In its latest ‘World Energy outlook’ report, the International Energy Agency (IEA) found that fossil-fuel subsidies dropped sharply by 35% last year – from almost $500 billion in 2014 to $325 billion in 2015. It’s a significant improvement, but the industry remains largely over-subsidized relative to the renewable energy industry, which receives about half the monetary value in subsidies – $150 billion.
The IEA wrote in the paper’s executive summary (embedded below):
“The value of fossil-fuel consumption subsidies dropped in 2015 to $325 billion, from almost $500 billion the previous year, reflecting lower fossil-fuel prices but also a subsidy reform process that has gathered momentum in several countries.”
It’s important to note here that we are only talking about direct financial incentives. To this day, the fossil fuel industry is still strongly subsidized by taxpayers’ money even before accounting for the cost they make society incur due to health and climate impacts of the emissions they produced.
An IMF study published last year found that the fossil fuel industry was receiving the equivalent of ~$5 trillion in subsidies per year when accounting for those impacts.
In other words, if governments globally would remove all financial subsidies for both fossil fuels and renewable energies, the latter would be the one gaining a competitive advantage, but the former would still be the most subsidized due to the unpriced externalities.
Several renewable energy leaders have suggested removing subsidies in both sectors. Tesla CEO Elon Musk suggested it two months ago after Robert Murray, a climate-change denier and CEO of Murray Energy Corporation, one of the biggest coal mining firms in the US, called Tesla a “fraud” for receiving subsidies:
As for the renewable energy subsidies, the IEA wrote in the report:
“Subsidies to renewables are around $150 billion today, some 80% of which are directed to the power sector, 18% to transport and around 1% to heat”
The agency expects that fossil-fuel subsidies will keep declining and eventually catch up with renewable energy subsidies, which should peak at $240 billion in the 2030s and start declining from there.
Here’s the executive summary of the report: