IEA warns of ballooning world fossil fuel subsidies

PARIS Tue Oct 4, 2011 9:22am EDT

International Energy Agency Chief Economist Fatih Birol speaks during the Reuters Global Energy and Climate Summit in London June 15, 2011. REUTERS/Benjamin Beavan

International Energy Agency Chief Economist Fatih Birol speaks during the Reuters Global Energy and Climate Summit in London June 15, 2011.

Credit: Reuters/Benjamin Beavan

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PARIS (Reuters) - Global subsidies for fossil fuel consumption are set to reach $660 billion in 2020 unless reforms are passed to effectively eliminate this form of state aid, the International Energy Agency (IEA) said on Tuesday.

"Governments and taxpayers spent about half a trillion dollars last year supporting the production and consumption of fossil fuels," the energy watchdog to 28 industrialized countries said.

"In a period of persistently high energy prices, subsidies represent a significant economic liability," it said in an extract of its annual World Energy Outlook, which is due to be published in full on November 9.

The IEA estimated such subsidies at $409 billion in 2010, compared to $312 billion in 2009. Oil products had the largest subsidies at $193 billion in 2010 while $91 billion went to natural gas. Iran and Saudi Arabia had the biggest subsidies.

"It's a huge amount of money," the IEA's Chief Economist Fatih Birol told reporters at a joint press briefing with the Organization for Economic Co-operation and Development (OECD), which also presented a report on the issue.

"Without further reform, spending on fossil fuel consumption subsidies is set to reach $660 billion in 2020, or 0.7 percent of global gross domestic product," Birol added.

In 2010, Birol had forecast that fossil fuel subsidies would reach $600 billion as early as 2015 without further reforms. He said the slower rate of growth was partly due to efforts in certain major countries including China and India.

"This is thanks to the improvements in India, China, Russia. They have made significant efforts. We have to be fair," he said, adding that only 8 percent of those subsidies reached the poorest population.

Leaders of the Group of 20 (G20) major economies committed in Pittsburgh in 2009 to phase out, over the medium-term, inefficient fossil fuel subsidies that encourage wasteful consumption.

OECD Secretary General Angel Gurria urged developing and rich nations to phase out the subsidies urgently.

"As they (nations) look for policy responses to the worst economic crisis of our lifetimes, phasing out subsidies is an obvious way to help governments meet their economic, environmental and social goals," Gurria said at the press briefing.

Eliminating fossil fuel consumption subsidies by 2020 would cut global energy demand by 4 percent and considerably reduce carbon emissions growth, the IEA said on Tuesday.

(Reporting by Muriel Boselli; Writing by Marie Maitre; Editing by Anthony Barker)

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