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Cheaper OilChallenge and Opportunity for Climate Change Qiang Wang* State Key Laboratory of Desert and Oasis Ecology, Xinjiang Institute of Ecology and Geography, Chinese Academy of Sciences, No. 818 South Beijing Road, Urumqi, Xinjiang 830011, China emissions reductions needed to limit global warming to 2 Celsius degree.2 In the 2009 Pittsburgh G20 Summit, the world’s most important countries committed themselves to removal of fossil fuel subsidies to limit global warming as well as to enhance social justice. The International Monetary Fund (IMF) estimates that only 7% of fossil fuel subsidies goes to the bottom 20% of households, whereas 43% of these subsidies reaches to the wealthiest 20%.3 Ironically, data from the International Energy Agency (IEA) show that the government subsidies for fossil fuels have increased from $311 billion in 2009 to $544 billion in 2012. The fossil fuel subsidies are four times the amount for renewable energy subsidies, including solar, wind energy, and electric car.4 The IMF assesses that the fossil fuel subsidies rise to around $1.9 trillion, equal to 2.7% of global GDP, or 8% of government revenues, once lost tax revenues are included.3 The huge fossil fuel subsidies are partly related to many developing countries and oil-rich countries which have sought to prevent higher international energy prices from feeding into final prices to avoid higher inflation and social unrest. All the global top 10 countries of fossil fuel subsides are developing countries or oil rice countries. The IEA data show Iran has the largest fossil fuel he recent car sales data in America make many people subsidies in 2013, amounting to about $84 billion, most of worry about that falling oil price will make addressing which go to oil. Saudi Arabia’s energy subsidies are almost as climate change more difficult. America’s total auto sales in large, at an estimated $62 billion. Seven other countries, India, November 2014 were up 4.6%, to slightly more than 1.3 Russia, Venezuela, Egypt, Indonesia, United Arab Emirates, and million, the highest level in 11 years. However, sales of plug-in China, each have fossil fuel subsidies in excess of $20 billion in cars were flagging. It also should be noted that there are early 2013.4 It is not easy to phase out fossil fuel subsidies because those signs of a return to old habits of Amereica’s consumers, many subsidies are widely associated with inflation. Reforming of whom had ditched trucks and sport-utility vehicles (SUV), subsidies in some developing countries have led to higher less fuel-efficient vechicle models, when gasoline prices shot up. inflation, violence, and social unrest. A recent example was SUVs and trucks made up 52% of all American auto sales in occurred in Nigeria, the largest oil producer in Africa, the October 2014, up from 49% in October 2013 and 44% in world’s fourth leading exporter of liquefied-natural-gas. Fossil October 2008.1 The US car sale data are reflecting that lower fuel subsidy accounted to one-fifth of Nigeria’s government oil price not only boosts fossil fuel consumption but also budget. Nigerian policymakers, such as Ngozi Okonjo-Iweala, discourages energy conservation, efficiency, and renewable the finance minister and a former World Bank director, have energy and thus produces more carbon pollutant. tried to reform the subsidies, because they believe such policy is However, the author argues that falling oil price also provides wasteful. In January 2012, Nigeria’s government conducted a an invaluable opportunity to curb carbon emission through plan to cut subsidies. This action doubled the price of gasoline. dismantling government subsidies for fossil fuels. Various And thousands of protesters took to the streets to against the evidence has strongly demonstrated that government subsidies subsidies reforming. After fierce conflict between policemen for fossil fuels contribute to higher carbon emissions and and protesters and several people died, the Nigerian governexacerbate global warming (see Figure 1). Government fossil ment had to stop this reform and back to fossil fuel subsidies.5 fuel subsidies send a distorted signal to consumers that there is Thus, many developing countries have to continue to pour a lot no shortage of natural and environmental resources, indicating of money into fossil fuel subsidies, because their government that waste is justified and replacing fossil energy with renewable fears about social unrest and political instability over the others, is unnecessary. Government fossil fuel subsidies thus give including budget deficit and global warming. incentives to excessive energy consumption and waste, and promote dirtier forms of energy over cleaner ones. If fossil fuel subsidies can be phase out, 2.6 gigatonnes of CO2 can ben Received: November 21, 2014 Published: January 27, 2015 avoid by 2035, which was equivalent to nearly half the
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© 2015 American Chemical Society
1997
DOI: 10.1021/es505704u Environ. Sci. Technol. 2015, 49, 1997−1998
Viewpoint
Environmental Science & Technology
(5) Nwachukwu, M. U.; Mba, H. C.; Jiburum, U.; Okosun, A. E. Empirical analysis of fuel price and subsidy reform in Nigeria. OPEC Energy Rev. 2013, 37 (3), 314−326.
Figure 1. Change of carbon emission (C) and energy demand (D) in repsonse to change in energy price because of energy subsidies. Notes: The energy subsidy leads to the supply curve shift from SRAS1 to SRAS2 and energy demand curve shift from D1 to D2 and then leads to carbon emission increase from C1 to C2 (2.6 Gtc ref 2).
In the author’s view, the recent sharply drop in oil price has substantially reduced the pressures of potential inflation by reforming subsidies. Above all, in energy source terms, underpricing is most prominent for oil. Subsidies to oil represent over half of the total fossil fuel subsidies.4 In addition, lower oil price also bring pressure on price of gas and coal. Thus, lower oil price has not only lower gas and coal prices, but also lead to low inflation. Falling oil price has provided a window of opportunity to removal of fossil fuel subsidies, which will fundamentally change the landscape of global climate change efforts. Given that cheaper oil we’re seeing now will not last forever, phasing out fossil fuel subsidies should be implemented as soon as possible.
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AUTHOR INFORMATION
Corresponding Author
*E-mail:
[email protected]. Tel/Fax: 86 + 991755420. Notes
The authors declare no competing financial interest.
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REFERENCES
(1) Mitchell, J.; Harder, A. For Energy Policy Makers, Tough Lessons in Downside of Cheap Gas. Wall Street Journal Dec 29. 2014. (2) IEA World Energy Outlook2011; International Energy Agency: Paris, 2011. (3) IMF The Comprehensive Study, Energy Subsidy ReformLessons and Implications; International Monetary Fund: Washington, D.C., 2013. (4) IEA Fossil-fuel consumption subsidy rates as a proportion of the full cost of supply, 2013. http://www.iea.org/subsidy/index.html. 1998
DOI: 10.1021/es505704u Environ. Sci. Technol. 2015, 49, 1997−1998
