First, End the Subsidies

Political scientist Brenda Shaffer has an op-ed in the Christian Science Monitor in which she proposes an agenda item for the climate change summit in Copenhagen that I can really get behind, ending the subsidies for fossil fuel consumption:

In fact, world leaders at the Copenhagen climate summit should recognize that most nations still subsidize consumption of fossil fuels. Removal of these subsidies can be one of the most effective tools for reducing energy consumption and thus the danger of climate change. According to International Energy Agency data, energy subsidies worldwide amount to $300 billion a year.


Russia is the world’s No. 1 energy subsidizer: It spends about $40 billion a year. Iran comes in second, spending close to $36 billion a year on consumption subsidies.

China, Saudi Arabia, Ukraine, and Egypt each spend more than $10 billion a year in energy subsidies. Until 2008, Malaysia allocated more funds to energy subsidies than to health, education, and welfare. Indonesia spends 4 percent of the nation’s gross national product on energy subsidies, expending more in 2007 on energy subsidies than health and education combined.

We have plenty of energy subsidies, too. We give direct subsidies to oil and coal to the tune of $12 billion annually. Indirect subsidies, like the Interstate Highway System and home interest mortgage deduction, amount to billions more.

As long as these subsidies remain in place I see it as unlikely that the measures that people are proposing to reduce carbon emissions will actually be effective. I think they’ll merely further incentivize rent-seeking by producers looking for subsidies to offset the additional costs they’ll be incurring. The government will just take away with one hand and give with the other.

2 comments… add one
  • Drew Link

    I’d also support the the subsidy elimination, although I’d be inclined to do so on the basis of sound economics and “equity,” rather than this carzy climate change stuff.

    However, look at that list of countries that would need to comply. Yikes. As I’ve pointed out elsewhere, waiting for them will be like waiting for Godot.

  • steve Link

    We should do it as a mater of good economics. Whenever possible, true costs should be internalized.


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