A couple of days ago in Open Mic, Mark Hodgson posted this news story:

“‘Reckless’: G20 states subsidised fossil fuels by $3tn since 2015, says report
Support for coal, oil and gas remains high despite pledges to tackle climate crisis”

https://www.theguardian.com/environment/2021/jul/20/g20-states-subsidised-fossil-fuels-2015-coal-oil-gas-cliamte-crisis

The Guardian is renowned for its typos, but to let one slip into the weblink?

The report was by BloombergNEF and Bloomberg Philanthropies. Here’s what they had to say about their own progeny:

New Report Finds G-20 Member Countries Support Fossil Fuels at Levels Untenable to Achieve Paris Agreement Goals

I’m not sure what species of English that is. That word does not mean what you think it means, etc. Anyhow, the presently wealthy-ish countries are spending too much on support for fossil fuels.

This was the Guardian’s take, as reported by Mark:

“The UK’s subsidies fell by 18% over that time but still stood at $17bn in 2019, according to the report.”

I replied to the effect that such “subsidies” usually turn out to be nothing of the kind. The classic method adopted by the slippery sly to find a subsidy where one doesn’t exist is to calculate the VAT foregone by charging the reduced rate for domestic energy. (Note to non-UK readers: VAT in the UK is charged at 20%, except there is a lower rate of 5% for some goods and services. In order to save the poor a few bob on their energy bills, gas and electricity are taxed at the lower rate. The reason this is a generally good idea is that everyone has to heat and light their houses etc, so that the poor spend a higher proportion of their income on energy than brown ricers.)

Anyway, as I say, I replied dismissively because I know the shenanigans that folk with a certain agenda are wont to get up to. But later I realised how unfair I was being. I thought I should not take the number ($17,000,000,000) at face value, but nor should I reject it out of hand. We all have a tendency to react emotionally to data that opposes our worldview, and it is important to me that I am open to the possibility that new data could cause me to change my mind. And so as a first step, I found the actual report*, Climate Policy Factbook, prefaced by the great Michael Bloomberg himself:

“Of course, each country’s plans for rebuilding their economies [after Wuflu] will be different. But two things are clear:

One: We need to work together to build a resilient global economy capable of withstanding the next worldwide crisis.

And two: that crisis is already here. It’s called climate change.

By integrating climate change into their economic recovery, countries have a chance to spur job growth — while also building stronger and more resilient economies for the future.”

Yeah, great, Michael, thanks for dropping by. Sorry, did you say something? I zoned out. Platitudes have that effect on me.

Anyway, in the Climate Policy Factbook it is written that UK actually spends $17.5 bn on “fossil-fuel support” not $17 billion. I’m surprised that The Guardian didn’t round it up to 18. However. BNEF (that’s Bloomberg New Energy Future or summin’, not British Nazi Encouragement Forum) did not provide a breakdown of the numbers as I had hoped. Instead the report pointed me to a range of places where they had obtained source data:

Direct budget transfers and tax breaks: OECD Inventory of Support Measures for Fossil Fuels

Support to consumer energy prices: IEA Energy Subsidies Database

Support from public finance institutions: Oil Change International’s ‘Shift the Subsidies’ Database

Investment by state-owned enterprises: Overseas Development Institute, International Institute for Sustainable Development and OCI

All right, all right. Make it easy for me why dontcha (no hyperlinks were given). I began with the IEA Energy Subsidies Database, which turned up a big fat zero for the UK. This metric is direct subsidies at the point of sale, for example on petrol. Most of the countries that operate such systems are basket cases. However, you could argue that subsidising fuel benefits the poorest in society the most. Just as you could argue that the duty etc on petrol in the UK is highly regressive, even if by some definitions it is fair.

From IEA I went to the OECD and found where and how most of the obscene quantities of dosh spent on fossil-fuel support is being disposed. Now, there are a lot of items listed in the OECD data. But I’m not going to bother with discussing the chump change. I’m only interested in items of a billion or more. So below, in reverse order, are the big ticket items – the top 4 ways that the UK supported fossil fuels in 2019:

(Note the change in currency. OECD entries tot up to £12 and a bit bn, almost $17 bn.)

4

At 4, coming in with a cool £1,505,000,000, we have…

Tied oils scheme (Industrial Relief Scheme).

What is this, you cry? You can’t tie oil. Well, yes you can. OECD helpfully explains:

“Under the Tied Oils or Industrial Relief Scheme, any light oils or heavy oils that fall into the definition of fuel oil, gas oil or kerosene are delivered conditionally relieved of excise duty when put to an eligible use. Eligible use includes any use except fuel for any engine, motor or other machinery or heating fuel.”

Aha! Got you, you swine. OIL THAT IS NOT USED AS FUEL DOES NOT ATTRACT DUTY. So it is not technically a “fossil fuel”. It’s a “fossil lubricant” or a “fossil wannabe plastic.” Verdict: this is not in any way a subsidy for fossil fuel. It is duty foregone on non-fuel oil.

3

At 3, weighing in at £2,155,000,000…………..

Ring-fence oil and gas trade corporate income tax relief, first-year capital allowances for plant and machinery.

That’s a bit of a mouthful. What is it?

“The United Kingdom offers a 100% first-year capital allowance for ring-fence capital expenditure.”

The ring fence in this circumstance means that profits from oil and gas cannot be offset by losses elsewhere. The 100% first-year allowance means that companies can offset the entire value of new plant and machinery against tax. So it is, fairly and squarely, a subsidy for fossil fuel, especially as such benefits are not available in any other sector. Ahem. Koff.

From gov.uk:

Current FYA schemes

Currently, FYA is available at the 100% rate for expenditure incurred:

on environmentally beneficial CA23135 and energy-saving CA23140 technologies, including by energy services providers CA23150 (until 1/6 April 2020);

on zero-emission goods vehicles CA23145;

on plant and machinery for use in a designated assisted area;

on cars with low CO2 emissions CA23153;

on new plant and machinery installed at a gas refuelling station to refuel vehicles with natural gas, biogas or hydrogen fuel CA23155;

on plant or machinery for an electric vehicle charge point CA23156; and

on plant or machinery for use wholly in a North Sea ring fence trade CA23157.

Do you like the way they seem somewhat embarrassed to mention the last item, saving it to last when most people have already given up reading?

Verdict: this really is a subsidy for fossil fuel production. But since similar subsidies are available for a host of green investments, I really can’t get that excited about it.

2

At 2, worth £2,460,000,000, almost enough for Bill Gates to bother answering the phone over, we have……..

Reduced Rate of Excise for Red Diesel / Rebated rate for gas oil (“red diesel”).

Farm vehicles, construction vehicles and others benefit from reduced duty on their fuel. Generally diesel is hit with duty of £0.5795 per litre. Red diesel (for non-UK readers, this is diesel that has been dyed in order to discourage people from using it in road vehicles to avoid the higher duty rates of normal diesel) has duty applied of £0.1114 per litre. If you take the difference between these two duty rates and multiply it by the number of litres of red diesel used, you wind up with the 2 and a half billion worth of fossil-fuel support.

Verdict: this is not a fossil-fuel subsidy. If I punch Fred 5 times, I don’t benefit George by only punching him once. I just punish him less. Personally I think the duty on fuel is obscene, and it is a cruel joke that the combined value of fuel + duty is then subject to 20% VAT. The government like it because it makes them a lot of dosh.

From the Office for Budget Responsibility:

“In 2019-20 fuel duty raised £28 billion. That represented 3.3 per cent of all receipts and was equivalent to £1,000 per household and 1.2 per cent of national income.”

Just to repeat that:

£1000 per household

I suppose by elementary maths the government are getting another £6 billion on top from the VAT on the duty. Not to mention another £6 billion ish from VAT on the actual cost of the fuel.

Let us not dwell either on the fact that cars running on petrol and diesel pay vehicle excise duty, whereas electric vehicles do not. (The OBR value VED at £6.5 billion per year.)

1

And at number one in the fossil-fuel subsidy charts, where it has been since 2016 when it overtook the first-year allowances on oil and gas production…………………….

………worth £3,576,569,704, or about £125 per household…….

……is……..

Reduced Rate of VAT for Domestic Fuel and Power

Our energy bills are subject to 5% VAT, rather than 20%, and this is described by the wise minds of the world as a fossil-fuel support. Well, it is a support for energy, but it is surely blind to wherever that energy comes from. Obviously the copious quantities of juice made by the whirligigs of the Saudi Arabia of Wind – or should that be the Saudi Arabia of Rice Puddings? – benefit just as much as does the gas piped into our homes or the gas that is used to hold everything together when we are in the collective doldrums. So long as any fossil fuel generator is plugged into the grid, there is an automatic fossil-fuel subsidy.

That being the case, one could easily count this “subsidy” as yet another subsidy for wind “power” and all the other useless twigs we are trying to build into a wolf-proof electricity grid.

Verdict: not a fossil-fuel subsidy. Not even a case of reduced punishment for some fossil fuels, since no green alternatives attract the 20% rate. Now that would be a subsidy.

Conclusion

Come on, Bloomberg, give me a break. And I look forward to your forthcoming report analysing all the obscene ways that governments around the world are subsidising rice puddings, I mean wind turbines.

Reference

*Bloomberg NEF’s Climate Policy Factbook

4 Comments

  1. Jit, thanks for doing the heavy lifting here.

    I have always been annoyed by climate worriers saying that fossil fuels are subsidised just because they enjoy some tax reliefs. I used to disagree with Phil Clarke at Bishop Hill about this quite a lot some years ago.

    My Oxford English Dictionary has its primary definition of subsidy (the one obviously intended in the article) as being:

    “a sum of money granted from public funds to help an industry or business keep the price of a commodity or service low; a sum of money granted to support an undertaking held to be in the public interest; a grant or contribution of money”.

    There is no basis for calling tax reliefs “subsidies”, especially when, as in the UK, fossil fuels bear huge amounts of tax and make a significant contribution to the Exchequer. We are back in the Alice Through the Looking Glass World where words no longer bear their normal meaning, but mean whatever the climate worriers want them to mean.

    Liked by 1 person

  2. Mark, the heavy lifting would be the follow-up article “The UK’s obscene renewables subsidies.”

    While the OECD carefully tabulates all the fossil-fuel “subsidies”, it is not so helpful re: renewables. These values would have to be compiled manually. We have the obvious:

    CfDs
    ROCs
    FiTs

    Presumably too the reduced VAT on energy enjoyed by electric cars counts. We also have to apply this reduced VAT to all energy produced by renewables (some double counting here?). Subsidies for EV purchases, home charging kits, zero VED on EVs (presumably none of these reach a billion).

    Er, constraint payments.

    Fuel duty: by punishing fossil fuel users, we can call this a de facto renewable subsidy if we twist the meaning of the word subsidy in a similar way to our friends at the OECD……

    Oh, indirect subsidies via costs imposed on the grid by the infestation of renewables – stability, long distance connections…

    …any more? Answers on a postcard.

    Like

  3. Well, not so much a subsidy, but a cost linked to the whole renewables madness, and which does no good for consumers but which is ultimately paid for by them – smart meters. Was it £18Bn at the last count?

    Like

  4. Thanks for your laborious detective work.

    It takes the mental gymnastics of an Olympic Gold Medal winner to deem a reduced VAT rate on even *renewables*-generated electricity is a “fossil fuel subsidy”.

    Paul Homewood in his post “UK Hiding £11bn Of Fossil Fuel Subsidies–New Report Claims”, pointed out a claim “Zero VAT on passenger transport – annual cost £4.6bn” was also deemed a “fossil fuel subsidy”

    https://notalotofpeopleknowthat.wordpress.com/2018/06/23/uk-hiding-11bn-of-fossil-fuel-subsidies-new-report-claims/

    Like

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