As the fossil-fuel industry continues to expand its carbon footprint, a growing number of economists are looking into the economic effects of subsidies to the industry.
According to a recent paper by three researchers from the University of New South Wales (UNSW), “A subsidy to fossil fuel production and use has been proposed to increase carbon emissions and increase energy demand in the economy.”
“Given the large carbon footprints associated with fossil fuels, we propose a policy to increase energy consumption by subsidizing fossil fuel use and to increase electricity demand by increasing energy production from renewable sources,” they wrote.
“If the subsidy increases energy consumption and increases electricity demand, then this could increase carbon dioxide emissions, increasing the climate change impacts of the policy,” the authors wrote.
In other words, they argue that subsidies to fossil-burning energy are not necessarily good for the economy.
While they noted that some economists argue that a subsidy should be provided to energy producers to offset carbon emissions, they also found that “many of the subsidies that we examine are designed to benefit the fossil fuels industry, which provides them with subsidies.”
The authors argue that in order to avoid “climate change, we need to reduce energy consumption” and that a government intervention should be focused on helping energy producers.
In the case of subsidies, they said that such interventions are necessary to reduce the “carbon footprint of fossil fuels.”
While the research did not include a direct link between subsidies to coal and carbon dioxide, the authors argue it is “a valid and relevant analysis” that “provides important insights into the carbon footprint of coal and its subsidies.”
In a statement, the UNSW said it is concerned about the effects of fossil fuel subsidies on the environment and the economy, noting that “these interventions could be economically harmful, as they could increase energy costs for consumers and ultimately reduce the number of jobs that are created in the fossil energy industry.”
“These subsidies have a direct impact on the health of the environment, as CO 2 emissions increase in the atmosphere and in the environment,” the statement said.
“The carbon footprint impacts of these subsidies also have direct economic impacts.
A direct and substantial impact on climate change could lead to higher energy prices, particularly for households and the middle class.””
In order to reduce climate change, the climate-changing effects of climate-related subsidies need to be considered carefully,” the UNSC added.
“Such interventions should be targeted at those sectors that emit most carbon emissions or generate the most energy.”
In the United States, the National Academies of Sciences, Engineering, and Medicine has also released a report that concludes that subsidies should be “limited or entirely eliminated.”
In their report, the Academies said that while they don’t believe subsidies should increase the cost of fossil-based energy, they do think “a substantial amount of the carbon emissions from fossil fuels are not captured in the price we pay for energy.”
“The fossil fuel subsidy system is not just expensive, but is also unsustainable and counterproductive, and will likely result in greater greenhouse gas emissions,” the report said.
“It would be appropriate for Congress to consider whether there is a need for a fossil fuel tax, and whether the carbon price should be increased as part of any efforts to reduce emissions.”
The study, “An Economic Analysis of Fossil Fuel Subsidies,” was authored by Dr. James E. Withers, professor of economics at UNSW, and Dr. Daniel E. Smith, professor emeritus at the University at Buffalo.
The UNSW paper was published in the Proceedings of the National Academy of Sciences.