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Foolish Fuel Subsidies
The Battle Greens Should Be Fighting

All around the world, developing countries are quieting domestic unrest by subsidizing the cost of fuel. As the New York Times reports, these policies come with some heavy economic and environmental costs:

[Venezuelan drivers] pay roughly the equivalent of 40 cents a gallon for regular gasoline, and that is after the government raised prices slightly in a minor adjustment in a vast, popular subsidy, which is helping to prop up the tottering government politically, while helping to bankrupt it economically. With little incentive to conserve fuel and the more they drive, Venezuelans release more greenhouse gases into the atmosphere, which contribute to climate change.

Venezuela is hardly the only developing country wasting oil and natural gas with consumer subsidies. In many nations, transportation fuels are as cheap as soda. Electricity rates are so discounted in the Persian Gulf states that some residents do not bother to turn down their air-conditioners while away on vacation. By some estimates, the consumption subsidies may be responsible for more than 10 percent of total global emissions of carbon dioxide, the leading greenhouse gas. They also contribute to traffic jams and air pollution in cities across the developing world.

There isn’t much low hanging fruit left on the environmental policy tree. Now that we’re aware of the dangers of air pollution and climate change, most of the easy, no-brainer options have already been exercised, and the solutions we’re left with too often come with thorny trade-offs and implementation difficulties.

Ending lavish fuel subsidies don’t fall into that category, however. When governments devote large swaths of their budgets on these subsidies, they’re not just footing the bill for keeping prices low, they’re also paying an opportunity cost for other government programs on which that money might be better spent. Moreover, these subsidies encourage inefficient overconsumption of fuel, which is both economically wasteful and environmentally damaging.

It’s no coincidence, though, that the countries employing these fuel subsidies are often ruled regimes with let’s just say unsettled with their citizens. As good as it looks on paper, normalizing fuel costs to market prices is politically unpalatable because it’s bound to be unpopular, to say the least. That being said, there’s rarely been a better time to start phasing these subsidies out, thanks to the fall in crude prices over the past 28 months. With oil selling at less than half of what it was in June of 2014, the pain of gradually increasing fuel prices is duller than it could be.

Rather than railing against nuclear power or promoting renewables at any cost, greens would be far better served fighting fuel subsidies—rolling them back just makes sense.

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  • Andrew Allison

    Don’t overlook the disgraceful ethanol boondoggle here at home! Eliminating RSF would not only REDUCE carbon emission but also help reduce the oil surplus by increasing gasoline consumption by about 10% (

    • f1b0nacc1

      Ah, but that wouldn’t provide nearly enough scope for corruption.

  • mgoodfel

    While it might be sensible to save money on subsidies, a 10% reduction in CO2 emissions is going to make no real difference to climate change. Of course, none of the other green measures like solar or wind or conservation are going to make much of a difference either.

    We should be researching new technologies (batteries, nuclear, carbon capture) but mostly looking into geoengineering. There’s no way the third world is going to pay double for green energy. We’re eventually going to have to take control of the climate directly.

    • JR

      While I like the idea of geoengineering iN THEORY, I doubt we have the technology to do it now. What we DO have technology for is getting previously inaccessible oil and gas deposits. That and advances in nuclear are all reasons to be optimistic.

  • rpabate

    Today the Global Warming Policy Foundation has posted Matt Ridley’s recent address to the Foundation. It is worth reading. The link:
    I suspect CAGW will go down as one of the biggest frauds in the history of mankind. Look no further than the EPA labeling CO2 a pollutant, a toxic gas. That speaks volumes about this fraud. CO2 is a plant fertilizer, a trace atmospheric gas (400 ppm) essential for life on earth. Horticulturalists pump warm CO2 into their greenhouse to stimulate more plant growth. Most plants grow best in an environment of 1,000 to 1,500 ppm. A toxic gas? Our nuclear sub crews operate in an environment that contains 4,000 ppm with no ill effects. That’s 4 time the level the alarmists claim will cause catastrophe. If you are not now a skeptic, then you have either been ideologically compromised or you need to have your head examined.

    • LarryD

      Back during the Cambrian period (505-590 mya) the CO2 level exceeded 2500 ppm, and that’s the bottom of the error bar. (R.A. Berner, 2001 (GEOCARB III)). The best guess puts it at over 4000 ppm, with an excursion up to 7000 ppm. The global average temprature? 25C (
      C.R. Scotese). If Hansen’s theory were true, Earth would have already suffered runaway greenhouse warming.

      And that’s why I’ve always been a skeptic about the CAGW.

  • markterribile

    Ah … but the Greens seem to LOVE the sort of regime that has impoverished its populace and has to bribe said populace with cheap gas.

  • Proud Skeptic

    I am having a hard time figuring out what influence Greens would ever have over Venezuelan oil policy. Seems like a fool’s errand to me. In fact, if you look at the list of petro-states, every one of them except for Norway is either a basket case or a bad actor. Low probability of success there.

    No, Greens do much, much better accepting money from petro-states to mess with the American economy.

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