsidy removal except in energy-exporting regions', does suggest a limited impact, the study actually shows that abolishing subsidies would make an important difference to the climate. The authors claim that a ban on subsidies could reduce CO2 emissions by a quarter of the total pledged by the world's countries. Like any other form of climate policy, a subsidy ban is not a 'silver bullet' but it would make a significant difference.

This is certainly true if you realise that banning subsidies will save rather than cost governments money. India and Indonesia, for example, both saved 15 billion euros in 2015 after abolishing subsidies. If the money saved is invested in energy efficiency or in renewable energy technologies, it could even double the climate benefit. And according to the International Monetary Fund (IMF) a ban on subsidies combined with an effective carbon price could reduce worldwide greenhouse gas emissions by 18 to 23%.

Nor is it necessarily true that a subsidy ban would mainly impact on the poor. Richer families consume more energy and therefore benefit most from subsidies on fossil fuels. That does not mean however that abolishing fossil subsidies would not potentially hit those on low incomes the hardest, but governments can and are preventing that from happening: the money is often invested in education or health care, with the consequence that banning subsidies reduces inequalities.

The Netherlands provides considerable support for the production and consumption of fossil fuels. ODI and CAN Europe calculated that between 2014 and 2016, total government support for the fossil sector amounted to 7.6 billion euros per year. The motion adopted by the Dutch parliament last month on phasing out fiscal incentives that undermine the climate goals is therefore of great importance. A majority in Dutch Parliament wants this to be included in the new Integrated National Energy and Climate Plan. That is a necessary and concrete step in bringing achievement of the climate goals closer, an aim which the Netherlands claims to be giving its full support.


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