THE LOOKING-GLASS WORLD OF FOSSIL FUEL SUBSIDIES

“When I use a word, it means just what I choose it to mean – neither more or less” – Humpty Dumpty

The G7 has just promised to end fossil fuel subsidies by the year 2025. Hooray! But what does that mean?

Let me take you back to the year 2013, when I was sat in a meeting room in the Treasury, being roundly told off. I was finding it all very befuddling.

The Guardian had just covered research I’d done into tax breaks for oil and gas drilling in the North Sea. I’d calculated that the flotilla of tax cuts handed out by George Osborne in the year 2012/​13 alone were worth about £1 billion to the industry (there have been many more since).

The telling off wasn’t about the figure itself (which was sound). The problem was whether or not the Chancellor was doing anything wrong. The annoyed Treasury beaks I was up in front of were, unsurprisingly, of the opinion that he was not.

Under contention were two things:

1. Is cutting the tax on North Sea profits a fossil subsidy? (Me: yes; Treasury: no)
2. Even if it was a subsidy, was the Chancellor wrong to do it? (Me: yes; Treasury: no)

The gist of the Treasury’s telling off was that I should stop calling something a fossil fuel subsidy that wasn’t. I shall spare you the gory details. The Government’s side is that cutting tax for fossil fuel production isn’t a subsidy because the tax rate is still higher than all other industries pay. But I was arguing the bigger picture: call it what you like, but what’s happened is the Chancellor’s actions are stimulating the production of oil and gas; the economics of drilling for those firms just got a lot better overnight. Most definitions of subsidy used by world economic bodies – the WTO, OECD or even the International Energy Agency – say that tax cuts for oil companies are subsidies for this reason. I recommend this Desmog blog which gets splendidly erudite about all this and delves into wonkishness from which I shall otherwise shield you.

This matters because the UK is not really supposed to have fossil fuel subsidies, or should be actively seeking to end ones we do have. The G7 agreement puts a timescale on its previous 2009 commitment, so even back in 2013 the UK was signed up to eliminate ​“inefficient fossil fuel subsidies” (are there any other kind?). There’s consensus: a year later the EU stressed the importance of ​“phasing out” fossil fuel subsidies. And in 2014 David Cameron himself promised to fight ​“the economically and environmentally perverse fossil fuel subsidies which distort free markets and rip off taxpayers.”

So it’s problematic if the Government defines subsidy in a way that virtually no-one else does, and which allows it to do all sorts of things that don’t really seem in keeping with what the G7 and other pledges have in mind.

So under the UK definition, paying for coal plants to stay active as part of the ​‘capacity mechanism’ is apparently not a subsidy. Tax breaks for frackers and drillers, including for scrapping old oil rigs: not a subsidy. To say nothing of the largest effective subsidy of all — all the costs in terms of air pollution and climate damage that are caused by fossil fuels but paid for not by producers or direct consumers but by the state, ie in health costs. An IMF working paper (very conservatively) estimated that globally these ​‘externalities’ account for most of its $5.3 trillion – trillion! – annual subsidy for fossil fuels. The UK mops up the cost to society of our oil, coal and gas use to the tune of about £26 billion.

You can agree or disagree on any of those things. People do. It can get technical. But if hairs are being split, doesn’t it suggest something has gone wrong somewhere? Orwell would have a field day, having famously lambasted the slippery art of political rhetoric:​“Political language is designed to give an appearance of solidity to pure wind.” 

The climate doesn’t really care for the precision of our legalese, but the totality and effect of our actions. That action is poorly served by defining your way out of the spirit of a commitment.

“To heck with semantics. The big issues are these. Does the Government have a specific plan to drill every drop it can of oil and gas from the North Sea? Yes. Has it promised the world’s most ​“generous” tax breaks for frackers? Yes. Is it going out of its way to make the economic conditions for digging up our dwindling stocks of oil and gas ever more enticing? Yes, yes, yes: of course it is.”

We know that we need to leave most of the world’s fossil fuels in the ground, never mind prospecting for more. It’s a mega-challenge – a juggernaut needing to be jack-knifed. Yes, globally, twice as much was invested in renewables last year as fossil fuels. But that’s still $130 billion on new oil, coal and gas production. All levers of Government, particularly developed economies like the UK, need to be turned towards not burning fossil fuels, not actively helping them be burned.

So call things subsidy, or call them support; call them Susan if you like. If we’re making the economics of fossil fuels better today than they were yesterday, we’re doing the wrong thing. I am choosing to believe that promises to end subsidies to fossil fuels mean really eliminating them, not just look like we’re eliminating them.

As Orwell might usefully remind us, it’s time for the UK to close the ​“gap between one’s real and one’s declared aims.”

This post originally appeared at Business Green and is reproduced here with permission.