Soaring fossil fuel prices this month forced European governments to announce emergency aid plans to help consumers and industries cope with soaring electricity bills, with many analysts predicting a winter of discontent as energy shortages drive prices even higher.
Aid already unveiled or being planned will hamper global efforts to eliminate fossil fuel subsidies that the Group of 20 countries pledged to undertake in 2009. But they demonstrate how the global economy remains dependent on coal. , cheap and abundant oil and natural gas. . Even modest increases in fossil fuel prices continue to wreak havoc in the economies of developed and developing countries, as renewables remain unable to take over.
Governments around the world continue to subsidize the consumption of fossil fuels to keep their economies on a level playing field and prevent their citizens from protesting. Attempts to increase taxes on fossil fuels are meeting resistance. The French “yellow vests” movement was born in 2018 in response to a proposal to increase the carbon tax by the government of President Emmanuel Macron. The measure was quickly abandoned.
Meanwhile, oil-rich countries like Iran, Saudi Arabia and Russia are giving massive fossil fuel subsidies to keep domestic gasoline and electricity prices low. The same goes for oil and coal importers like India. Such measures are considered necessary to maintain social peace and provide citizens with basic necessities.
Explicit subsidies for the consumption and production of fossil fuels fell to US $ 450 billion worldwide in 2020, as market prices fell during the first wave of the pandemic. This does not include US $ 5.5 trillion in implicit subsidies, nor the amount that the International Monetary Fund estimates fossil fuel prices should have increased in 2020 to cover the environmental cost of their consumption.
Explicit subsidies were expected to return to their pre-pandemic level of around US $ 600 billion even before the supply shocks of the past few weeks pushed up prices in Europe. But the higher market prices remain, the more governments will have to pay to help consumers and businesses meet their energy costs.
Subsidizing the consumption of fossil fuels goes against the objective of reducing greenhouse gas emissions. But it remains a political and economic imperative in most countries. And it’s not going to end anytime soon. Energy use will skyrocket as more people in the developing world rise out of poverty. Renewable energies alone cannot meet this demand.
Fossil fuel subsidies have been a big issue during Canada’s recent election campaign, with the Liberals, New Democrats and Greens all pledging to end public support for the oil and gas industry. But the debate here has totally ignored the global context.
Canada is not a big culprit when it comes to subsidizing fossil fuel consumption. The federal carbon tax, which is on track to reach $ 170 per tonne by 2030, and provincial and federal gasoline taxes, which account for more than a third of the price at the pump, are used to discourage consumption. here.
Environmentalists and politicians have therefore focused on the subsidies available to fossil fuel producers in Canada.
“Public spending should not be used to lend a hand to companies that intend to lead us to disaster,” Environmental Defense said in an April report that set federal support for the oil and gas industry at 18. billion dollars in 2020.
However, nearly three-quarters of the amount, or $ 13.5 billion, was for loans and insurance provided to oil and gas producers on commercial terms by Export Development Canada, including a loan of $ 500 million. TC Energy’s Coastal GasLink pipeline. Another $ 1.7 billion is linked to a federal program to shut down orphaned oil and gas wells. And hundreds of millions more aim to promote cleaner technologies.
It turns out that very little federal support involves direct “subsidies” aimed at increasing fossil fuel production. And whatever the sum, it is paltry compared to the hundreds of billions of dollars from state oil companies in Saudi Arabia, Mexico and other countries that have invested to increase production in recent years.
Despite this, the re-elected government of Prime Minister Justin Trudeau has pledged to eliminate fossil fuel subsidies here by 2023. He also pledged to “develop a plan” to phase out funding for the oil and gas sector from the United States. Crown corporations such as EDC.
Such promises may sound bold, but they miss the point. Their awareness would not make a big difference to Canada’s overall carbon footprint, let alone dent global greenhouse gas emissions.
Worse yet, a blanket ban on subsidies for the oil and gas sector could have the perverse effect of increasing emissions if it includes incentives to invest in technologies to reduce the carbon intensity of oil sands crude. Forcing EDC to stop funding liquefied natural gas projects could also hamper global efforts to reduce coal consumption, which has increased due to gas shortages.
Groups like Environmental Defense do not seem to be interested in such nuances. But these are the kinds of unintended consequences the Liberals must seek to avoid as they move to deliver on their election promises.
“Global demand for natural gas and oil is increasing and will represent more than 50% of energy supply by 2040,” said the Canadian Association of Petroleum Producers in a statement congratulating Mr. Trudeau on his electoral victory. “Every molecule of natural gas and every barrel of oil not produced in Canada will be produced by other countries that do not share Canadian environmental or human rights standards.
It is easy to demonize the oil and gas industry in Canada. But that doesn’t necessarily help the planet. In some cases, it can even hurt him.
Editor’s Note: The amount of implicit fossil fuel subsidies has been corrected in the online version of this story.
Your time is precious. Receive the Top Business Headlines newsletter delivered to your inbox in the morning or evening. register today.