{"id":349478,"date":"2024-10-30T07:59:58","date_gmt":"2024-10-30T06:59:58","guid":{"rendered":"https:\/\/climatescience.press\/?p=349478"},"modified":"2024-10-30T08:00:00","modified_gmt":"2024-10-30T07:00:00","slug":"no-fossil-fuels-are-not-being-subsidised","status":"publish","type":"post","link":"https:\/\/climatescience.press\/?p=349478","title":{"rendered":"No, Fossil Fuels Are Not Being \u201cSubsidised\u201d"},"content":{"rendered":"\n
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From The Daily Sceptic<\/a><\/p>\n\n\n\n

by\u00a0David Turver<\/a><\/p>\n\n\n\n

Whenever discussing renewables subsidies on the internet, there is a form of Godwin\u2019s Law that means it is inevitable that someone will come along and say: \u201cAckshually, fossil fuels are subsidised more than renewables,\u201d or words to that effect, as shown in this example<\/a>. I have often thought the claim to be bogus, but until now had never dug into the detail to prove the case one way or the other.<\/p>\n\n\n\n

Energy is one of the elementary foundations of modern society. Almost any activity you can think of requires energy input of some type or other. Factories need energy to make things. Offices need energy for heating, lighting, cooling and running computers, as do our homes. Hospitals need energy to run operating theatres. We need energy to go to work or visit friends and family, whether we travel by car or train. We need energy to do the family shopping, cook, to travel to the gym, cinema, or restaurant. Energy is fundamental to every economic and social interaction, so it would not be surprising if energy were subsidised. Expensive energy is like a tax on our very existence, so taxes on energy act as a drag on society.<\/p>\n\n\n\n

It is therefore vital that we get to the bottom of the claimed fossil fuel subsidies in the U.K.<\/p>\n\n\n\n

What is a Subsidy?<\/h3>\n\n\n\n

In simple terms, a subsidy is when the Government pays (or mandates consumers to pay) for an activity to occur that otherwise would not happen if the market were left to its own devices. Examples might include grants to theatre companies or awarding CfD contracts to offshore wind.<\/p>\n\n\n\n

A tax is where the Government levies an extra charge on a transaction or activity. For instance there is Value Added Tax, levied at 20% for sales of most goods and services. There are also special taxes such as levies on alcohol and tobacco and of course income tax. Reduced rates of tax are still taxes, quite the opposite of subsidies. No taxes and no subsidies represent a neutral position.<\/p>\n\n\n\n

When it comes to oil and gas, the definition of a subsidy becomes a little controversial. The International Energy Agency (IEA) defines fossil fuel subsidies<\/a> as \u201cmeasures that reduce the effective price of fossil fuels below world market prices\u201d. It is certainly true that some countries, such as Russia and Iran, do subsidise hydrocarbons according to the IEA\u2019s definition<\/a>. Interestingly, the Government said in 2021<\/a> the \u201cU.K. does not give any subsidies to fossil fuels\u201d and the U.K. does not appear on the IEA\u2019s Top-25 list from 2022<\/a> of countries that subsidise fossil fuels (see Figure 1).<\/p>\n\n\n

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Figure 1 \u2013 IEA Top-25 Countries Subsidising Fossil Fuels<\/figcaption><\/figure>\n<\/div>\n\n\n

However, it should be noted that in the database buried in the IEA\u2019s website it does claim that the U.K. offered fossil fuel subsidies of around \u00a36 billion in 2022, but none in any other year. There must be something about its definition that omits the U.K. from its Top-25 graphic.<\/p>\n\n\n\n

Where do the Claims of U.K. Fossil Fuel Subsidies Come From?<\/h3>\n\n\n\n

Given the Government statement and the U.K. not appearing in the IEA\u2019s list of top subsidisers, we need to look at where these claims of massive subsidies come from. Unfortunately, the idea that the U.K. heavily subsidises fossil fuels has a long history. This 2013 article<\/a> from the Guardian <\/em>claims the U.K. is \u201csubsidising its coal, oil and gas industries by $4.2 billion (\u00a32.6 billion) a year\u201d. The Guardian <\/em>has produced similar articles over the years such as this one<\/a> from 2019 claiming \u201cthe U.K. leads the European Union in giving subsidies to fossil fuels\u201d and this one<\/a> from 2023 claiming \u201cthe U.K. Government has given \u00a320 billion more in support to fossil fuel producers than those of renewables since 2015\u201d. Note that they use the words \u201csupport\u201d and \u201csubsidy\u201d almost interchangeably, eliding so called \u201ctax-breaks\u201d with subsidies. The Guardian <\/em>is not the only publication making this type of claim. Politico<\/a> <\/em>also got in on the act in 2021 claiming that Britain \u201csupports the fossil fuel industry through tax breaks and subsidies\u2026 to the tune of \u00a310bn a year\u201d.<\/p>\n\n\n\n

When digging into the articles, you can see that their definition of subsidy includes consumers or producers paying less tax on fossil fuels than the authors believe appropriate. At the risk of repeating myself, paying less tax still means the activity is taxed, which is the direct opposite of a subsidy. Paying less tax than an arbitrary level is not a subsidy. Even paying zero tax is a neutral position and certainly not a subsidy.<\/p>\n\n\n\n

How Big are Fossil Fuel \u201cSubsidies\u201d?<\/h3>\n\n\n\n

The Politico <\/em>article linked above refers to data from the OECD<\/a> to support its \u00a310 billion (for 2020) claim. By digging into a more up to date version the data, we can evaluate the veracity of the claims. Broadly speaking the \u201csubsidies\u201d or support mechanisms are broken into two categories: producer subsidies and consumer subsidies.<\/p>\n\n\n\n

Using the data for 2022, the total alleged support for oil and gas producers amounts to \u00a33.1 billion. The largest component of this total is \u00a32.25 billion of tax relief for decommissioning. This arrangement allows companies to claim capital expenditure connected to decommissioning old fields against corporation tax. For oil and gas companies, decommissioning their fields is a normal business expense. In normal company taxation, business expenses are deducted before calculating taxable profits. There is nothing to suggest that deducting decommissioning expenses before calculating taxable profits is anything other than normal business practice and is certainly not a subsidy. A further \u00a30.85 billion of \u201csupport\u201d is alleged because companies can treat investment in new fields as a business expense to set against the Supplementary Charge that oil and gas companies are subject to on their profits. Again, this is not very different to the investment allowances made to companies in other industries and does not amount to a subsidy.<\/p>\n\n\n\n

Using 2022 data again, there is about \u00a312.9 billion of claimed routine consumer support for fossil fuels. \u00a37.8 billion of the total comes from consumers being charged 5% VAT on their domestic energy bills and not the normal 20% rate. It should go without saying that 5% VAT is still a tax, quite the opposite of a subsidy. A further \u00a33.5 billion of the alleged support comes from fuel duty relief where some types of fuel pay less fuel duty for some uses than others. Again, some fuel duty applies, just not the full rate. This is not a subsidy; it is just paying less tax. Another \u00a31.4 billion of \u201csupport\u201d comes from reductions in the Climate Change Levy. Ironically, much of this support is granted to organisations with Climate Change Agreements to reduce energy use or CO2<\/sub> emissions. In the crazy world of climate activists, paying a lower Climate Change Levy by agreeing to reduce emissions amounts to a fossil fuel subsidy. Finally, a further \u00a30.2 billion of consumer support comes through the Warm Home Discount. This is a reduction in energy bills for older pensioners and other vulnerable people and it is probably justified to term this a subsidy, although it applies to gas and electricity from all sources including renewables, not just fossil fuels. Out of a total \u00a316 billion of supposed subsidies, only \u00a30.2 billion could be reasonably termed a subsidy and an indirect one at that.<\/p>\n\n\n\n

However, there is a \u2018but\u2019 and it is quite a big but because we also need to consider one-off consumer support schemes. There was \u00a319.4 billion on the Energy Price Guarantee for domestic consumers, \u00a32.6 billion on the Energy Bill Relief Scheme for non-domestic consumers and a further \u00a32.6 billion on the Energy Bill Support Scheme. These schemes amount to a total of \u00a324.6 billion and there is a case to classify this money as some sort of subsidy. However, these schemes should probably be referred to as indirect subsidies because they covered all forms of generation, not just fossil fuels. Note that as Figure 1 shows, this support did not meet the IEA definition of a subsidy, or the U.K. would have appeared in about 12th place. We should also bear in mind these schemes were one-off responses to a crisis and are no longer in operation.<\/p>\n\n\n\n

Taxes on Fossil Fuels<\/h3>\n\n\n\n

If we are to get a complete picture we should also consider the taxes the U.K. levies on fossil fuels. These can be split into two categories: producer taxes and consumer taxes.<\/p>\n\n\n\n

Oil and gas producer taxes comprise ring fence corporation tax, the supplementary charge (extra corporation tax), petroleum revenue tax and the energy profits levy (also known as the windfall tax). According to the OBR, the total receipts<\/a> for these taxes rose sharply from \u00a32.6 billion in 2021-22 to \u00a39.8 billion in 2022-23 (the most comparable year to calendar 2022). Those who claim we subsidise fossil fuels are effectively saying we should increase these taxes by the \u00a33.1 billion \u201csupport\u201d identified by the OECD above. Once again, paying less tax than some arbitrarily defined level is not a subsidy.<\/p>\n\n\n\n

The ONS publishes<\/a> the cost of environmental taxes, many of which can be characterised as consumer taxes on fossil fuels. These include direct taxes on fossil fuels that raised the following amounts in 2022:<\/p>\n\n\n\n