The road to UNFCCC COP 18 and beyond - Energy and Climate Change Contents

10  Fossil Fuel subsidies

96. Sir David King stated in his written evidence that the removal of fossil fuel subsidies was a "clear opportunity" for incentivising countries to move to a "low-carbon pathway". Quoting International Energy Agency (IEA) statistics, Sir David explained that "fossil-fuel consumption subsidies amounted to US$409 billion worldwide in 2010 [...] global renewable energy subsidies were US$66 billion". He added that the removal of fossil fuel subsides could "decrease primary energy demand by around 5%" and CO2 emissions by 5.8%" by 2035.[136]

97. The IEA defines an energy subsidy as "any government action directed primarily at the energy sector that lowers the cost of energy production, raises the price received by energy producers or lowers the price paid by energy consumers".[137] Consumption subsidies benefit consumers by lowering the prices they pay for energy, and are more prevalent in non-OECD countries such as Iran, Russia, Saudi Arabia, India and China. [138]

98. While some fossil fuel subsidies are in place globally as a package of policies intended to relieve fuel poverty, many are in place for everyone in the general population to benefit from and have become embedded.[139] DECC made the point that removal of these subsidies will have a different effect in some economies compared to others. In a country such as India the subsidies are often about supporting the poorest to access energy. However, there are "there are obviously economies where there is not such a big impact as there would be".[140]

99. We accept that in some countries fossil fuel subsidies help to alleviate fuel poverty. However these subsidies are not confined to countries where that is the case so we recommend that the Government strongly support pro-poor interventions that would raise the standard of living for the poorest whilst enabling fossil fuel subsidies to be eliminated, particularly in developed countries.

136   Ev 82 Back

137   IEA, World Energy Outlook 2011, 9 November 2011, p 509 Back

138   IEA, World Energy Outlook 2011, 9 November 2011, p 509 Back

139   Q 120 Back

140   Q 230 Back

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© Parliamentary copyright 2012
Prepared 25 July 2012