Governments spend ten million dollars per minute on fossil fuel subsidies

A new European alliance ends export finance for coal projects.

Apr 15, 2021

Today's leading climate change news was seven European countries' formal commitment to stop export finance agency support for fossil fuel projects. The UK, France, Germany, Denmark, the Netherlands, Spain, and Sweden formed a new alliance, the Export Finance for Future (E3F) coalition. Together they account for some 40% of export finance in the OECD.

It is a positive development, but more needs to be done. These countries, and many more, have for decades enthusiastically used taxpayers' money to promote fossil fuel exports. Their public export finance agencies subsidized these exports by financial guarantees or insurance against losses in other countries.

Subsidizing what ruins our future

Those policies make fossil fuel power appear cheaper. They, therefore, promote its use and aggravate the climate crisis. These policies also prevent the transition to renewable energy sources by unfair competition and prevent renewable energy entrants' access to the market.

In other words: governments use taxpayers' money to subsidize the products that cause the biggest existential threat in the history of humankind. All these governments are well aware that the leading cause for man-made climate change is the burning of fossil fuels and that we have no other option than to abandon their use quickly. They have all signed up to the Paris Agreement to limit global warming, and the best way to undermine that target is to support the cause of the problem financially.

More is needed

The host of the meeting, the French Finance Minister Le Maire, said that the countries are committed to ending "official trade and export finance directed to unabated coal power."

But what about oil and gas that just as well ruin the future for our kids? The seven countries will: "review our official trade and export finance support… and assess how to best phase out support to these sectors, taking into account their respective characteristics".

That doesn't sound very firm to me. After years of negotiating in U.N. fora, words like 'review,' 'assess,' and 'taking into account (always unspecified) specific circumstances' sound familiar to describe a situation where you shouldn't expect dramatic change anytime soon.

We don’t have the luxury to go slow

Nevertheless, the new coalition is a critical step in the right direction, and change is often a series of small steps. Today's action follows last month's brave decision by the U.K. to stop export finance for virtually all fossil fuel projects overseas. Together with the six other countries, this second step followed relatively quickly, and that is the way it should be. Hopefully, the U.S. and other countries will join the group or announce their own decisions on ending export finance for fossil fuels. The problem with climate change is that we have lost the window of opportunity to transform into a new economy in small steps. Our carbon budget is rapidly running out, the global impact of the climate crisis is visible to all, and we need more significant actions, a lot of them, and urgently.

5,200,000,000,000 dollars in subsidies

A 2019 study of the IMF showed that $5.2 trillion was spent globally on fossil fuel subsidies in 2017. About three-quarters of these are due to domestic factors. The study included negative externalities, like the costs for adaptation. These are staggering numbers; 5,200,000,000,000 dollars per year means that governments spend 10 million dollars on fossil fuel subsidies every minute.

Another problem related to subsidizing fossil fuel is that you can spend taxpayers' money only once. Any dollar spent on promoting fossil fuels can't be spent on, for instance, social issues, health, or renewable energy. To put it in perspective to other priorities: the United States spent ten times more on fossil fuel subsidies than education.

The IMF concluded that "efficient fossil fuel pricing in 2015 would have lowered global carbon emissions by 28 percent and fossil fuel air pollution deaths by 46 percent, and increased government revenue by 3.8 percent of GDP."

Let's hope that more countries will soon join this initiative, reduce fossil fuel subsidies, and support clean energy instead of fossil fuels.

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