Tuesday, October 4, 2011

Energy Subsidies

The cost of subsidies for the production and consumption of fossil fuels is nearly $500 at 2010. Countries that have vast oil reserves tend to lower the fuel price by paying the difference within their budget. On the other hand removing inefficient subsidies for those fuels would raise national revenues and lower the oil consumption told by the Organization for Economic Cooperation and Development and the International Energy Agency(IEA).

The reason for the subsidies is to courage the economic development and prevent energy poverty but that is not the case. People do not care about energy efficiency , get on their SUVs and consume 4,5 times than the country that no subsidies included. Besides due to the price difference between neighboring countries fuel smuggling is encouraged. The competitiveness of renewable energy sources and energy efficient technologies are also effected.

In 2009, Saudi Arabia consumed approximately 2.4 million bbl/d of oil, up 50 percent since 2000, due to strong economic and industrial growth and subsidized prices. Contributing to this growth is rising direct burn of crude oil for power generation, which reaches 1 million bbl/d during summer months, and the use of natural gas liquids (NGLs) for petrochemical production.Domestic liquids demand was on a pace to reach over 8 million bbl/d (oil equivalent) by 2030 if there were no improvements in energy efficiency and current trends continued.

“In a period of persistently high energy prices, subsidies represent a significant economic liability,” said IEA Executive Director Maria van der Hoeven, noting that IEA estimates subsidies that artificially reduce the price of fossil fuels amounted to $409 billion in 2010, almost $110 billion higher than in 2009. This is assumed by the IEA's global survey to identify economies that artificially lower end-user prices for fossil fuels to below the full cost of supply.

Investment and growth at renewable energy will create new jobs. Despite the benefits of phasing out fossil-fuel subsidies, reform efforts have been hampered by a lack of information on the support measures in place, particularly in OECD countries. Moreover if the countries tend to cut their subsidy the consumption will lower which means they will have higher reserve to production ratios.

In order to help governments at understanding the nature and scale of their policies supporting fossil fuels, the OECD has compiled its “Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels.” With information on more than 250 mechanisms that support fossil fuel production and use in OECD countries, the inventory, which will be updated regularly and expanded over time to include more countries and more support mechanisms, covers 24 countries that account for about 95% of OECD's total primary energy supply.

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