World Should Eradicate Fossil Fuel Subsidies-IEA

Nov 17, 2010 - Gerard Wynn - First Enercast Financial

LONDON, Nov 9 (Reuters) - Abolishing fossil fuel subsidies would boost the world's economy, environment and energy security, the International Energy Agency said on Tuesday, referring to a pledge made by G20 countries.

World leaders committed in Pittsburgh in 2009 to phase out, over the medium-term, fossil fuel subsidies which encouraged wasteful consumption. A G20 meeting in Seoul this week may update progress on the goal.

"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.

Fossil fuel subsidies were on course to reach $600 billion by 2015, and renewables subsidies more than $100 billion, said Fatih Birol, IEA chief economist and lead author of the report.

Eliminating fossil fuel consumption subsidies by 2020 would cut global energy demand by 5 percent, compared with no action, and reduce carbon emissions by nearly 6 percent by then, said the IEA report.

Economists say that governments should penalise fossil fuels, to take account of the damage that greenhouse gas emissions will cause the climate, and blamed subsidies for encouraging waste and undermining greener alternatives.

Achim Steiner, head of the U.N. Environment Programme, said on Tuesday that a G20 push to phase out subsidies for the fossil fuel industry would be a "good start" to slow climate change.

WASTE

Cash-strapped western countries are struggling to raise cash for renewable energy, which is often more expensive than conventional alternatives. The option of eliminating fossil fuel subsidies may appear more attractive.
Renewable energy needed support, said the IEA, especially given an expected, 10-year glut in gas which would suppress power prices and make renewables even less competitive.

"The gas glut will be with us 10 more years," the IEA's Birol 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 were 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 report found.

The use of biofuels would increase four-fold, meeting 8 percent of transport fuel up from 3 percent now. Greenpeace said that the IEA was underestimating the uptake of renewables.

The IEA said that pledges made by countries at last year's Copenhagen summit to curb carbon emissions would not meet the goal of limiting average global warming to 2 degrees Celsius, and that the cost of meeting that goal had risen by $1 trillion because of the extra carbon-cutting effort which would be needed after 2020.