End of oil subsidies: No more budget for fossil fuels

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  Quantumrun Foresight
• May 18, 2023

Oil and gas subsidies are financial incentives that artificially lower the cost of fossil fuels, making them more attractive to consumers. This widespread government policy can divert investment away from greener technologies, hindering the transition to a sustainable future. As concerns about the impact of climate change continue to mount, many governments worldwide are beginning to reconsider the value of these fossil fuel subsidies, especially as renewable energy technologies experience rapid efficiency improvements.

End of oil subsidies context

The Intergovernmental Panel on Climate Change (IPCC) is a scientific body that assesses the state of the climate and makes recommendations for how to mitigate the effects of climate change. However, there have been disagreements between scientists and governments regarding the urgency of taking action to address climate change. While many scientists argue that immediate action is necessary to prevent catastrophic environmental damage, some governments have been accused of delaying the phase-out of fossil fuels and investing in untested carbon removal technologies.

Many governments have responded to these critiques by reducing fossil fuel subsidies. For instance, the Canadian government committed in March 2022 to phase out funding for the fossil fuel sector, which will include reducing tax incentives and direct support to the industry. Instead, the government plans to invest in green jobs, renewable energy sources, and energy-efficient homes. This plan will not only reduce carbon emissions but also create new jobs and stimulate economic growth.

Similarly, the G7 countries have also recognized the need to reduce fossil fuel subsidies. Since 2016, they have pledged to phase out these subsidies entirely by 2025. While this is an important step, these commitments have not gone far enough to address the issue fully. For example, the pledges have not included support for the oil and gas industries, which are also significant contributors to carbon emissions. Additionally, subsidies provided to overseas fossil fuel development have not been addressed, which can hinder efforts to reduce global emissions.

Disruptive impact 

Calls for scheduled and transparent actions from scientists and the public will likely pressure the G7 to stay true to its commitment. If subsidies for the fossil fuel industry are phased out successfully, there will be a significant shift in the job market. As the industry shrinks, workers in the oil and gas sector will face job losses or shortages, depending on the transition timeline. However, this will also create opportunities for developing new jobs in the green construction, transport, and energy sectors, resulting in a net gain in employment opportunities. To support this transition, governments can shift subsidies to these industries to encourage their growth.

If subsidies for the fossil fuel industry were phased out, it would become less financially viable to pursue pipeline development and offshore drilling projects. This trend would likely lead to a decrease in the number of such projects undertaken, reducing the risks associated with these activities. For example, fewer pipelines and drilling projects would mean fewer opportunities for oil spills and other environmental catastrophes, which can have significant negative impacts on local ecosystems and wildlife. This development would benefit areas particularly vulnerable to these risks, such as areas near coastlines or in sensitive ecosystems.

Implications of ending oil subsidies

Wider implications of ending oil subsidies may include:

• Increasing collaboration between international and national parties and governments to reduce carbon emissions.
• More funds being available for investment in green infrastructure and projects.
• Big Oil diversifying its investments to include renewable energy and related fields. 
• More job opportunities within the clean energy and distribution sector but massive job losses for oil-centric cities or regions.
• Increased energy costs for consumers, particularly in the short term, as the market adjusts to removing subsidies.
• Increased geopolitical tensions as countries with oil-dependent economies seek to adapt to changing global energy markets.
• More innovation in energy storage and distribution technologies as renewable energy sources become more prominent.
• Increased investment in public and alternative transportation modes, reducing reliance on personal vehicles and reducing traffic congestion.
• Mounting pressure for national governments to fulfill their emissions pledges.

Questions to consider

• Taking a counter view, do you think the subsidies given to Big Oil’s activities have a positive return on investment for the wider economy?
• How can governments fast-track the shift to more renewable energy sources?