World should eradicate fossil fuel subsidies - IEA

  • World
  • Tuesday, 09 Nov 2010

LONDON (Reuters) - Eradicating fossil fuel subsidies would boost the global economy, environment and energy security, the International Energy Agency said on Tuesday, referring to a pledge made by G20 countries.

G20 leaders committed in Pittsburgh in 2009 to phase out, over the medium-term, inefficient fossil fuel subsidies which encouraged wasteful consumption.

A G20 meeting in Seoul this week may update progress on fossil fuels.

"Eradicating subsidies to fossil fuels would enhance energy security, reduce emissions of greenhouse gases and air pollution, and bring economic benefits," said the IEA, the energy watchdog to 28 industrialised countries, in its annual set-piece World Energy Outlook,

The report estimated such subsidies at $312 billion in 2009, mostly in developing countries, compared with $57 billion in subsidies for renewable energy.

Eliminating fossil fuel consumption subsidies by 2020 would cut global energy demand by 5 percent and reduce carbon emissions by nearly 6 percent by then, said the IEA report.

Economists say that governments should support low-carbon energy alternatives, or else penalise fossil fuels, to take account of the damage that greenhouse gas emissions will cause the climate, and blame fossil fuel subsidies for encouraging energy waste and for undermining greener alternatives.


Cash-strapped western countries are struggling to raise cash to support renewable energy, and so the alternative of eliminating fossil fuel support may appear more attractive.

The future of renewable energy depended on strong government support, said the IEA report, especially given an expected "ten year glut in gas" which would suppress fossil fuel power prices and make renewables look even less competitive.

"Today renewable subsidies are $57 billion and in 2015 it will be higher than $100 bln and 2035 they will reach $205," said IEA chief economist and lead author of the report, Fatih Birol.

"The gas glut will be with us ten more years," he told Reuters. "Cheaper gas prices will put additional pressure on renewable energies especially in the U.S. and Europe. If natural gas is as plenty and cheap as we think, then life for renewables will be even more difficult."

China would lead global uptake of all renewable energy technologies, helping to "bring the cost down compared to today by 20 percent between now and 2035," Birol said.

If recently announced policies to curb carbon emissions are enacted, under a "new policies scenario", renewable energy would reach one third of global power generation by 2035, catching up with coal, compared with 19 percent now, requiring $5.7 trillion of cumulative investment, the IEA report found.

The use of biofuels would increase four-fold, meeting 8 percent of transport fuel up from 3 percent now.

The report said that pledges made by countries at last year's Copenhagen summit to curb carbon emissions would not meet the goal of restricting average global warming to 2 degrees Celsius, and, as a result, the cost of meeting that goal had risen by $1 trillion because of the extra carbon-cutting effort now required after 2020.

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