“Fossil fuels subsidies” as described in the media for the most part don’t exist – are governments really willing to build policy on a fictitious concept?
Anyone that likes discussing politics knows that, like religion, some topics only work in the echo chamber. There is no point in sitting down with someone at the other end of the spectrum for a conversation, although the practice has for decades added a spice to extended family gatherings that no cook could hold a candle to. As our society gets more and more polarized, the potential for fireworks grows in lockstep. Try sitting down at a holiday turkey dinner and singing the praises of the elected president of the United States, if you don’t believe me.
On the other hand, we do have a right to expect that sheer numerical bullshit that finds its way into the news will be challenged and retracted. Math is math. One should be expected to be called out and held accountable for saying that, for example, there are 5.3 trillion dogs on earth.
But sometimes all the openness and fact-monitoring services provided by legions of caring people are not enough to dislodge from what-should-be capable brains certain statistics and facts that are brazenly untrue.
The subject of fossil fuel subsidies is just such a beast. What’s significant about this topic is that several of Canada’s leading political parties, actually a majority of them, plan to take “funds” from “fossil fuel subsidies” to pay for real programs. These staggeringly clueless plans would be amusing except that they might actually believe that this is possible.
As a recap, the IMF claims that there were some $5.3 trillion in fossil fuel subsidies granted in the world in 2015. I won’t get into the weeds of it; a gentleman named Blair King has done a far better job than I ever could because of a capacity of patience and tact that I sorely lack. I will borrow from his excellent work though to flag a few things.
First, the components of the “fossil fuel subsidies” label are not just questionable, they are blindingly brainless (there’s that tact issue I was talking about). Per the IMF (via Blair’s blog), Canada had a total of $46 billion on fossil fuel subsidies in 2015. The amount consists of:
- Pre-Tax subsidies – $1.4 billion – 3% of IMF total
- Global Warming – $17.20 billion – 37.4% of IMF total
- Local air pollution – $6.05 billion – 13.1% of IMF total
- Congestion – $14.89 billion – 32.4% of IMF total
- Accidents – $2.08 billion – 4.5% of IMF total
- Road Damage – $0.88 billion – 1.9% of IMF total
- Foregone Consumption Tax Revenue – $3.53 billion – 7.7% of IMF total
The first component, Pre-Tax subsidies, is the only real one. It primarily consists of accelerated write off of capital investments, such as when Trudeau extended the first year write off for Canadian Development Expenses in oil and gas from 30% in the first year to 45%. Now that is a real tax benefit that is given to oil/gas producers, but the subsidy is only the difference between what that write-off rate is and what it “should” be, since every business is allowed to write off capital expenditures from taxes. So we’ll leave it to the economic geniuses in the political parties to determine what the fair rate “should” be.
The rest is pure gibberish. Here is the definition from the IMF (again courtesy of Blair) of “fossil fuel subsidies for Congestion”:
Traffic congestion costs imposed by one driver on other vehicle occupants are approximated by using a city-level database to estimate relationships between travel delays and various transportation indicators and extrapolating the results using country-level measures of those same indicators. Travel delays are monetized using evidence about the relationship between wages and how people value travel time. Accident costs are estimated based on country-level fatality data and assumptions about which types of risks drivers themselves might take into account versus those they do not, and extrapolations of various other costs, such as those for medical expenses, property damage, and nonfatal injury.
Now, pay attention everyone, this is important: people proposing to govern our mighty country are proposing to pay for part of it by reducing “traffic congestion costs imposed by one driver on other vehicle occupants” or by squeezing money out of someone for “travel delays” that are “monetized using evidence about the relationship between wages and how people value travel time.”
To all you Canadian politicians running for office, and those involved in this sordid process, the country desperately needs you to try with all your might to understand the vacuousness of this concept, created by the likes of the IMF and cunningly promoted by climate activist organizations. Ninety-five percent of the concept is not real and will not under any circumstances help you balance any budget.
Should you get elected, you will with one hundred percent certainty look like complete fools when you are forced to explain to a nation and the world how duped you were, that eliminating expenditures that are not real did not help with anything. The activist organizations that put you up to it will not be at your side taking the blame; they will be biting your ankles for not doing more to save the planet.
It is in your own self-interest to try to learn about the fallacious concept of huge fossil fuel subsidies while you still have a chance.
Get Christmas shopping done early! Even those ungrateful kids will be happy with a copy of “The End of Fossil Fuel Insanity” available at Amazon.ca, Indigo.ca, or Amazon.com. It may well be the best decision you will ever make!
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Such a great post! I’ll look at Blair King’s work, but point taken – we are in trouble if we discuss policy in terms we don’t understand. This seems likely to be the case with much of the discussion around fossil fuel subsidies, politicians (disturbingly) notwithstanding
Thanks for the kind words! Yes read Blair’s stuff, he does great work!
I’m comparatively positive about this assessment. I had assumed when people were talking about subsidies they were talking about tax breaks for exploration and similar development friendly measures. It is ridiculous to claim fossil fuels are subsidized relative to renewable energy when massive direct subsidies are in play for renewables and the proposed fossil fuel subsidies amount to neglecting to tax them as much for the sake of increased development.
You are definitely right that the traffic cost sections are absurd. Along with the also questionable forgone revenue section that adds up to about 50% of the claimed subsidy.
But air pollution is a real cost and proposed warming costs, however skeptical of them I am, are a potentially real cost. I don’t mind claiming that not taxing fossil fuels according to these costs amounts to a subsidy, especially for air pollution. So that adds up to a reasonable enough claim of a 2.5 trillion subsidy, and a definite 1 trillion subsidy on air pollution if those numbers are basically similar worldwide as in Canada.
Besides skepticism however there is an additional problem with the global warming cost. From what I’ve read recently the estimated social cost of carbon in future warming costs is $30 to $40 per ton. However the optimal current carbon tax is around $10 because above a certain point the near term costs outweigh the future benefits. That number might not be up to date, it is from a 2009 Copenhagen Consensus paper, but it should be ballpark for sure. (https://www.copenhagenconsensus.com/sites/default/files/ap_mitigation_tol_v_3.0.pdf)
So assuming the proposed warming cost subsidy is claiming we should be taxing at the social cost of around $30 dollars per ton that runs into the problem that taxing at that amount has substantially higher costs than benefits. So the warming section of their proposed subsidies is in effect cut by about a third because of the cost to society of overtaxing. The 1.5 trillion warming cost subsidy becomes a 500 million effective subsidy, using their definition of subsidy.
By their definitions the real subsidy should be something like 1.5 trillion a year. This makes a good case that fossil fuels are actually quite “subsidized”, which is worth knowing. I seriously doubt that it is subsidized with anything like the intensity of renewables, even accounting for positive air pollution and warming cost benefits. Removing the subsidy would not revolutionize our fuel sources, it would simply remove what is effectively a negative carbon tax respective to estimated costs.
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Interesting points, thanks. Where it comes off the rails for me though is the danger of looking at fossil fuels as a “problem” that is creating “pollution”. Seven billion people could not be alive at present without fossil fuels and the cheap energy they have provided to get us here. Take away FF now and most would die soon thereafter. So are FF the “problem” or the solution that is keeping us all alive? I hear what you’re saying – someone has to pay for the cost of pollution, contamination, etc. But FF are just the mechanism that allows us to consume unbelievable quantities of everything. Do iPhones not have a massive embedded “subsidy” then, because of their production footprint (78 out of 118 elements on the periodic table)? Why is the intermediary fuel that makes it all possible picked out as the culprit? Should Apple be sitting on $250 billion in cash while we attempt to tax FF companies out of existence (and be assured that is the underlying goal of many groups, to bankrupt them through lawsuits and trillion dollar subsidy claims).
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True… the problem is how people react to it. Bjorn Lomborg has said that the vast majority of current spending on “fixing” the “problem” is being wasted.
By the looks of it it’s only going to get worse if the “bankrupt them” people have their way. They want to shut down development which is crazy based on cost benefit analysis for reducing proposed warming costs. We should be looking at a modest and slowly rising carbon tax combined with substantial R&D into low carbon technologies that could displace fossil fuel growth in the developing world with a cost effective alternative.
Taxing fossil fuels by a trillion a year worldwide won’t accomplish anything in the near term because alternatives don’t exist and the revenue would be wasted on the current paradigm of Paris Accord immediate CO2 reduction pledges.
In an idealized economist’s world it would be efficient… in practice it would be all cost and little benefit.
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[…] Pay attention everyone, this is important: people proposing to govern our mighty country are proposing to pay for part of it by reducing “traffic congestion costs imposed by one driver on other vehicle occupants” or by squeezing money out of someone for “travel delays” that are “monetized using evidence about the relationship between wages and how people value travel time.” Believe it or not, that is one imbecility being flouted in the media as a “fossil fuel subsidy”. Read on… […]