OECD, IEA Support Phase Out of Fossil Fuel Subsidies

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October 5, 2011 12:39 AM EST

The Organisation for Economic Co-operation and Development (OECD) and the International Energy Agency (IEA) has called on governments to phase out subsidies on production and consumption of fossil fuels.

"Both developing and developed countries need to phase out inefficient subsidies. As they look for policy responses to the worst economic crisis of our lifetimes, phasing out subsidies is an obvious way to help governments meet their economic, environmental and social goals," OECD Secretary-General Angel Gurri­a said in a statement.

OECD and IEA said in joint statement that governments and taxpayers spent about half a trillion US dollars last year on subsidies supporting the production and consumption of fossil fuels.They said removing inefficient subsidies would raise national revenues and reduce greenhouse-gas emissions.

The G20 leaders in 2009 agreed to phase out subsidies that "encourage wasteful consumption, reduce our energy security, impede investment in clean energy sources and undermine efforts to deal with the threat of climate change."

Secretary-General and IEA Executive Director Maria van der Hoeven emphasised that subsidies to fossil-fuel consumers often fail to meet their intended objectives: alleviating energy poverty or promoting economic development, and instead create wasteful use of energy, contribute to price volatility by blurring market signals, encourage fuel smuggling and lower competitiveness of renewables and energy efficient technologies.

"In a period of persistently high energy prices, subsidies represent a significant economic liability," van der Hoeven said, noting IEA estimates that subsidies that artificially reduce the price of fossil-fuels amounted to US$409 billion in 2010 - almost US$110 billion higher than in 2009. This is based on the IEA's global survey to identify economies that artificially lower end-use prices for fossil fuels to below the full cost of supply.

According to OECD and IEA, phasing out fossil-fuel subsidies will also provide an impetus for investment, growth and jobs in renewable energy and energy efficiency.
Despite the many benefits of phasing out fossil-fuel subsidies, they said reform efforts have been hampered by a lack of information on the support measures in place.

To assist governments' understanding of the nature and scale of their policies supporting fossil fuels, the OECD has compiled the first-ever Inventory of Estimated Budgetary Support and Tax Expenditures For Fossil Fuels.

The report carries detailed information of over 250 mechanisms that support fossil fuel production and use in OECD countries. The report will be updated regularly and expanded over time to cover more countries and more support mechanisms.

Covering 24 countries, which account for about 95% of OECD's total primary energy supply, the inventory shows that 54% of this support was for petroleum.

Overall, the support to fossil-fuel production and consumption in OECD countries was US$45 billino to US$75 billion annually during the 2005-2010 period.

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