Fossil fuels get subsidies too, don’t they?

Fossil%20Subsidies%20v%20Clean%20Energy

We know that renewables attract preposterous subsidies.  The per-kWh subsidy I get for my small domestic solar PV system is about five times the cost of producing the same kWh in a proper grown-up power station.  Wind farms attract massive subsidies.   David Cameron’s father-in-law, Sir Reginald Sheffield, reportedly earns as much as £350,000 a year from eight turbines on his estate at Bagmoor in Lincolnshire.

Yet as soon as we advance these arguments, the Greenies come back with the assertion that “fossil fuels attract more subsidies than renewables”.  And they seem to have considerable backing for this view, as well.

The IMF, no less, in a recent report, states that subsidies for petroleum products, electricity, natural gas and coal reached $480 billion in 2011. That’s a mighty big number by anyone’s standards.

Yet somehow it just doesn’t feel right.  Every time I fill up my car, 60% or so goes straight to the government.  That’s not subsidised.  That’s taxed, and very heavily taxed, too.

So it’s worth looking at quite how the IMF defines subsidies.  For a start, they include subsidies in oil-producing states like Saudi Arabia and Nigeria.  Now it may be true that some of these oil-producing states decide to allow their citizens cheap petrol.  But in terms of any comparison between renewables and fossil fuels in Britain or Europe, that’s wholly irrelevant.

Secondly, where a country allows a lower rate of tax, for example (as in the UK) on domestic fuel at 5% compared to standard rate of 20%, they count the 15% difference as a subsidy.  A subsidy!  It sounds more like a tax to me.  And of course it is a tax, and not a subsidy at all.

But it gets worse.  The IMF argues that governments should be charging a further tax to cover the “externalities” — a posh word meaning the damage that carbon dioxide emissions are presumed to do to the planet.  They estimate this to be $25 per ton of CO2.  And on this basis, they conclude that the implied subsidy on fossil fuels amounts to an eye-watering $1.4 trillion (yes, that’s Trillion with a T).  $1.4 million million.

But the “damage” that’s done by CO2 emissions is entirely speculative.  There is no evidence that it actually does any harm at all — but abundant evidence that it does a great deal of good in increasing crop yields and bio-mass formation.  As I wrote recently, in the UK far more deaths are caused by cold than by heat, so if — IF — CO2 were increasing temperatures, it would also be saving lives. And anyway there’s been no global warming for seventeen years.  As I put it to a school party in Brussels recently, “There’s been no global warming in your lifetime”.

So, let’s strip out the Saudi policy of cheap petrol for citizens.  Strip out the mis-classification of a lower tax rate as a “subsidy”.  And strip out the entirely speculative “externalities”.  And you get to the truth.

Renewables are subsidised at levels that are practically obscene.  They are driving up energy prices, jeopardising our economy and competitiveness, costing jobs and prosperity, forcing households and pensioners into fuel poverty.  Meantime fossil fuels aren’t subsidised at all, outside a few oil-producing countries.  They’re taxed.  And taxed punitively, too.

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14 Responses to Fossil fuels get subsidies too, don’t they?

  1. And now you are at the centre of the whole argument Roger, because there are many that will debate this t’ill the next ice age, that tax adjustments ARE subsidies. In some cases they really cannot tell the difference. And so this is about political ideology, not about energy production or economics. Wind follies will ROC this nation with their subsidies.

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  3. A report published by the OECD called “Fossil Fuel Subsidies and Other Support”, stated that for the UK, subsidies have been removed: http://www.oecd.org/site/tadffss/48786785.pdf

    • Adrian Hey says:

      The link seems broken, but I suspect more deception unless it contains convincing evidence of past subsidy in the UK (and presumably ongoing subsidy elsewhere). As Roger has pointed out, certainly in the UK and the free market wider world the oil and gas industries are not and never have been subsidised. They are both very significant net contributors of tax revenue to their host nations.

      I guess in the UK you could argue that the past cosy relationship between the two nationalised monopolies of the NCB and CEGB was effectively a subsidy of the coal mining industry.

    • Adrian Hey says:

      On the subject of alleged past subsidies of the fossil fuel industries I might also add that there’s a glaring inconsistency in the accusations that typically flow from the lefty/greenie usual suspects. On the one hand the evil Thatcherite Tory governments of the past are accused of squandering the North sea oil and gas revenue bonanza, yet at the same time these industries are allegedly heavily subsidised.

      So which is it? Do these industries provide a tax revenue bonanza of do they leech subsidy from the state?

  4. Mike Stallard says:

    You should be very proud of yourself – I mean it! Most other people give a lot of hot air, but you actually take the criticism seriously, examine it and come up with a sensible comment. It is articles like this that really convince me not the ones that shout and scream!
    Of course, in the end, it is the names you and the IMF call things that you are discussing and actually different ways of saying the same thing doesn’t really make that much difference to reality – except that it can most certainly give the wrong impression!

  5. Colin Porter says:

    I think you may be missing a trick here Roger. Consider why we have the 15% Vat “Subsidy.”

    When Vat was introduced, it was a very inflexible device as it attempted to tax everything at the same rate. In the purchase tax days, it was simple to include or exclude goods (often luxury goods) and to apply an arbitrary rate at will. With Vat, special rules were introduced to overcome the universality of the tax and food, children’s clothes, fuel etc were initially zero rated or rated lower, because they were considered essential and basic necessities and not considered as luxuries.

    Fuel to power the home was therefore thought of as an essential and it would have been considered unacceptable to tax at the standard Vat rate, and if my memory serves me right, in the early days, was not taxed at all. There would have been a massive outcry if such fundamental necessities were taxed. Consider the attitude of successive governments these days. It seems to be the policy of governments to tax fuel and in particular, carbon based fuel, punitively, successively adding layer upon layer of taxes and at the same time, subsidising the very inefficient technologies, which also amounts to a tax on our fuel bills.

    It seems that it is government’s objective to increase the cost of fuel to make it a luxury rather than to recognise it as a basic need and have regulation to minimise the costs to the benefit of its people. I think that governments have lost the thread!

  6. DougS says:

    Excellent stuff Roger, it’s the kind of logic and common sense that we’ve all come to expect, and always get, from you.

    I’m sure that (almost) all AGW alarmist do understand the difference between a subsidy and tax reduction (or different rate), but they’re really becoming desperate now and are obviously hoping that these ridiculous claims will be parroted by the MSM and believed by the sheeple.

    That they get away with it virtually unchallenged is the most worrying aspect!

  7. Stephen W says:

    Charging lower taxes on something is a subsidy, a relative subsidy, but a subsidy none the less. And it has exactly the same effect as an actual subsidy, because you end up charging higher taxes on everything else to make up the money. Also you bias consumption towards that relatively cheaper article. This is basic economics.

  8. MeeMan says:

    Roger,
    “$1.4 trillion (yes, that’s Trillion with a T). $1.4 million million.” Seriously?

    A Thousand Thousand is a Million
    A Thousand Million is a Milliard
    A Million Million is a Billion (from Bi-Million)
    A Trillion would be a Million Million Million (Tri-Million)

    If you’re going to make out you’re English then at least use the correct English numbers and not those illiterate Yankee ones that only serve to “dumb-down” the facts for the “dumbed-down” populace.
    Remember, you’re English, not a “U.S. American”.

  9. Pingback: Osborne's tax breaks for frackers: at once too much and too little – and far, far too late – Telegraph Blogs

  10. Holly Whitelaw says:

    Do none of you care enough about the future of the planet to not care if it is costing us a bit to try and put it right. Does it not make sense to you that we in the west, try and lead the way and the world away from damaging fossil fuels?

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