Removing fossil fuel subsidies will not reduce CO2 emissions as much as hoped

Fossil fuel subsidies amount to hundreds of billions of dollars worldwide, and removing them has been held up as a key answer to climate change mitigation. Unfortunately, the analysis shows it is not the silver bullet many had hoped. The paper, led by the International Institute for Applied Analysis with contributions from UCL-Energy researchers (amongst others), was published in Nature today.

Removing fossil subsidies would only slightly slow the growth of CO₂ emissions, with the result that by 2030 they would only be 1-5% lower than if subsidies had been maintained. This equates to 0.5-2 gigatonnes (Gt/year) of CO₂ by 2030, significantly less than the voluntary climate pledges made under the Paris climate agreement, which add up to 4-8 Gt/year and are themselves not enough to limit warming to 2°C.

“The reason for this small overall effect is two-fold,” says IIASA researcher Jessica Jewell, lead author on the paper. “First, these subsidies generally apply only to oil, gas, and electricity. That means that in some cases the removal of subsidies causes a switch to more emissions-intensive coal. Second, while these subsidies add up to substantial sums of money, the rate per unit of energy is not high enough to have a big effect on global energy demand, which would decrease by only 1-7% after subsidies are removed.” In addition, subsidy removal would not boost renewable energy use significantly, the team found.

Although the global effect on emissions is low, the impact varies between regions. The largest effects of removing subsidies were found in areas that export oil and gas, such as Russia, Latin America, and the Middle East and North Africa. In these regions, the emissions savings caused by subsidy removal would either equal or exceed their climate pledges.

Developing economies which are not major oil and gas exporters would generally experience much smaller effects of removing the subsidies. Some of the models used even suggested a rise in emissions for some regions, such as Africa and India, as a result of switching from unsubsidized oil and gas to coal. 

Many fossil fuel subsidies were put in place to help those with lower incomes, and the poorer you are, the more of your household budget comes from these subsidies. Fortunately, the highest numbers of poor people are concentrated in the regions where removal of subsidies will have the weakest effect on CO₂ emissions. Removing subsidies in richer oil and gas exporting regions would therefore provide significantly greater emissions savings and have a less detrimental impact on the poor.

Adapted from the IIASA press release at http://www.iiasa.ac.at/web/home/about/news/180208-Fuel-Subsidies.html   

Reference

Jewell J, McCollum, D Emmerling J, Bertram C, Gernaat DEHJ, Krey V, Paroussos L, Berger L, Fragkiadakis K, Keppo I, Failali NS, Tavoni M, van Vuuren D, Vinichenko V, Riahi K (2017) Limited emission reductions from fuel subsidy removal except in energy exporting regions. Nature.

The study received funding from the European Union’s Seventh Programme FP7/2007-2013 No 308329 (ADVANCE).

More info/Links

• https://www.nature.com/articles/nature25467
• https://www.nature.com/articles/d41586-018-01495-3
• www.iiasa.ac.at