Hypocrisy on fossil fuel subsidies?

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The sun needs to set on both fossil fuel production and consumption, yet National only talks about one side of the equation (by Pete Markham, CC-BY-SA)

It has recently been reported that New Zealand has been part of an international coalition of countries, including Costa Rica, Denmark, Ethiopia, Finland, Norway, Sweden and Switzerland, who want to crack down on fossil fuel consumption subsidies. Radio New Zealand reports that they’ve recently released a memorandum:

[the] memorandum calls for the elimination of inefficient fossil fuel subsidies, citing environmental, economic and social grounds, and has the full support of the United States and France.

Climate Change Minister Tim Groser said the end of subsidies was the missing piece in the climate change jigsaw with more than a third of global carbon emissions between 1980 and 2010 believed to be driven by subsidies.

He said keeping prices artificially low encouraged wasteful fuel consumption and discouraged the development of new, greener technologies.

Prime Minister John Key has welcomed the agreement saying the memorandum was significant.

“It’s one thing to have actually a price on emissions, like New Zealand has through our ETS, but some countries actually are going the other way, they’re actually subsidising those fossil fuels, our argument is that if they were made to pay the real price it would have some impact on demand.”

First of all, I think this is a great initiative. Although you can see why developing countries might want to subsidise fossil fuels so people can afford energy, it really makes no sense at a time when we need to be cutting down our emissions in order to mitigate climate change. As Groser says, subsidising fossil fuel consumption is getting in the way of transitioning to a green economy where we don’t need these polluting fuels any more.

That brings me to National’s hypocrisy. The National Government is engaged in some pretty amazing, acrobatic feats of contradictory thinking to criticise subsidies for fossil fuel consumption while at the same time being totally in favour of subsidies for fossil fuel production. The thing is, when you’re thinking about the economics of fossil fuel use, the costs associated with consumption and production both matter, and it’s equally bad to subsidise fossil fuel production. The very same reasons that Groser has outlined above apply equally well to subsidising fossil fuel production. That is, subsidising the cost of fossil fuel exploration — in the pursuit of economic development — helps to keep fossil fuel prices low, thereby encouraging consumption and discouraging green development. In subsidising huge fossil fuel companies to explore around New Zealand’s coast, the National Government is using taxpayers money to actively hinder the world’s transition away from fossil fuels.

This contradictory policy has been noticed and criticised by others before. For instance, WWF released a report on this stuff in 2013, and they found that the Government spent $40 million a year subsidising fossil fuel production. What’s dispiriting is that nothing seems to have happened to curb this completely counterproductive spending.

Instead of engaging in contradictory actions, the Government should consistently oppose fossil fuel subsidies for both fossil fuel consumption and production. And instead of signing up to international memorandums, it can start with concrete action at home to stop subsidising the environmentally destructive fossil fuel industry.

Further reading

  • Sophie Barcley of The Wireless recently did a good article on this issue.

Updated 19/4/15 to reflect that NZ has been part of an international coalition against fossil fuel subsidies for a while + link to WWF report. Added a link to the Wireless article 17/5/15.

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