Ever wonder why fossil fuels are still being extracted, transported and traded in 2022, even though we know the threat they pose to our lives, economies and ecosystems? From climate change to oil spills, we have known for decades about the harms of fossil fuel production, yet the oil keeps flowing. The dependency of the economy on fossil fuels continues while we are far behind the actions required for a long-waited and urgent green-economy transition. In large part, this is due to financing and investing in fossil fuels and fossil fuel subsidies.
According to IRENA, renewable energy power generation received USD 128 billion in subsidies in 2017 globally. The figure might sound impressive, but we need the full picture to put this 12-digit figure in context... What was the total subsidy level channelled toward fossil fuels according to the same data set? The fossil-fuel industry benefited from USD 447 billion worth of direct subsidies or in other words, received 70% of total direct energy sector subsidies. This massive support at the sub-national level includes subsidies to petroleum products, electricity generation, natural gas, and coal. This is almost 3.5-fold of the renewable energy power generation subsidies, Although the number is big enough as it is, please note this figure only includes direct and reported subsidies.
There is no single agreed definition or calculation methodology for subsidies, but rather different institutions produce data on this issue with their in-house calculations. The IMF also released a report in October 2021 using a much broader definition of subsidy by reporting the explicit and implicit figures together. This means the numbers also include underpriced supply and environmental costs. Accordingly, the fossil-fuel subsidy volume is even more sizeable at USD 5.9 trillion as of 2020 globally. Among the implicit subsidies, the cost of air pollution constitutes the largest share followed by global warming (Please see Figure ES3 – Global Fossil Fuel Subsidies by Component, 2020 directly extracted from the IMF’s report, p. 4). This figure corresponds to providing $11 million subsidies to the fossil-fuel industry every minute.
The IMF’s report highlights that countries still do not fully reflect the supply and environmental costs to the fossil fuels prices. If the costs would reflect the full cost, demand and related CO2 combustion is expected to decrease by 32% in 2025 compared to 2018 levels. This reduction level is estimated to be aligned with the Paris Agreement’s target of ‘limiting global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels’. Decreasing the subsidy level will inevitably raise fossil fuel prices. Some might argue this will be harmful to economically vulnerable people. According to the ‘Fossil Fuel Subsidies’ section of the IMF’s website, ‘the richest 20 percent of households receive six times more in subsidies than the poorest 20 percent’. Hence, current beneficiaries of the subsidies are most of the time not people in need. However, any policy change with the power to impact end-user energy prices must be structured with caution to protect people in need.
Why does this matter?
The fossil fuel industry is benefitting from the enormous subsidies it received either as a direct supply support form, consumer support boosting demand or as underpricing of external costs. If fossil fuel prices began to reflect the full cost of production and consumption, the faith of the industry, and our planet, they would change significantly.
Holding the fossil fuel industry’s assets as a part of the universities’ funds supports this unjust distribution of costs while also indirectly supporting the continuation of this subsidy system. It is crucial that York University listens to students and faculty calling on the university. Here we are calling for action and asking York University to publicly divest about 4 billion dollars in the endowment and pension funds from fossil fuels.
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