We still spend a lot of money on fossil fuel subsidies

On November 30 in Dubai, United Arab Emirates, the 28th United Nations conference on climate change began, abbreviated COP28, the major international meeting which is held each year in a different country and which aims to try to combat its effects. of global warming. Among the different subjects covered, there will be that relating to public subsidies for research, production and consumption of fossil fuels, those which cause greenhouse gas emissions which increase atmospheric temperatures: oil, gas and coal.

Despite the formal commitments in favor of environmental protection that they made during recent meetings, the different countries in reality continue to finance the consumption and production of energy from fossil sources: according to a International Monetary Fund Report , fossil fuel subsidies reached $7 trillion in 2022, the equivalent of 7.1% of global GDP. Italy also spends a lot on fossil fuels: between explicit and implicit subsidies (we’re getting there), this year it is expected to exceed 42 billion euros, or 2.2% of GDP.

The amount of global subsidies last year was well above the average for previous years and is the result of numerous measures introduced by governments to contain the impact of rising energy prices on families and businesses.

At this year’s COP, the European Union will propose a reduction in public subsidies, which will include both funding for the search for new deposits and the development of technologies to exploit them, as well as initiatives to control prices fuel and energy in homes. This proposal will likely encounter opposition from developing countries, which would like to be able to exploit fossil fuels to grow their economies, as more developed countries have done for decades.

In general, subsidies are used by states to promote certain types of desirable behavior: through subsidies, the state allows businesses to produce a certain good and consumers to purchase it. Fossil fuel subsidies are still at the center of major ethical debates, because they effectively encourage the production and consumption of environmentally harmful substances. At the same time, to completely stop using them, it would be necessary to radically change the functioning of societies, because a large part of economic and social systems still relies on the use of these energy sources. Aside from the sudden increase in energy costs, which would drive up the prices of virtually everything, we still don’t have large-scale solutions when it comes to transportation.

Fossil fuel subsidies are divided into explicit and implicit. Explicit subsidies are generally quite modest. These are generally measures addressed directly to the energy sector and which involve an effective expenditure on the part of the State to allow the sale of energy at a price lower than that demanded by the market: this category includes generally those that have allowed governments to control the cost of energy in recent years. the energy crisis of last year. For example, in Italy, Mario Draghi’s government introduced them in 2021 and 2022 in the form of a reduction in excise duties on fuel, which effectively lowered prices at the pump, and the elimination of various invoice items to compensate for the increase in fuel prices. cost of raw material.

In 2022, globally, these subsidies will almost double from the previous year, from $745.8 billion to $1,326.4 billion. The International Monetary Fund estimates that they will decline this year, as energy prices return to falling.

Implicit subsidies are larger, but more subtle. They include all the money that states give indirectly to the sector without taking specific measures, for example through the application of tax cuts. But the majority of implicit subsidies are what we call externalities, that is to say the negative effects that fossil fuels generate on the environment and on society, and which therefore represent a cost for the community , although implicit: it generally concerns damage to health. or the effects of traffic jams, for example. Globally, they amounted to $5.71 trillion in 2022, compared to $5.204 billion in 2021, and the International Monetary Fund estimates that they could grow further in the years to come.

Subsidies, both implicit and explicit, are distributed differently between different fossil fuels and for electricity transmission. In 2022, the most subsidized oil plus all derivative products, which overall receive 47.2 percent of all subsidies. Next comes coal, which receives 30 percent, followed by natural gas (18.3 percent) and electricity (4.5 percent).

Not all countries in the world subsidize the fossil fuel industry in the same way. In absolute terms, China is the country that spends the most: in 2022, it reached $2.235 billion between explicit and implicit subsidies, or almost a third of all global subsidies. Next come the United States with 757 billion disbursed, or 10.8% of the total, and Russia with 421 billion, or 6% of the total.

However, the comparison must be made in relation to the size of the countries’ economies, that is to say in proportion to their GDP. China, the United States and Russia are not among the countries that devote a larger share to these subsidies. The top three are Algeria, Ukraine and Venezuela, which provide subsidies worth 38.5, 34.8 and 32.6 percent of their GDP, respectively. Both Algeria and Venezuela are countries whose economies rely primarily on the exploitation and export of energy resources and therefore tend to heavily subsidize this sector. The same goes for countries like Iran (27.2%) and Saudi Arabia (27%).

China, the United States and Russia, which spend the most on these subsidies in absolute terms, show very different percentages: 12.5, 3.2 and 23.6% of GDP, respectively.

In this list, Italy occupies the twenty-first position in absolute terms, but drops significantly in terms of GDP share: in 2022, fossil fuel subsidies amounted to $63.3 billion, or 2.8 % of its GDP. However, 2022 was an exceptional year, in which this figure was strongly affected by all the measures introduced by the government to cushion the effects of the energy crisis on families and businesses: they were more than double compared to in 2021 (they were equal to 30 billion, 1.4 percent of GDP) and four times compared to 2020 (when they were 15 billion, 0.7 percent of GDP). According to data from the International Monetary Fund, they will decrease this year, while they should stop at 46 billion dollars, reaching 37 in 2025.

Of the 46 billion subsidies in 2023, 48 percent finance those for the gas sector, while 52 percent finance those for fuels, notably diesel. In Italy, diesel is the fuel most used in industry and transport, and sometimes also as heating fuel. For these reasons, it has always benefited from preferential tax treatment and excise duties, that is to say the taxes which weigh on each liter of fuel sold and which therefore contribute to determining the price for the consumer, are lower than those of gasoline – which is however more used for private transport.

Source: ilpost

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