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How Much Would Cutting Fossil-Fuel Subsidies Really Limit Global Warming?

Not that much, one new study finds.
Steam rises from the Neurath coal-fired power plant operated by German utility RWE on November 13th, 2017, near Bergheim, Germany.

Steam rises from the Neurath coal-fired power plant operated by German utility RWE on November 13th, 2017, near Bergheim, Germany. 

It seems like common sense: If countries stopped offering tax breaks and other financial help to oil, coal, and gas companies, oil prices would go up, people would use less of these fossil fuels, and the volume of climate-warming greenhouse gases humanity emitted would go down. Environmental groups such as the Sierra Club and Greenpeace commonly call for an end to fossil-fuel subsidies. But how well does cutting subsidies really work? It depends on who does the cutting, a new study finds.

"People push for subsidies, but then they don't differentiate that it's actually only in certain regions that it would have a really big impact," says Jessica Jewell, an energy researcher at the International Institute for Applied Systems Analysis in Austria, who worked on the study. "In the regions it would have a smaller impact, it also could negatively impact the poor."

Rich, oil-exporting countries in the Middle East, North Africa, Latin America, and the former Soviet Union could significantly slash their emissions by zeroing out subsidies, Jewell and her colleagues find. But in developing regions—including China, India, and sub-Saharan Africa—the subsidies are smaller to begin with, so they're not expected to make as much of a difference. In addition, "subsidies"—as researchers measure them—often take the form of vouchers for poor families to buy gas and oil to cook and heat their homes. Removing those, without offering alternatives, could hurt these vulnerable folks, Jewell says. For example, families might go back to burning firewood or charcoal because they can't afford other fuels. "That has really negative impacts on health. It also has bad emissions impact," Jewell says.

Finally, fossil-fuel subsidies in developed regions—including North America, Europe, Japan, and Australia—are also small, compared to what governments offer in, say, Saudi Arabia and Russia. So Jewell and her team found that these countries wouldn't reduce their emissions much by simply eliminating subsidies. To meet the international pledges they've made to cut their greenhouse gases, those countries will have to implement other policies too.

To make their calculations, Jewell and a team of climate and economic researchers from Europe and the United States ran five mathematical models, each estimating what would happen if the world stopped supporting fossil fuel production and consumption in 2030. The models generally agreed that the overall effect would be small, reducing demand for fossil fuels by 7 percent, assuming oil prices are high, and by just 1 to 4 percent if oil prices are low.

The team's estimate for how much emissions the world would save if it stopped subsidizing fossil fuels is lower than estimates other research groups have come up with in recent years. One outside expert Pacific Standard contacted, Bob van der Zwaan of the University of Amsterdam, thought that the true value of halting subsidies could be "much higher" than what Jewell and her colleagues found. Still, he writes in an email, "This study has been very well done."

Despite the smaller effects she found, Jewell thinks countries should try to nix subsidies. "Subsidy phase-out should and could happen in the counties where they have the biggest climate impact," she says. As for developing nations, she suggests they work to eliminate subsidies while continuing to support poor families. And the U.S.? "The U.S. can remove them. They're so small," she says. When Pacific Standard suggests it might be politically difficult to pass such a policy in America, she notes that numbers like hers could help proponents decide whether pushing for ending subsidies is worth the political fight. "I think what people need to consider is what would be the impact of actually removing this subsidy and who would we be going up against?"