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Fossil Subsidy Study Shows Disconnect from Real-World Results

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A new study that downplays the positive results of fossil fuel subsidy reductions outside energy-exporting regions misses the real-world impact on fossil production and investment decisions, according to two organizations involved in similar analysis.

The study [1] by the International Institute for Applied Systems Analysis (IIASA), published Tuesday in the journal Nature, sought to “systematically explore” whether the removal of fossil fuel subsidies, “even if implemented world-wide,” will really be a significant tool in climate change mitigation, the authors state.

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Carbon Brief reports [3] that the researchers “built a global dataset of subsidies under both high and low oil prices, and worked with five different modelling teams to look at the impact of removing these subsidies on emissions.”  Overall, “the study found the removal of subsidies would reduce the globe’s CO2 emissions by 0.5 to 2.2 gigagonnes per year compared to a business-as-usual scenario by 2030, equivalent to a 1-5% reduction.”

The authors characterized that reduction as “a small decrease”. That prompted Peter Erickson, climate change policy researcher at the Stockholm Environment Institute (SEI), to respond that it’s “only ‘small’ compared to the gargantuan size of the problem, which necessarily involves many, many solutions.”

That the authors missed the full value of their findings—that even the emissions reductions they projected would save “hundreds of billions of dollars in public money”—owes to key flaws in their methodology, says Oil Change International Senior Campaigner Alex Doukas.

Most critically, the IIASA researchers erred in their decision to “consider only the dollar value of subsidies to fossil fuel producers—not their real-world impact on fossil fuel production and investment decision-making,” he states.

By contrast, an October SEI study that did take such factors into account found that “without federal and state subsidies, nearly half of future U.S. oil production would be unprofitable at $50-per-barrel oil prices.”

Doukas adds that the IIASA study “undercounts subsidies to oil, gas, and coal production, relying on an estimate of US$23 billion in production subsidies instead of the more than $70 billion  [4]we’ve identified in G20 countries alone.”

Doukas also takes issue with IIASA lead author Jessica Jewell’s assertion that the U.S. can simply remove its fossil fuel subsidies, since “they’re so small”. He writes, “I’d agree with that first assertion, but certainly not the second. Our research has found  [5]that U.S. subsidies to oil, gas, and coal producers average more than $20 billion each year. That’s not chump change.”