29 May 2015
by Rob Marsh

Fossil Fuel Subsidies and Free Market Hypocrisy

In an almost unbelievable report released on the 18th of May, the International Monetary Fund has shown that subsidies for fossil fuel companies have reached $10 million dollars a minute. The companies are benefitting from global subsidies of 5.3 trillion dollars a year, more than the total health spending of all the world’s governments. It seems that polluters have been failing to foot the costs imposed on governments by the burning of coal, oil and gas, which include the adverse environmental effects of climate change such as floods and droughts, and the harm caused to local settlements by air pollution.

Quoted in an article over at The Guardian, climate economist Nicholas Stern of the London School of Economics said that the figure was likely an understatement.

“A more complete estimate of the costs due to climate change would show the implicit subsidies for fossil fuels are much bigger even than this report suggests.”

The IMF’s projections for outcomes should the subsidies be cut are astounding. It has claimed that ending the subsidies for fossil fuels companies would cut global carbon emissions by a fifth, and slash premature deaths from outdoor air pollution by 50%, equivalent to some 1.6 million lives annually. Resources freed by ending the subsidies could also drive economic growth and reduce poverty through a redirection of the wasted funds into infrastructure, health and education.

A report from February 2015 by the Nordic Council of Ministers and the Global Subsidies Initiative of IISD found that “the removal of fossil fuel subsidies to consumers and to society could reduce global greenhouse gas emissions by between 6-13% by 2050.”

So who’s doing all the subsidising? China comes in on top with around 2.3 trillion per year, with the United States trailing not far behind at around 700 billion annually. Other large contributors include India, at 277 billion, Russia at 335 billion, and Japan, with 157 billion spent every year on subsidies to fossil fuels. A quarter of the total costs result from climate change driven by emissions, amounting to 1.27 trillion per year.

The official response in the past to the skyrocketing figures has been typically blustery but without a great deal of effective action. World leaders called for an end to the subsidies at the 2009 G20 conference, but little progress has been made since. While there are economic factors at play, as well as the political influence of big business, governments committed to fulfilling their role as representatives for their citizenry should not balk at the prospect of taking a hard line with organisations harming those they have sworn to advocate for, in fact, it should ideally be their defining characteristic. Whatever short term losses Rio Tinto and Shell can threaten, they pale in comparison to the very real and likely irreversible costs of continuing to throw money at what ultimately amounts to a vehicle for our own extinction.

We are especially culpable, with Australia leading the world in per capita emissions at 28 billion tonnes of CO2 per annum and our political treatment of the issue ranging from toothless opposition to fervent bankrolled support. The president of the World Bank told the Guardian in April that it was ridiculous that governments were still driving the industry. He notes that fossil fuel subsidies effectively act as encouragement for unsustainable practices. “Fossil fuel subsidies send out a terrible signal: burn more carbon.”

With many detailed assessments showing that the world’s energy needs can be met adequately with existing renewable technologies, the cheap, paid-for-by-industry rhetoric of conservative governments is wearing paper thin. A study published by the University of Melbourne claims that Australia could be fully powered by wind and solar alone in around a decade by spending approximately 3% of GDP along the pathways outlined in the report, pathways which are predicted to create some 80,000 jobs. According to the study, the main obstacle to this is a lack of political will. To follow through with a project of this sort would be to join the ranks of Germany, the United Kingdom and Denmark among others in investing in a sustainable and healthy future for ourselves and generations to follow.

In addition to the progressive policymaking of the aforementioned nations, in 2014 almost 30 countries, including Indonesia, India and Egypt, had delivered some form of fossil fuel subsidy reform. Other countries that support the reform of inefficient fossil fuel subsidies are Costa Rica, New Zealand, Norway and Switzerland.

As a nation, Australia has denied that it subsidises fossil fuels, however there is strong and compelling data demonstrating that this is not the case.

This 2010 report by the Australian Conservation Foundation suggests that the annual value of fossil fuel subsidies in Australia is currently valued at 7.7 billion, the largest of those subsidies being the Fuel Tax Credits program, which rebates fuel excise tax on diesel fuel consumption for many business users. It is worth 65% of total fossil fuel subsidies, or around 5 billion per annum. Other subsidies include tax concessions for “private use of company cars” and “car parking”, meaning that the people of Australia are effectively paying the travel costs of the wealthy in addition to propping up their failing businesses.

Now, granted, all these figures do seem shocking, but you’ll recall that so far I’ve only given them to you without any direct context. Here’s where your knuckles are going to whiten. This is costing you around a hundred and eighty two dollars a year. That money you probably needed for rent, food or bills is literally lining the pockets of someone who by any honest standard doesn’t need it, so they can continue to grow their personal fortunes with money that you’ll never see a cent of. As stated above, this isn’t even beneficial to you in a roundabout way, as the funds used to subsidise these industries and the people who profit from them could be redirected into services that would confer a tangible benefit to your everyday lives, whether from improved healthcare or simply better infrastructure.

Typically, businesses have been outraged at the notion that they may have to take part in the free markets they so commonly evangelise. The Minerals Council of Australia claims that government funding and tax breaks for exploration are not “subsidies”, which has obviously become a dirty word for corporations, but “legitimate tax deductions for business”. Innes Wilcox of the Australian Industry Group, a blatantly neoconservative organisation that seems to exist almost solely to legitimise illegitimate business practices, has called for subsidies to natural gas export facilities, stating that “the Commonwealth and the states took the decision to allow the eastern gas market to be linked to the high priced Asian and east Asian gas market. Government should not escape responsibility for the unintended consequences of that decision.” Apparently businesses should, according to Mr. Wilcox.

The main argument from those who would see subsidies continued or even expanded is that the practice “supports jobs”. The subsidies are deemed necessary because because if it were not paid, and here comes the kicker, the industry would fail. Ironically these same supporters of what are, in effect, welfare payments to failing businesses from the population of the country they do business in, are also the biggest critics of government intervention. Gina Rinehart, owner of Hancock Prospecting, has argued for Australia to cut it’s “entitlement” mentality. Penning a piece of surrealist fiction Dali would have been proud of, Rinehart claims that “Australians have to… work harder and smarter to pay [the bill created by welfare payments].”

In a remarkable display of cognitive dissonance, Rinehart points out that “we are living beyond our means” and that “we all have a role to play in mitigating the thinking that’s not helping our country’s future, including the entitlement mentality of individuals, companies — and our leaders.” These statements came not six months after Rinehart suggested that parents buy their children books from the likes of Milton Friedman and Ayn Rand, two historical supporters of free market ideology that would have looked down their noses in disgust at the hypocrisy of a woman who preaches the ideals of free market capitalism yet owes her success and fortune to the parasitic relationship she has forged with the Australian government.

Technically speaking, a free market economy is free of subsidies by definition. A subsidy introduced to a previously free market transforms it into what is known as a mixed economy. The authors that Rinehart and her contemporaries cite as major influences would argue that subsidies unnecessarily distort markets and divert resources from more productive uses to less productive uses. Conveniently, the leaders of business in this country and abroad have managed to characterise these arguments as product of scheming leftoids and “greenies”, and it seems no-one in our media or government has the stones to point out how dishonest a statement that actually is.

So what could possibly motivate such staunch supporters of free market ideology to bat for the opposing team? I think this short statement says it all:

“To the extent subsidies raise the profits of those receiving beneficial treatment, a new political incentive is created to lobby for the subsidy even after its usefulness runs out. This potentially allows political interests and business interests to create a mutual benefit at the expense of other taxpayers or competitive firms.”

That mutual benefit seems to be the driving principle behind government relations with fossil fuel companies in Australia, and it stands out like a sore thumb despite bungling efforts to minimise its visibility to the public. In 2013, Barnaby Joyce claimed that Gina Rinehart fronted the cost of a flight to Hyderabad for the wedding of the granddaughter of Rinehart’s business partner. Another story from the Sydney Morning Herald shows Rinehart meeting a small group of Coalition members in her private hotel suite, including Speaker Bronwyn Bishop and Liberal Senator Cory Bernardi. I’m sure there is an infinite stream of spurious justification just waiting to dribble forth from the maws of their respective supporters, but I fail to see how secretive meetings between the captains of industry and the leaders of government can result in anything but a conflict of interest.

One of the world’s leading public intellectuals, MIT linguist Noam Chomsky, has spoken at some length about the relationship of the idealist notion of free markets and their real world counterparts. Chomsky states in his talk, Free Market Fantasies, that the overarching political rhetoric of our age is that the poor and needy must learn responsibility through exposure to the pressures and forces of the free market, while the rich demand a nanny state to protect them from market discipline, minimise competitive risk and maximise profits. What Chomsky notes is that when something goes wrong in the affairs of one of these large businesses, the state intervenes using tax dollars to “bail out” the corporation. According to Fortune magazine, not a single one of the top one hundred transnational corporations missed out on such beneficial state intervention. Here’s a short excerpt from his talk:

“Well “subsidy” is another interesting word, kind of like reform. It’s a subsidy if public funds are used for public purposes. That’s called a subsidy. It’s not called a subsidy when they go to private wealth. That’s reform. So they’re cutting down subsidies for public transportation. Well, that’s just a tax. If you pay 20 percent more for getting on the subway, that’s a tax. Same if you pay higher tuition at City College. And that’s a highly regressive tax. So, who rides the subways, and who goes to City College?

So what they’re doing is shifting- is cutting taxes for business — for the rich, and increasing taxes for the poor, which are going to compensate for that. And that’s called fiscal conservatism, and cutting government. Well, so it is across the board. Take a close look at the things that are called cutting government, and you notice that they quite characteristically have this property.”

So what are we going to do about this? There are numerous avenues for interested persons to organise and present a united front against these practices.

On the side of politics, the Australian Greens count among their principles the notion that “subsidies to the fossil fuel sector, including funding for research and development, should be transferred to the renewable energy, energy efficiency and sustainable transport sectors.” There are other minor parties that support an end to fossil fuel subsidies and run on a platform including other targets for sustainable and renewable energy practices.

For a more direct approach, non-governmental organisations such as 350.org and Market Forces offer ways for the average citizen to get involved and take direct action to affect change in business and government.

Finally, simply talking about the issue with friends and family can be an invaluable way to spread awareness about the reality of our situation with regards to fossil fuels. Social media groups and online communities are a great way to network with likeminded people and organise activism in your local area.

Although the situation seems grim, and it is, all hope is not lost. We are at a point in the history of our species where our access to information is as free as it has ever been, where democratic structures exist and can be used for their intended purpose with enough popular support. We have thrown off the shackles of the church and hereditary leadership, and made enormous progress in securing the rights of marginalised sections of the human population. We have been to space.

I have no doubt that an informed and motivated citizenry can bring about radical change despite moneyed opposition from big business. We are an incredible phenomenon of life. Let’s not let the least of us snuff that out.