Almost two years ago, Jit wrote an article pointing out that claims made in the Guardian and elsewhere about alleged UK subsidies for fossil fuels were more than a little dubious. When he investigated the claims, he found, almost without exception, that the alleged subsidies were no such thing. Instead, the alleged subsidies amounted to tax reliefs or taxation at a lower level than might otherwise be the case. For example, it takes extraordinary chutzpah to claim that a reduced rate of excise for red diesel is a subsidy, when fuel excise duty in 2019-20 cost the average UK household around £1,000 and amounted to 1.2% of national income.

My Concise Oxford English Dictionary defines “subsidy” as:

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.

The common factor in all three limbs of the definition is the giving of funds to the person being subsidised. It does not involve taking less money from someone than might otherwise be the case. Doing so might or might not be controversial, but whatever else it is, it is not a subsidy.

World Bank

Using language correctly doesn’t seem to matter when there’s a planet to save. The World Bank recently issued a report with the title “Detox Development – Repurposing Environmentally Harmful Subsidies”. The report covers a number of areas, and focuses on agricultural impacts on land, fishing in the oceans, and the effect of fossil fuels on air quality. As it runs to over 300 pages, I will confine my gaze to the section dealing with supposed fossil fuel subsidies. In passing, I note that the Guardian seized gleefully on the report with an article carrying the alarmist and alarming headline: “Vast fossil fuel and farming subsidies causing ‘environmental havoc’ – World Bank says subsidies costing as much as $23m a minute must be repurposed to fight climate crisis”.

What, then, of these awful fossil fuel subsidies? It isn’t always easy to separate the “subsidies” relating to fossil fuels from those relating to fishing and agriculture, since the headline-grabbing introduction lumps them all together. The first thing to notice is that the “subsidies” are alleged to exceed US$7 trillion per year, but:

This includes both explicit subsidies—which are direct public expenditures totaling about US$1.25 trillion—and implicit subsidies—which measure the societal impacts of externalities and amount to more than US$6 trillion.

Immediately we notice that just over 17% of the “subsidies” are actually subsidies, as defined by my dictionary. The other 83% or so aren’t subsidies at all, not unless you decide to redefine words, as the World Bank and others have obviously decided to do. They introduce (or repeat) the concept of an “implicit subsidy”, which seems to mean someone’s assessment of what fossil fuel producers are getting away without paying. Or, as the World Bank puts it:

Implicit subsidies are measured as unpriced externalities and account for the rest of the burden of subsidies on society and the economy.

In any event, persevere with the report, and the explicit fossil fuel subsidies apparently amount to less than half of the headline sum across the three sectors, namely US$577 billion in 2021. Keep reading, and it turns out that the numbers are in any event someone else’s estimate, not the result of World Bank research.

Parry, Black and Vernon

The $577 billion figure covers 191 countries and comes from a 2021 report by Parry, Black and Vernon. As does the $5.4 trillion figure for “estimated impacts from local air pollution, greenhouse gas emissions, road congestion, and forgone tax revenues”. That report (which can be downloaded here tells us that:

Underpricing for local air pollution costs is the largest contributor to global fossil fuel subsidies (Figure ES3), accounting for 42 percent, followed by global warming costs (29 percent), other local externalities such as congestion and road accidents (15 percent), explicit subsidies (8 percent) and foregone consumption tax revenue (6 percent).

They recognise that:

Although environmental costs are subject to uncertainty and controversy, they are a key component of the societal costs of fossil fuel use and therefore it is important to factor an unbiased estimate of them into fuel prices.

It in turn refers to earlier papers, which introduced concepts and methodology seeking to assess these costs, and before you know it, you’ve disappeared down a rabbit hole:

Coady and others (2015) introduced the concepts of narrow or ‘pre-tax’ subsidies and broad or ‘post-tax’ subsidies where the former reflected (most importantly) underpricing for supply costs and (less importantly) subsidies for fossil fuel producers, while the latter also included underpricing for (most importantly) environmental costs and (less importantly) general consumption taxes. Coady and others (2019), for example, put global post-tax subsidies at a striking $4.7 trillion in 20153, or 6.3 percent of world GDP, with only 5 percent of this figure reflecting pre-tax subsides. This paper uses a slightly different terminology4, referring to explicit subsidies as undercharging for supply costs and producer subsidies (i.e., pre-tax subsidies), and implicit subsidies as undercharging for environmental costs and general consumption taxes (i.e., post tax subsidies less pre-tax subsidies).

Reading on (I’m still in the Parry, Black & Vernon paper) and we learn that most of the alleged indirect subsidies (or under-pricing) relate to the power generation sector and that:

By region East Asia and the Pacific accounts for 48 percent of total energy subsidies. And by country, China remains the biggest subsidizer in absolute terms, followed by the US, Russia, India, and the EU.

I can’t help thinking that what all this means is that mostly (but not invariably) developing countries are trying to keep prices low in order to ensure that their poor inhabitants can enjoy affordable power supplies. I’m not sure that counts as an unqualified evil, but I am sure that you won’t easily persuade them to stop doing it. I am also confident that in the unlikely event that you do persuade them to stop doing it, the inhabitants of those countries will be extremely unhappy.

The study identifies annual subsidies (both explicit and implicit) per capita in the UK of US$352. This compares to other countries at the following per capita rates (al in US$):

Argentina: 644

Australia: 1,729

Canada: 1,686

China: 1,569

Germany: 863

France:457

Indonesia: 470

Italy: 676

Japan: 1,348

Russia: 3,560

Saudi Arabia: 4,548

South Africa: 848

[South] Korea: 1,332

Turkey: 1,387

USA: 2,006

Iran: 1,815.

Remind me why we in the UK keep beating ourselves up and have to “lead the way”.

Nigeria

Here, in the real world, is an example of what happens when you revoke explicit subsidies (heaven help you if you go for those “implicit” subsidies). Nigeria recently scrapped (or announced the scrapping of) direct subsidies, and it’s not going well.

“Nigeria fuel subsidy: Tinubu’s plan to scrap measure sparks rush to stock up” says the BBC:

The first full day in power of Nigeria’s new president has seen people panic-buying fuel following his decision to scrap a decades-long subsidy on petroleum products…

…Some people have posted videos online of filling stations already increasing prices, in some cases by more than 200%.

Some drivers of private buses, which many Nigerians rely on to get around, have also been unable to fill up their vehicles.

This has left people stranded at major bus stops in the capital, Abuja, and the country’s biggest city, Lagos.

And here’s Amnesty International’s take on it – “Nigeria: Removal of fuel subsidy must not exacerbate poverty”:

The Nigerian authorities must urgently put in place measures to protect the rights of people most affected by the removal of the fuel subsidies and prioritize addressing widespread hunger, higher unemployment and the rapidly falling standard of living.

Problems with the World Bank Report

The first and most obvious problem is how we define subsidies. Although it is clear that much work has been done to try to justify the concept of “implicit” subsidies, and to render that concept an objective one, it seems to me that a great deal of subjectivity remains.

That can readily be illustrated by the briefest of analyses of the central thrust of the report, to the effect that fossil fuels cause air pollution which lead to premature deaths. Yet its own analysis says that:

While outdoor air pollution is pervasive, poor air quality also poses severe health risks inside people’s homes. Indoor air pollution results from the burning of solid fuels like coal, wood, dung, or crop waste for cooking, lighting, and heating (Ritchie and Roser 2022). The combustion of such substances releases various pollutants that are harmful to human health. As with ambient air pollution, long-term exposure to these pollutants increases the risk of life-threatening diseases, making indoor air pollution one of the leading global environmental risk factors (Murray et al. 2020). Global estimates of premature deaths caused by indoor air pollution are similar in number to those caused by outdoor air pollution. The World Health Organization (WHO 2022) estimates that nearly 4 million people die annually from exposure to indoor air pollution, compared to the 4.2 million deaths from ambient air pollution in 2016 (WHO 2021a).

This leads to the second problem – the denial of cheap and reliable electricity to hundreds of millions (perhaps billions) of people in developing country forces them to rely on polluting substances within their homes for cooking, lighting and heating. Making fossil fuels more expensive in order to remove their alleged “implicit” subsidies and (in fine neo-colonial manner) insisting that developing countries must follow us down the “net zero” road, renders it less likely that inhabitants of developing countries will escape from their polluted homes. This point is made forcibly by looking at the map that accompanies the World Bank report – death rates from indoor pollution are at their highest in sub-Saharan Africa and in east Asia, notably China, but especially the Indian sub-continent and Indonesia. As the World Bank report itself says:

Indoor air pollution poses particular health risks to people in low- and middle-income countries and vulnerable groups like children, women, the sick, and the elderly. The vast majority of deaths due to indoor air pollution—that is, 81 percent (or 1.8 million deaths)—occur in low- or lower-middle-income countries, especially in South Asia and Sub-Saharan Africa (IHME 2020). Globally, progress has been made in reducing deaths due to indoor air pollution, as the number of annual premature deaths was halved between 1990 and 2019. Yet improvements have been significantly smaller in SubSaharan Africa, where the annual number of deaths from indoor air pollution declined by only 15 percent in the same time frame (Ritchie and Roser 2022). Map  B2.3.1 highlights the above-average mortality from air pollution in Sub-Saharan Africa and South Asia. Indoor air pollution disproportionately affects poor people. Households that cannot afford clean cooking and heating fuels, like electricity or natural gas, are forced to use polluting solid fuels instead. Figure B2.3.1 summarizes the WHO’s Energy Ladder, which highlights the higher dependency of poor households on toxic fuels. According to World Bank data, about 3 billion people—40 percent of the world’s population—still lack access to modern energy sources for their home use.

In low- and lower-middle-income countries, the use of dirtier, unsafe solid fuels is more prevalent, and the death rate from indoor air pollution is higher. This situation highlights the risk that removing subsidies on relatively clean-burning fossil fuels, such as liquefied petroleum gas, will force households to switch to cheaper polluting biomass fuels.

And remember what Parry, Black and Vernon said, namely that most of the alleged indirect subsidies (or under-pricing) relate to the power generation sector and that:

By region East Asia and the Pacific accounts for 48 percent of total energy subsidies. And by country, China remains the biggest subsidizer in absolute terms, followed by the US, Russia, India, and the EU.

The third problem is that removing the alleged “indirect” subsidies, by increasing the price of fossil fuels will (despite the claims of the World Bank report that the rich benefit most from “subsidies”) cause huge pain and societal problems, especially if forced upon developing countries. The recent example of Nigeria amply demonstrates what happens when explicit subsidies are removed.

Finally, there is the problem that demand for fossil fuels is relatively inelastic. As the World Bank report says in its introduction:

On average, a 10 percent increase in the unit price of energy results in a short-run reduction of consumption of about 2 percent. This means the demand for energy is only sluggishly responsive to prices, especially when cleaner alternatives are unavailable or unaffordable.

In other words, increasing the price of fossil fuels (by removing direct or “indirect” subsidies) won’t make much difference to demand (though it will make people poorer).

I am left with a sense of considerable bemusement. The World Bank report purports to justify claims that fossil fuels enjoy massive “indirect” subsidies; that removing such subsidies will affect rich people more than poor ones; and that the result of increasing the price of fossil fuels will reduce air pollution and save lives. Yet the real world evidence, and much of the contents of its own report seem to contradict those conclusions.

And words no longer mean what they used to mean.

19 Comments

  2. Climate activists and renewables lobbyists are acting like Mad Hatters, twisting language and logic to pursue their agendas. Let there be some common sense injected here.

    A subsidy would be when the government takes money that has been taxed, borrowed, or printed, and pays it to some company like Solyndra to do something that the market does not support. Often these subsidies subsidize technologies that do not exist and may never exist (and they say WE ignore the laws of physics.)

    In contrast, a tax reduction is NOT a subsidy. A tax credit says an industry gets to keep more of its own money that it has produced selling a product people want and need in the free market.

    There is a huge difference between a law that lets you keep more of your own money; and another law that actually gives you someone else’s money. The two are not the same thing. Actually, the oil industry pays higher taxation rates than other industries and subsidizes the government with the billions it pays in taxes, not the other way around.

    There are also billions more in economic benefit to the nation from the jobs they create and the increased mobility and productivity people enjoy by using our transportation system based on hydrocarbon fuels.

    The Mad Hatters turn things upside down. Society is subsidized and made wealthy by fossil fuels, not the other way around. Some of that wealth is being diverted to renewable energy companies who do not create enough value to be in business without direct payments of tax dollars. They prove it by declaring bankruptcy when their subsidies are reduced. Worse, hooking up wind and solar intermittent power to electrical grids adds more cost and unreliability than the renewable power is worth.

    Liked by 2 people

  3. It’s also strange that the World Bank’s report is so enthusiastically endorsed by the Guardian, given much that the Guardian has published about the World Bank, e.g. this from last October:

    “World Bank criticised over climate crisis spending

    Oxfam research suggests up to 40% of bank’s reported climate-related spending cannot be accounted for”

    https://www.theguardian.com/environment/2022/oct/03/world-bank-criticised-over-climate-crisis-spending

    The World Bank has come under fire for failing to show that its claimed spending on the climate crisis is real, in a report suggesting up to 40% of its reported climate-related spending is impossible to account for.

    Of $17.2bn that the World Bank reported it spent on climate finance in 2020, up to $7bn cannot be independently verified, according to research by Oxfam.

    The findings are the latest blow to the World Bank over its climate finance activities. Last month, the former US vice-president Al Gore led calls for the president of the bank, David Malpass, to resign after he avoided a journalist’s questions on climate science….

    Or this from a year before that:

    “Working at the World Bank, I can see how it is failing humanity on the climate crisis
    Scandals and backdoor support for fossil fuels blight an organisation that ought to be taking the lead at Cop26”

    https://www.theguardian.com/commentisfree/2021/oct/28/world-bank-failing-humanity-climate-crisis-fossil-fuels-cop26

    Liked by 1 person

  5. Thanks for this Mark. Despite representing evil oil companies, the Canadian Association of Petroleum Producers has a level -headed take on this. I especially like the last sentence.
    https://www.capp.ca/explore/subsidies/

    “For natural gas and oil companies operating in Canada, taxable income is computed in accordance with the common principles of business and accounting practice. In general, there is not a special tax regime for natural gas and oil producers. (Source: Global Oil and Gas Tax Guide 2017, Ernst and Young)

    The deduction of capital costs under these tax measures does not mean the government loses revenue. In fact, the taxes paid over a project’s lifetime remain the same, whether a corporation deducts capital costs up front or expenses them over several years. Further, allowing companies to deduct costs up front means a company can immediately reinvest that capital into its business, supporting improvement and expansion that will create more jobs, provide more revenue to government, and generate general economic growth.

    Under Canada’s current tax system, all businesses can deduct capital costs, so categorizing the natural gas and oil sector as subsidized implies that all industrial sectors are subsidized.”

    Liked by 1 person

  6. Potentilla,

    Thanks for the link to a level-headed rebuttal of dubious “subsidy” claims. It’s time these inaccuracies were called out.

    Like

  7. As I found out two years ago, the unsubtle aim is to create a number as large as possible for “fossil fuel subsidies” thereby making renewables seem like a bargain. Most people will not see past the headline figure; those who do, courtesy of the likes of Mark here, find out that not very much of that headline figure can be justified as being a subsidy without the most unnatural contortions. The idea that deaths from air pollution is an implicit subsidy for fossil fuels is a case in point.

    Meanwhile, there looks to be an autocorrect on your last, Mark!

    Liked by 2 people

  9. Just a bit of fun for a Sunday afternoon. Still, there is an awful lot of truth said in jest.

    Like

  10. Here’s an example, not so much of words no longer meaning what they used to mean, but of trying to have it both ways:

    “New North Sea oil and gas fields ‘will not meet UK’s energy needs’
    Plans would only supply Britain with fossil fuels for an additional three weeks a year, analysis finds”

    https://www.theguardian.com/environment/2023/jul/11/new-north-sea-oil-and-gas-fields-will-not-meet-uks-energy-needs

    New oil and gas fields in the North Sea would produce only enough gas to satisfy the UK’s needs for a few weeks a year, with a minimal impact on energy security, analysis has found.

    Fields now under consideration would supply at most an additional three weeks of gas a year to the UK, from 2024 to 2050, even if none of the gas was exported…

    …Tessa Khan, executive director of Uplift, said the analysis of the fields showed that the government’s energy security claims were unfounded. “It is pure fantasy to think that the North Sea can somehow satisfy the UK’s demand for gas. As this research shows, there just isn’t that much gas left in UK waters. Opening new fields will only give us one extra year’s worth of gas between next year and 2050. Stopping drilling is not ‘turning off the taps’, as some have put it, for the simple fact that the taps aren’t flowing any more, they’re dripping.”

    The decision to move ahead with new licences comes despite advice from the International Energy Agency, commissioned by the UK government, that no new exploration and development of oil and gas fields around the world should now take place if the world is to limit global temperature rises to 1.5C above pre-industrial levels.

    Campaigners calculate that greenhouse gas emissions from the Rosebank field alone would exceed the proportion of the UK’s carbon budget that should be for oil and gas….

    Well, which is it? So little oil and gas that we’re wasting our time going after it, because it won’t do much at all for the UK’s energy requirements, or so much oil and gas that it’s vital we don’t go after it because of the massive damage it will cause to the climate? It can’t be both.

    Meanwhile, here’s someone whose use of language and understanding of the issues I find strange, to say the least:

    …Ed Miliband, shadow climate secretary, said the party’s policies to halt new licensing and boost clean energy would improve energy security and lower bills, and accused Shapps and Sunak of “rejecting science in pursuit of a climate culture war”.

    He said: “After 13 years of failure, the Conservatives have left our country deeply exposed with families and businesses paying the price. Rather than learning the lesson of this crisis, they risk a perpetual cost of living crisis with their decision to throw billions at a strategy to double down on fossil fuels instead of pursuing the clean energy sprint Britain needs.”

    He added: “The only way to deliver lower bills and energy security for our country is to move away from fossil fuels, and on to clean, cheap, homegrown power. That is what Labour’s world-leading mission to make the UK the first major world economy to have a clean power system by 2030 will deliver.”…

    Like

  11. had to google https://upliftuk.org/

    partial quote from the head post –
    “The UK is the second-largest oil and gas producer in Europe. Planned global oil and gas production will take us far past the climate limits that are safe for our society. At the same time, clean, affordable and abundant alternatives to fossil fuels continue to race ahead.”

    maybe Tessa needs to update this post following above quote from Mark?

    nice team she/they have 24/25ish.

    Like

  12. Dougie,

    Thanks for checking out Uplift. They seem to have a team of a couple of dozen people who, judging by their mini-biographies, are ardent campaigners against fossil fuels. I don’t for one moment doubt their sincerity, but the Guardian really should know better than to produce an article with such a headline, based on the lobbying of such a group.

    Of course, the people at the Guardian are just as sincerely obsessed, and share their views, as is their right. But it does mean, so far as I am concerned, that the Guardian has given up any pretence of being a serious newspaper, choosing instead to be a very influential lobbying outfit.

    Like

  13. Mark – no thanks needed, it’s your posts/comments/links that prompt me to delve deeper down the rabbit hole.

    just in case anybody reading this needs a job –
    Role: Press officer, Warm this Winter campaign, coordinated by Uplift
    Location: UK
    Status: Full-time
    Salary: £38,003 – £40,317 depending on experience

    Click to access WTW-Press-officer-JD.docx.pdf

    worth reading “The Role” first & be ready for 7am-3pm work day.

    Like

  14. Of course I agree with 97% of the post
    except “for example, it takes extraordinary chutzpah to claim that a reduced rate of excise for red diesel is a subsidy”

    No a SUBSIDY is any advantage given to one company or group which is not available to its competitors
    eg wind/solar being given priority for supplying to the grid
    In that when wind turns up , gas power corps have to turn down etc.
    eg2 lots of free infrastructure and grid balancing tech etc.

    Now if I drive to the pub in a car I am paying full tax on diesel
    and Farmer Bob drives down in his tractor fueled by red diesel
    I would say he is using SUBSIDISED fuel
    cos for the same journey he pays less than me , even though he pays TAX on his red diesel

    Like

  15. Some charts include Russia in Europe oil production
    I wonder what there actual non-Siberian production is .. It could rival the UK maybe ?
    So some tweets call Norway “the second-largest oil and gas producer in Europe”
    On the Twitter the only videos calling the UK “the second-largest” are by @TessaKhan

    Oil production, thousand barrels per day, 2022
    Russia 10278.37
    Norway 1704.3
    UK 744.95
    Italy 83.15
    5. Turkey 69.01
    6. Denmark 64.79

    I tend to regard anti-UK oil people ..as Putin’s Little Helpers .. he may be comtrolling them in some way

    Tessa Khan is an environmental lawyer who lives in the United Kingdom. She co-founded and is co-director of the Climate Litigation Network
    “a Bangladeshi-Australian lawyer,” 2000-2006 Uni of West Australia

    BTW Applications for Uplift Press Officer job close on Sunday £40K

    Like

  16. Stewgreen,

    We’ll have to agree to differ as to what constitutes a subsidy. I understand your argument, but I don’t agree with it. In your example, nobody is being subsidised, even as one is given an advantage over another. Both are being taxed, but by differing amounts. Both are contributing to the nation’s finances, and neither is taking money out. I stick with the dictionary definition.

    Like

  17. Actually I didn’t mean to say “I would say he is using SUBSIDISED fuel”
    I meant I can understand why a driver might say the farmer is subsidised

    I often say that clearly the oil corps are NOT subsidised cos they put in more money than they take out
    However if a green corp gets a £2m GRANT and pays £5m back in workers pay taxes, its own profit taxes ..it’s still subsidised cos its competitors would not have that grant

    Liked by 1 person

  18. “Lagos traffic jams disappear. But this isn’t good news for Nigeria”

    https://www.bbc.co.uk/news/world-africa-66652771

    …What Lagos has gained in tranquillity it has lost economically since President Bola Tinubu abruptly ended the supply of cheap fuel in his first day in office at the end of May.

    Oil-rich Nigeria, he said, could no longer afford to subsidise petrol which was costing billions of dollars a year.

    Mr Tinubu also ended currency restrictions that had been put in place by the previous government, and while many experts agree that it was the right thing to do, it has led to a weakening of the local currency.

    The double whammy of rising fuel costs and a weak currency has sent the economy into a tailspin, and nowhere is the biting hardship more apparent than in Lagos – a commercial behemoth that is often a snapshot of the rest of the country.

    Many small businesses have packed up, and some low-income earners who live in the suburbs of the mainland and commute to the business districts on Lagos Island have stopped going to work.

    “I was spending 600 naira a day on transport, it jumped to 1,000 naira. By the end of the month I was spending all my salary on transport,” a cleaner said, adding that she had been forced to resign from her job….

    Like

  19. I’ve been pointing out for a while that not only are those who seek to control the narrative using phrases that convey what they want people to think (“climate crisis”, carbon bomb” etc), but that they also deliberately avoid using words like “cost” (instead, costs are always “investment”). And now our old friend, Roger Harrabin (writing in the Guardian, naturally enough), confirms that my suspicions are well-founded:

    “Does the way we talk about the climate crisis numb people with fear, rather than energising them?”

    Piccard’s draft proposal suggests swapping: “green economy” to “clean economy”; “cost” to “investment”; “crisis” to “opportunity”; “problem” to “solution”; “sacrifice” to “advantage”; “lost jobs” to “new professions”; “ecological” to “logical”; “saving the planet” to “improving quality of life” (or “saving humankind”); “degrowth” to “efficiency”; and “next generation” to “current generation” (though Piccard is still pondering this one).

    Most of the terms carry a positive and business-friendly spin, and Piccard is by no means the first to reframe the climate emergency as a chance to create jobs in a prosperous economy. The UK Labour party has recently often shunned the term climate altogether. Instead, it proffers the prospect of clean jobs and profits. Likewise, in the President Biden’s Inflation Reduction Act is actually a clean tech subsidy scheme.

    Some of Piccard’s proposals – such as “ecological|” to “logical” – don’t work for me. And his plan to re-present the current climate crisis as an opportunity must also acknowledge the dangerous state of the Earth. But “green economy” to “clean economy”; “cost” to “investment” and “saving the planet” to “protecting our society” (my suggestion) all seem sensible.

    https://www.theguardian.com/commentisfree/2023/nov/27/talk-about-climate-crisis-voters-labour

    Like

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