The $200 billion fossil fuel subsidy you’ve never heard of

Print Friendly
flood in the UK in 2007 (photo Shelly Jo)

flood in the UK in 2007 (photo Shelly Jo)

In the United States, the official “social cost of carbon” (SCC) enters into many rules and regulations, such as fuel economy standards. According to Amir Jina, the SCC, which currently is calculated to be $36 per ton, shows that the U.S. fossil fuel sector gets $200 billion a year in hidden subsidies. The government should use the SCC to increase the carbon price, argues Jina, but the Trump administration is hardly inclined to do so. First published on Forbes.

There’s an “alternative fact” that has been prevailing in society. That is that climate change is not happening, or at least not happening due to humans. This view has held strong even though billions of people around the world—including right here in the U.S.—are already experiencing the damaging, costly, and dangerous effects of a changing climate. In the past week, the Trump administration has put this “alternative fact” front and center—taking actions to wipe government websites clean of the words “climate change,” walk back environmental rules,  and limit the effectiveness of the EPA. These are the signs of an administration that is not only hostile towards climate change, but towards science itself.

The Trump administration is right about one thing—the playing field is not equal

Now for an actual fact: The costs of climate change are real. Scientists and economists, myself included, may go back and forth on how high the actual cost is, but it is definitely greater than zero. This cost can be summarized by an important number called the Social Cost of Carbon—the cost to society of emitting an extra ton of carbon dioxide into the atmosphere. That cost reveals itself in different ways. For example, rising temperatures will lead to more heat-related deaths, and less time in the labor market (more on that in my previous Forbes post).

Hidden subsidy

The U.S. emitted 5.4 billion tons of carbon dioxide in 2015, with a cost per ton of $36 (the current Social Cost of Carbon). That means the U.S. is paying $200 billion to cover the costs of all the emissions being burned. In effect, it’s a $200 billion hidden subsidy to the fossil fuel industry. This $200 billion is a cost in real money—in lost labor productivity, healthcare costs, increased energy expenditures, coastal damages—that is paid somewhere in the world for each ton of carbon dioxide that is emitted.

The Trump administration has argued that fossil fuels are not on an equal playing field due to “job-destroying regulations.” They’re right about one thing—the playing field is not equal. Numbers on the exact direct fossil fuel subsidies in the U.S. vary, but it’s probably on the order of $20 billion being handed out to the fossil fuel industry each year. That’s on top of the $200 billion hidden subsidy they’re already getting for polluting our air and contributing to climate change.

If we don’t pay the right price now, we’ll be paying a much greater price in future

Regulations like the Clean Power Plan and the meager $15.4 billion the U.S. spends subsidizing clean energy are supposed to even out this playing field. But the simplest, most efficient, way for society to make sure it’s a fair game and decrease the damages caused by climate change would be to pay the price for those damages. Doing so would mean the fossil fuel industry would need to pay their fair share, and so would we if we keep using those fossil fuels. There would then be a greater incentive—without subsidies—to transition to clean energy. Emissions would decrease.  And, the price we would have paid to adapt to climate change would get lower over time.

Instead, the opposite is happening. With time, the cost of climate change is adding up, and new costs we didn’t even know about are getting added in as the science behind climate change and its impacts grows. For example, we’re learning a lot more about the impact of major storms on economic growth. This will worsen with climate change. So, the $36 per ton we currently use as the Social Cost of Carbon could be much larger.

Level playing field

The National Academy of Sciences released a recommendation in January to update the process for forming the Social Cost of Carbon, pointing out ways that the newest science can transparently inform this important calculation. This is a crucial effort. Unfortunately, an anti-scientific manipulation of this recommendation would place it, and us, in an uncertain future.

The Social Cost of Carbon is the best scientific and policy tool to level the playing field and fix the current market failure where the fossil fuel industry pays zero. Without it, and a concerted effort to set it at the right price, the uneven playing field will only continue to widen. And, the Trump administration’s early actions to expand fossil fuels only exacerbate this. Not only do those actions not make sense economically, they are also anti-scientific and dangerous. The fact is, if we don’t pay the right price now, we’ll be paying a much greater price in future.

Editor’s Note

Amir Jina is Postdoctoral Scholar at the Economics Department of University of Chicago and a Senior Fellow at the Energy Policy Institute at the University of Chicago (EPIC). This article first appeared on Forbes and is republished here with permission.

An excellent overview of the concept of “social cost of carbon” – how it is calculated and used – appeared on the website Carbon Brief on 14 February. Worth checking out.

Comments

  1. says

    Well one can invent lots of imaginary costs to make one form of energy more expensive than another one, but every form of energy has its social cost… Not only from mining and manufacturing, but also from land use (dams), killing wildlife (windmills: notorious bird and bat killers), roasting passing birds on flight (solar mirrors like Ivanpah),…

    Gas has its costs as a huge removal may give earthquackes and damage in inhabited areas, oil gives damage with leaks,…

    The problem is that the oil and gas industry has to pay for all damages caused by exploration and transport, while windmills are excempted from the huge fines that an US firm must pay if they find a death rare bird on their premisses… May we call that a form of “subsidy” for green energy too?

    Then the damage done by fossil fuels from all the extra CO2 injected in the atmosphere. That seems to be near zero until now (but you never know what the future will bring). Even according to the IPCC (backed by an editorial in Nature), there is no trend in more extreme weather or any accelleration in sea level increase speed over the past 30 or 100 years…

    Take e.g. hurricanes. The total energy of hurricanes and huge storms is expressed as ACE: Accumulated Cyclone Energy, that is wind speed x size x duration. The sum of all these indidual ACE’s is calculated for each year. There were periods with huge ACE per year and periods with low ACE. No trend at all, see:
    http://models.weatherbell.com/tropical.php

    Thus what social cost from fossil fuels? The earth is getting greener, especially in semi-dry areas like the Sahel (based on satellite measurements of chlorophyl). Warmer in general is not in the tropics, but more enhanced in colder areas, thus longer growing seasons and globally more food and feed. So should we pay the fossil industry to push more CO2 in the atmosphere?

    On the other side, some 1 billion euro’s per day (!) worldwide are pumped into expensive, unreliable, “green” power schemes. What is the social cost of not using all that money for more urgent needs and what is the social cost of making energy so expensive that a lot of people can’t afford a minimum of warmth in mid winter…

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>