IEA warns of ballooning world fossil fuel subsidies

Reuters News
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Posted: Oct 04, 2011 5:58 AM
IEA warns of ballooning world fossil fuel subsidies

PARIS (Reuters) - Global subsidies for fossil fuel consumption are set to reach $660 billion in 2020 unless reforms are passed to effectively eliminate this form of state aid, the International Energy Agency (IEA) said on Tuesday.

"Governments and taxpayers spent about half a trillion dollars last year supporting the production and consumption of fossil fuels," the energy watchdog to 28 industrialized countries said.

"In a period of persistently high energy prices, subsidies represent a significant economic liability," it said in an extract of its annual World Energy Outlook, which is due to be published in full on November 9.

The IEA estimated such subsidies at $409 billion in 2010, compared to $312 billion in 2009. Oil products had the largest subsidies at $193 billion in 2010 while $91 billion went to natural gas. Iran and Saudi Arabia had the biggest subsidies.

"It's a huge amount of money," the IEA's Chief Economist Fatih Birol told reporters. "Without further reform, spending on fossil fuel consumption subsidies is set to reach $660 billion in 2020, or 0.7 percent of global gross domestic product."

In 2010, Birol had forecast that fossil fuel subsidies would reach $600 billion as early as 2015 without further reforms. He said the slower rate of growth was partly due to efforts in certain major countries including China.

"This is thanks to the improvements in India, China, Russia. They have made significant efforts. We have to be fair," he said.

Leaders of the Group of 20 (G20) major economies committed in Pittsburgh in 2009 to phase out, over the medium-term, inefficient fossil fuel subsidies that encourage wasteful consumption.

Eliminating fossil fuel consumption subsidies by 2020 would cut global energy demand by 5 percent and reduce carbon emissions by nearly 6 percent by then, said the IEA report.

(Reporting By Muriel Boselli; Writing by Marie Maitre; Editing by Anthony Barker)