0.15 Natural capital: energy  (Page 6/15)

And with deeply underpriced energy in Venezuela there has been very rapid and unsustainable rates of growth in energy consumption. By 2013, subsidies to domestic consumers of fossil fuels reached $28 billion, or more than 7% of GDP, a far greater percentage than expenditures on education or health.

Some believe that the demand for energy for vehicle use is very inelastic even in the longer run, so that higher prices for gasoline and diesel fuel would have little effect on consumption. Experience worldwide clearly shows that this is not true. Rather, heavy subsidies on fossil fuels lead to very significant overconsumption. Any doubts as to this fact may be easily dispelled by comparing the pattern of fossil fuel consumption in the Gulf States of the Mideast with that of the rest of the world. These countries are major producers of oil: Saudi Arabia, Kuwait, Qatar, Bahrain and the United Arab Emirates. All of these countries have deeply underpriced gasoline and diesel fuel for nearly a half centiury. While they have only about 1% of the world’s population, inhabitants consume 5% of global oil supplies annually. Jim Krane, Guzzling in the Gulf , Foreign Affairs , November 2014. This is because the heavy subsidization has caused consumption of fossil fuels in this region to grow at 8 percent per year since 1972, compared to only 2% for the rest of the world.

While heavy subsidies on energy consumption have been near universal among other nations as well, including such emerging ones as Nigeria and Venezuela, several developed nations.

However, many countries including the United States also subsidize consumption of fossil fuels, typically in the form of gasoline and diesel fuel taxes that are much lower than the marginal cost of road use. But in rich nations these subsidies amount to only about $25 Billion per year, or about $25 per capita. Poor nations (in 2007) spent $310 billion on such subsidies.

Per capita subsidies for energy consumption in many emerging nations on a per capita basis have been substantial, as shown in Table 15-1.

The subsidies also constitute a sizeable share of GDP in nearly a dozen other nations, ranging from 11% or more in Bahrain, Egypt, Iran and Ecuador, and as low as 2.5% in India or 2% in Mexico.

The subsidies are usually justified by the claim that they help poor consumers of fossil fuel. As shown below, this claim is incorrect. But we do know that the subsidies vastly increase fossil fuel consumption and pollution, though their effects on encouraging greater vehicle use. Also the subsidies contribute to the growth of greenhouse gasses from combustion of fossil fuels. They are also very expensive in the public budgets of nations that use them.