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Why are we subsidizing fossil fuels?

bringing down the global subsidy system

a film by. The years project
Country. usa
RUN time. 4:07 Min

“In a short amount of time, this film materializes as a hard-hitting journalist piece examining the question of why are we subsidizing fossil fuels?”
ally lantz, climate crisis film festival director

In 2019, a European commission report concluded that the UK government had given £10.5bn in subsidies to the fossil fuel industry in that year — the most of any European country and £2.2bn more than the £8.3bn it spent on renewables.

The UK government argued against the report’s definition of a subsidy and claimed that by their definition, they hadn’t given no subsidies. If global governments don’t admit to funding the fossil fuel industry we need to force them to redirect funding to renewable energy and away from destructive industries.

Young Protestors in Houston protest against the fossil fuel industry after an investigation found that their governor Greg Abbott takes bribes from fossil fuel companies to represent their interests in policy

fossil fuel subsidy explainer

By Jake Coleman

Most of us know little of the murky world of government funded business, but it is often the things that happen behind closed doors in private offices that cause the most damage. In the case of fossil fuel subsidies, the funds that are funnelled to companies by financial manoeuvres and tweaking tax tariffs lie behind a veil of secrecy that has only recently begun to be lifted.

The fossil fuel industry has grown to such a scale that the economy as a whole has become deeply entangled with the success and continued growth of fossil fuel companies. Globally, there’s a web of intricate and opaque measures designed specifically to directly and indirectly support these companies, making the overlap between fossil fuel interests and governments’ interests a grey zone that’s hard to navigate and unknot.

Subsidies can be divided into two main categories: producer subsidies and consumer subsidies.

Consumer subsidies are defined as when a government controls the price of fuel for consumers in their economy. Low fuel prices drive up consumption of fuel and fuel products, boosting the economy in the short term. Governments often justify these cost controls by saying they reduce transport costs, household electricity bills and general living costs. But these ostensible ‘social benefits’ come at a cost. Price controls are often applied to products only the relatively rich can afford at quantity, such as petrol, which further advantages the ability of the rich to accelerate their own wealth as those who are still priced out fall further behind. So effectively, price controls of this kind often function as a money transfer from the average taxpayer to the 1%, further increasing societal inequalities.

Producer subsidies are far more complex matter, as they can be awarded to companies in a variety of more indirect ways. Direct budgetary transfers are government stimuluses for the industry, which can be spent in any way companies choose, from helping to improve the efficiency of their operations — to handing out gigantic bonuses to their CEOs. Tax breaks on capital investment allow oil companies huge tax breaks on investments in machinery and the construction of new power plants. Having a lower share of profits given as tax means fossil fuel company profits are taxed at a lower rate than standard companies, if they are seen to be developing a resource such as a new oil source. Investment by state owned enterprises often isn’t counted as a subsidy at all — meaning that organisations that are owned by, but not a specific branch of, the government (including banks like NatWest Group), can invest in fossil fuel companies without their considerable support even being accounted for as a government subsidy. Finally, tax breaks manifest themselves even in lower VAT rates — while the UK’s VAT rate is 20%, the fossil fuel industry gets a generously discounted 5%.

Government subsidies can provide tax breaks for fossil fuel companies to create ‘new resources’ using destructive drilling practices


For years, governments relied on the fact that it takes a team of diligent accountants to find all the ways subsidies benefit fossil fuel companies. But more and more people are starting to understand, if not all the ways subsidies are transferred, then at least the eye-watering amounts of money involved and how destructive their effects are.

Under the current system, governments help pay money for the purchase of these gigantic terraforming machines, helping companies destroy vast areas of land

how fossil fuel companies use government money

Fossil fuel companies use most of the money from these massive tax breaks and handouts to secure their dominant position at the heart of society. Large fossil fuel companies, like Exxon Mobil and Koch Industries, have funnelled funds into climate denial institutions — Exxon Mobil paid $686,500 to the Heartland Institute, a vocal anti-climate action policy think tank, between 1997 and 2006 — to discredit climate change science and protect their profits. Exxon also fund political campaigns that pledge to guarantee the future of fossil fuels in a certain region — Texas governor Greg Abbott recently exonerated fossil fuel companies from blame for the Texas power outages after receiving $26m in campaign donations from fossil fuel companies in the past 6 years.

BP and Shell also used the money to fund advertising campaigns to greenwash their products and reduce negative publicity around crises like the Deepwater Horizon oil spill. Fossil fuel companies are delaying decisive action from being taken by painting themselves as “rethinking the future of energy” - using cosmetic brand gestures like adding green colour to their logos and using vague, eco-friendly slogans to obscure the damage they are doing to the planet. This must end now. Government-backed methods of controlling public perception can only be combatted with an engaged popular movement that fights for policies that impose significant fines on companies who use greenwash in their advertisements.

Greenwashing ads like the above BP example disguise the fact that companies like Exxon mobil are using government money to finance climate denial

connecting
the dots

The interactive MCC subsidy map shows just how much the reduction of fossil fuel subsidies can help combat poverty and provide the poorest with access to water, electricity and sanitation. decide yourself how much you want to reduce subsidies and where to invest the money. In the upper left corner, you can move the control for "Reduction of fossil fuel subsidies" to the right to up to 100%

see the positive effects of
reducing fossil fuel subsidies

The shocking global subsidy figures

Until 2015 the estimates for global fossil fuel subsidies were conducted by agencies that didn’t account for producer subsidies, meaning that estimates were between $325bn to $452bn per year. In 2015, the IMF brought out a landmark report where they estimated the actual global subsidy figure was a gigantic $5.4trn per year — larger than the GDP of every economy in the world except for China (14.9trn) and the US (20.8trn).

It is hard to conceive of such vast sums of money as they really are too large to imagine — a quantity so alien that it is impossible to relate it to anything that exists in the lives of regular people. The best way to picture $5.4trn is to visualise the amount of money given in fossil fuel subsidies as a tower of bank notes. If 5.4trn $1 notes were stacked one on top of the other, the tower of notes would stretch from the earth’s surface TO THE MOON and nearly halfway back! Literally galactic quantities of money are being donated to the fossil fuel industry each year.

The vast Cash handouts to the fossil fuel industry are one of the main barriers stopping a societal transition away from fossil fuels

In giving this vast sum of money to fossil fuel companies, global governments have created a fossil fuel industry the size of one of the world’s most powerful economies. With government money going directly into their pockets, the fossil fuel industry has the power to shape global decision-making and drive the world towards an ecological crisis without any democratic scrutiny. And fossil fuel subsidies come from the pockets of taxpayers, meaning that people like you and I are funding the obscene destruction of the planet at the hands of this murderous industry.

The exponential increase was due to the IMF considering a new category of consideration: externalities. Broadly, externalities can be defined as the cost of all damage caused to society and its systems by the production and widespread use of fossil fuels. To give some idea of what a cold, technical word like externalities looks like in human terms, coal power alone causes 23,000 premature deaths in the EU each year whilst thousands more are hospitalised from pollution. Huge public and private sector costs accrued as a result of the incredible damage fossil fuels do to the earth had finally been costed accurately, providing an overwhelming moral and financial imperative to act.

Pollution from this type of coal terraforming causes damage to public health systems and livelihoods in addition to causing premature deaths

The IMF estimated that if fossil fuel subsidies were to cease, an estimated $2.9trn per year, more than the the UK’s whole GDP ($2.6trn), would be accrued for national governments to spend on investing in renewable energy, rebuilding biodiversity, research and development for sustainable technology and any number of green initiatives.

There has been some, albeit limited, positive progress recently. This year the UK pledged to end fossil fuel subsidies abroad whilst the US announced plans to remove $35bn worth of fossil fuel subsidies. The recent dutch court ruling that Shell must reduce its emissions by 45% by 2030 compared to 2019 levels, offers another exciting precedent that makes ending fossil fuel subsidies more possible. We need to seize on this political will and build movements pushing for more. With the COP26 fast approaching, fossil fuel subsidies need to be at the top of the agenda. Binding commitments to redirect funding and subsidies towards the transition to renewable energy is essential, as is achieving an international consensus on what counts as a fossil fuel subsidy. We should be pushing for global recognition of the IMF’s definition of fossil fuel subsidies and the $5.3trn estimation of the cost of fossil fuel subsidies.

The recent court ruling is a landmark case that may force companies to obey stricter emissions targets

Until 2015 the estimates for global fossil fuel subsidies were conducted by agencies that didn’t account for producer subsidies, meaning that estimates were between $325bn to $452bn per year. In 2015, the IMF brought out a landmark report where they estimated the actual global subsidy figure was a gigantic $5.4trn per year — larger than the GDP of every economy in the world except for China (14.9trn) and the US (20.8trn).

It is hard to conceive of such vast sums of money as they really are too large to imagine — a quantity so alien that it is impossible to relate it to anything that exists in the lives of regular people. The best way to picture $5.4trn is to visualise the amount of money given in fossil fuel subsidies as a tower of bank notes. If 5.4trn $1 notes were stacked one on top of the other, the tower of notes would stretch from the earth’s surface TO THE MOON and nearly halfway back! Literally galactic quantities of money are being donated to the fossil fuel industry each year.

solutions
+ actions

how do we untangle this mess?

but, practically, where do you even start?

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footnotes

show / hide
curation Ally Lantz
written Jake Coleman
art direction Susanna Basso
director The Years Project
country USA
year 2019
run 4:08 min