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Cut fossil fuel subsidies to save emissions and budgets, OECD urges

Source: Thomson Reuters Foundation - Thu, 10 Jun 2010 01:30 PM
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It sounds like a win-win proposition: phasing out fossil fuel subsidies worldwide could cut greenhouse gas emissions by 10 percent, and save cash-strapped governments a load of money in tight financial times, the Organisation for Economic Co-operation and Development (OECD) argues in an analysis released this week.

Subsidies for fossil fuel consumption ran as high as $557 billion in 2008 in developing and emerging countries, the International Energy Agency estimates, and a good chunk of that money goes to the mining, agricultural and fishing industries, rather than people struggling to heat their homes and keep the lights on, according to the OECD.

Subsidies "typically benefit richer rather than poorer households," not least because the poor usually don't drive cars, the study says.

Gradually removing the subsidies could hold carbon emissions 10 percent below the levels expected in 2050, save money and help countries avoid funding cleaner energy alternatives while simultaneously encouraging fossil fuel consumption, something the report calls a "wasteful use of scarce budget resources."

But making such cuts will be "politically challenging," the report notes - an understatement when the tiniest of hikes in energy costs can drive mass street protests in capitals from New Delhi to Caracas, or prompt a flurry of industry lobbing in wealthier countries.

Nonetheless, a few nations are managing preliminary cuts. Countries like Poland, France and Britain have reformed subsidies for coal production, the report notes, and Indonesia is working on revamping support for fossil fuel consumption.

Could others follow suit? Keys to success, the study says, are giving plenty of warning about upcoming changes, phasing them in gradually, giving the genuinely poor the help they need if fuel prices rise, and getting accurate information out about who actually benefits from subsidies, and who pays for them.

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