Fossil Fuel Subsidies Nearly $800 per Canadian, says the IMF

GasStationPricesClearly this post has resonated with people.  What is a subsidy anyway?  Is it a…….tax, corporate welfare, job creation tool, business development – please share your thoughts below.

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Did you know that our government spends money subsidizing fossil fuel energy to keep prices artificially low? A new International Monetary Fund study uncovers just how much the Canadian subsidies are and urge our governments to stop these market distortion practices. I calculated the real price we pay for fossil fuel energy and the results are astonishing.

The release of the study by the International Monetary Fund (IMF) is widely covered by mainstream media around the world in the New York Times, Washington Post, Financial Times, and in a particularly good analysis from the Wall Street Journal. But it was strangely almost untouched by the Canadian media. I looked at the data in the full report (PDF), focusing on the Canadian portion. With additional data provided to me by the IMF Washington office, I was able to do some further calculations. The energy subsidies are higher than I expected. In fact, far higher.

What the general public is mostly unaware of is the prices we pay for energy are subsidized prices. When we pay $50 at the gas pump, the gas we got is actually worth more than $50. When we pay $100 for our hydro bill, the energy we used is actually worth more than $100. Why? It’s because the government financially subsidizes the energy we use. They have been doing this for years but most of the general public are not aware of this. The energy prices we consumers see are below market levels.

GasPumpingYou might think: Isn’t that great? The government is paying for part of my gas! Let’s trace it backward, where does the government get their money to subsidize your gas? That’s from government revenues. Where does the government get their revenues? Mostly from taxes. The federal government of Canada get more than 80 percent of their revenue from two sources: income taxes and consumption taxes (source: StatsCan). Who pay the government those incomes taxes and consumption taxes? That’s the taxpayers. You get the picture … it’s you. The gas you get from the pump is paid partly by you at the gas station. The other part of the cost is also paid by you, but indirectly through the withholding tax from your paycheque and through the GST you pay when you go shopping.

And this is the part I’ve always wondered: What’s the real price of the energy we use? Are the energy subsidies large or small? What’s the full cost of energy compared to the ‘sticker price’? This is a very complicated calculation as multiple levels of federal, provincial, and commercial players are involved. But thanks to the economists at the International Monetary Fund who did an extensive study on this subject, we now have some good data.

IMFReportAccording the IMF study and the additional data they provided to me, Canada used $26 billion to subsidize energy in 2011. The Canadian government’s revenues were $665 billion in that year. In other words, 4% of the government revenues were spent on energy subsidies. (Note that the IMF calculation uses U.S. dollar, but the Canadian dollar was at virtual parity with the U.S. dollar over the year of 2011, with $1 USD equalled $0.989 CAD).

Let’s put these numbers into more relatable context. How much energy subsidies were made for each person? According to StatsCan the Canadian population was 33,476,688 in 2011. That works out to be a whopping $787 of energy subsidies for each Canadian for the year. This is a far higher number than I expected. On average each Canadian paid $787, mostly through our income tax and GST, for our energy in 2011 and probably a similar amount year after year. Remember, this is on top of the payments we make at the gas pumps and through our hydro bills. For a family of four, this amounts to over three thousand dollars per year spent invisibly on energy.

With this in mind, are fossil fuels really that much cheaper than renewable energies? The IMF cites many downsides to putting so much public money into subsidies and keeping energy prices—at least the ‘sticker prices’—artificially low, not least of which is giving the false impression to the general public that fossil fuels are much cheaper than renewable energy. Subsidies distort resource allocation by encouraging excessive energy consumption, artificially promoting capital-intensive industries, reducing incentives for investment in renewable energy, and accelerating the depletion of natural resources.

According IMF First Deputy Managing Director David Lipton, removing these subsidies worldwide could lead to a 13 percent decline in CO2 emissions and generate positive spillover effects by reducing global energy demand. It would also strengthen incentives for research and development in energy-saving and alternative technologies. That’s the reason the IMF is urging governments the world over to reform subsidies for products from coal to gasoline, arguing that this could translate into major gains both for economic growth and the environment.

So next time you hear someone say they prefer fossil fuel to renewable energy because they are cheaper, tell them they have been paying $787 a year on top of their bills for those fossil fuels without knowing it.

This article was originally published on Carbon49. Special thanks to the International Monetary Fund for providing additional data for these calculations.

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  • glasshalfull

    Ok so this works out to $65 per month for me. Lets get rid of the energy subsidies. My gas bill goes up, my electriuctiy bill goes up, food costs go up, costs of all consummables goes up, unemployment increases, EI and welfare costs go up……..maybe $65 per month isn’t that bad a deal.

    • http://www.facebook.com/profile.php?id=522470943 David Weber

      renewables become competitive, once built and paid for, make nearly free energy (like niagara falls generators), utility bills go down. electric cars take over, green jobs create more employment than fossil fuels, unemployment goes down, health improves and hospital costs go down, we have a clean planet based on high tech new economy.

    • http://twitter.com/wjoates Bill Oates

      That’s quite a list. EI and welfare costs go up? Unemployment increases? How so? Energy costs would go up, yes. But at least the people using the energy would be the ones paying for it.

    • Dave McCormick

      I think the point is that if energy was priced at it’s real cost, people would make different choices about their energy use. It’s quite possible that your consumption patterns would change if energy was more expensive.

      • http://www.ecoopportunity.net/ Brad Zarnett

        Dave, that’s only part of the point. The amount of innovation would skyrocket if money wasn’t diverted to the fossil fuel industry. We don’t have a true free market – in fact we don’t have one at all.

  • glasshalfull

    I would agree to cut out fossil fuel subsidies when renewables become competative but why do it before.I don’t think fossil fuel subsidies are hurting renewables development. Renewables are getting subsidized as well. I would argue that fossil fuel subsidies actually assist in the development of renewable alternatives by keeping the operating costs of the companies developing renewables at a lower level than they would be at should the subsidies on fossil fuels be discontinued.

    • http://twitter.com/wjoates Bill Oates

      Missed the point. Try again.

    • GMWKAM

      No, renewables are not being subsidized as well. Not in Harpers Canada, where scientists are afraid to say or publish anything that doesn’t toe the party line because they will be unemployed next week. We should be working to be on the leading edge of green energy development so we can profit in the years to come rather than being forced to buy technology from countries who displayed more vision, but, no Harper owes the oil companies bigtime and needs to keep propping them up. We shouldn’t be subsidizing fossil fuels at all, we know the damage they cause. Price them at their real cost, factor in health care and environmental damage and then see how green (er) energy competes.

      • Canadian, eh

        I agree! People don’t even know that Big oil has been working very hard to suppress viable green energy alternatives since the 1950s

  • derekww

    “How much would electricity cost in the US
    if the retail price reflected the health impacts of burning fossil
    fuels? A paper recently published by researchers at the Environmental
    Protection Agency finds that accounting for such costs would add an
    average of 14 to 35 cents per kilowatt-hour to the retail cost of
    electricity. Nationwide, these hidden health costs add up to as much as
    $886.5 billion annually, or 6% of GDP.” (source: http://is.gd/klUS1Z)

  • http://twitter.com/Thegreyweb Jeff

    The definition of “subsidy” in the study is garbage. Notice, the author never gets into that part of the equation.
    Basically not taxing industries EVEN MORE than they are currently, counts as “subsidy”.
    Stupid.

    • http://twitter.com/StephenLeahy Stephen Leahy

      Here’s the actual definitions from the study:

      Energy subsidies comprise both consumer and producer subsidies

      Consumer subsidies include two components: a pre-tax subsidy (if the price paid by firms and households is below supply and distribution costs) and a tax subsidy (if taxes are below their efficient level).

      Post-tax energy subsidies are much larger than pre-tax subsidies, amounting to $1.9 trillion in 2011

      Caveat: These estimates are likely to underestimate energy subsidies and should be interpreted with caution

      • http://twitter.com/Thegreyweb Jeff

        “if taxes are below their efficient level”?

        Yeah…let’s call it a subsidy.

  • http://twitter.com/wjoates Bill Oates

    I’m wondering if the subsidies = the net reduction of energy prices. In other words, do you believe that the entire amount of the subsidies is passed on to the consumer? I would be more inclined to believe that a large portion goes into the coffers of oil companies.

  • windship

    Some version of a Carbon tax could be a lot more equitable, and having the big corps pay their fair share would be kinda nice, although they may just slither off to cheaper global tax havens with all our loot. We could buy back the ruins…..

    A post-subsidy world is one run on foot, by bicycle and sailing vessels.

    • GMWKAM

      absolutely correct we need carbon taxes. However the myth that money will run elsewhere has been shown to be wrong. We have the lowest corporate taxes in 60 years, yet corporations still send jobs overseas. We’ve been lied to by the cons and their owners and its time we got payback.
      And you know what – a little more “on foot, by bicycle, and sailing vessels” would not be a bad thing for this world and for our health.

      • Brendan

        A crucial point that’s mising from the discussion here is that those that use less fossil fuels are in effect subsidizing those who use more.

  • solar9

    stop this madness take 1/2 and subside solar wind sun geothermal and use whats left to go to wards better needs

  • Frances Deverell

    The real tragedy is that many of these subsidies are tax breaks for oil and gas exploration in, for example, the sensitive Arctic. Humanity already has many times more known reserves of oil and gas than we can afford to burn. We don’t need to find more oil. We need to learn to conserve. Conservation, public transit, retrofitting all our homes, investment in renewable energy, that’s what we need, but we are told we can’t afford those.

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