Subsidizing The Fossil Fuel End Game -- Beyond Incoherence
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Some countries did something. Revealingly, both rich and poor countries which were helping energy consumers get cheaper fuel reformed. The United Arab Emirates has dismantled its subsidy regime for gasoline. Indonesia eliminated its gasoline subsidies and capped diesel supports. India has moved very aggressively, first eliminating diesel supports, and now phasing out even the subsidized kerosene intended to help the off-grid poor pay for lighting their homes. (Dealing with electricity subsidies has proven a heavier lift.)
But most richer countries, including the US and China, the nations who started the clamor to get prices right haven’t done so well. Their subsidies are mostly aimed at well-connected fossil fuel producers. Recent analysis shows that $60 billion a year is still flowing from 12 OECD members to oil, gas and coal producers, in a variety of forms, particularly export credits to encourage emerging markets to purchase oil, gas and coal technologies and equipment. This is four times as much subsidy as those same countries provide to clean energy.
So the world’s strongest economies are handing out more than $60 billion in public funds to the world’s biggest polluters, including some of the world’s richest companies, aiding and abetting Big Carbon’s effort to postpone the climate reckoning. At the same time they are pleading that their Treasuries are so depleted that they cannot keep their much less expensive long-standing promises to help finance the clean energy transition in developing countries.
Australia, for example, which was just chosen to lead the primary vehicle for climate aid, the Green Climate Fund, has provided $200 million for that agency. But Australia’s Queensland State is proposing to spend $1 billion – five times as much – helping to build a single new railroad to enable an Indian mining company, Adani, to develop its Carmichael mine, a decision which caused one of Adani’s competitors, Glencore, to snipe at
risky ventures that rely on taxpayer subsidies to get across the line and which will bring on massive volumes of additional coal supply into the market, which could undermine existing operations.
(The Carmichael coal project is also expected to receive significant financial concessions on royalty payments.)
The United States, under President Trump, has become something of a caricature of what this fossil subsidy end game might look like. Trump campaigned with strong support from coal, oil and natural gas nationally – but messaged around his promise to bring back coal mining jobs in Appalachian states like Ohio, West Virginia and Kentucky.
Elected, he moved promptly to reverse a series of Obama Administration regulations which would have improved environmental standards for oil, gas and coal extraction. Coal industry executive and even Kentucky Senator Mitch McConnell conceded that these roll-backs, while good for coal company pocket books, would do nothing to bring back Appalachian jobs, which were being lost because of competition from cheaper strip-mined western coal, natural gas and renewables.
Trump next reversed a series of Obama reforms designed to ensure that companies mining fossil fuels from public lands paid fair royalties, and that leases were bid competitively. The roll-back added another billion dollars a year to the taxpayer give-away to public lands producers, but also made it even more difficult for labor intensive Appalachian coal miners to compete – speeding the loss of jobs. (The new Administration’s moves to lower environmental standards for gas drilling also hampered eastern coal.)
How did Appalachian coal interests respond to the Trump Administration giveaways to its competitors, western coal and natural gas? Predictably, they pled for even bigger subsidies for themselves. West Virginia Governor Jim Justice, who just bolted the Democratic Party to join the GOP, asked Trump for a $15 federal subsidy for each ton of Appalachian coal, and claimed Trump had expressed support for the idea. If Congress were to appropriate these funds, it would add another $4.5 billion to the total US government pay-off to fossil fuel producers.
But while these outrageous political payoffs waste taxpayer money and keep uncompetitive coal projects alive for a few more years, they don’t change the underlying market realities. Last month the CEO of CSX railroad, founded to haul coal, and still getting a fifth of its revenue from the fuel, told analysts “Fossil fuels are dead….That’s a long-term view. It’s not going to happen overnight. It’s not going to be in two or three years. But it’s going away, in my view.” And he backed up that prediction by revealing that his company would no longer make capital investments in its coal hauling business – no more locomotives designed to haul coal, no more investments in additional trackage – CSX is just going to let its coal business gradually wither. This week a Houston based energy trader told Bloomberg, “All the power market people that I know, we all think coal is going to zero.”
So when you read claims that renewable energy isn’t competitive yet with fossil fuels, or that it is economics that is slowing down the transition to clean energy, remember – the world’s richest governments are throwing taxpayer money at well connected oil, gas and coal companies, cosseting these giants from the grim realities of true market costs – they represent a no-longer competitive past, and our health, our security, our climate and our economy will be better off the faster we move to the future of clean, low-carbon and cheaper energy sources.