Emission reductions from fuel subsidy removal – the researchers respond to the debate

By Jessica Jewell, David McCollum, Johannes Emmerling, Christoph Bertram, David E.H.J. Gernaat, Volker Krey, Leonidas Paroussos, Loïc Berger, Kostas Fragkiadakis, Ilkka Keppo, Nawfal Saadi, Massimo Tavoni, Detlef van Vuuren, Vadim Vinichenko, Keywan Riahi

Our recent paper about our research on the effects of removing fossil fuel subsidies, published in Nature on February 8, 2018, generated a lot of comment and debate.

Here, we respond to three important themes raised in these comments. The first concerns the interpretation of our findings about the significance of subsidy removal for reducing CO2 emissions, the second concerns our approach to modeling and the data we used, and the third relates to policy options for more effective subsidy reform.

Nodding donkeys

© Shutterstock / huyangshu

What are fossil fuel subsidies and why are they interesting for climate?

Fossil fuel subsidies are government interventions which decrease the price of fossil fuels below the market price. They can go to supporting the extraction of oil, gas, and coal (production subsidies) or making fuels cheaper for consumers (consumption subsidies) and amounted to over US$400 billion in 2015. There is a certain irony in that so many governments signed on to the Paris Agreement in 2015 yet in that same year many of those same governments spent so much money making fossil fuels cheaper.

How much would removing these subsidies help climate change mitigation efforts? How does it compare to what countries have already pledged to do for the climate under the Paris Agreement?

Comparing emission reductions from subsidy removal to key climate targets

Some commenters claim that it is already known that the effect of removing fossil fuel subsidies on emissions is limited. However, according to the authoritative Intergovernmental Panel on Climate Change Fifth Assessment Report (IPCC AR5), subsidy reform “can achieve significant emission reductions”. This view also is evident in the political sphere as: the Friends of Fossil Fuel Subsidy Reform, a group of countries called fossil fuel subsidy reform “the missing piece of the puzzle in the fight against climate change”.

Our findings are that fossil fuel subsidy removal would lead to a 1-4% reduction in CO2 emissions in the energy sector by 2030 if oil prices stay low, and 1-5% if oil prices rise again, compared to the rise in emissions if subsidies are maintained, the baseline. It means that subsidy reform is a modest contribution to the global reductions required to achieve 2°C in a least-cost pathway, 27-57% by 2030.

More importantly, in our paper we compare emission reductions from subsidy removal not to this ideal goal, but to the actual targets pledged in the context of the Paris Agreement. Globally, Paris pledges would reduce emissions against the baseline in the energy sector by 9-13% in 2030 (under a moderate growth baseline) which is a larger reduction than fossil fuel subsidy removal would deliver. Under both the Paris climate pledges and fossil fuel subsidy phase-out global emissions would continue to rise whereas to achieve the 2°C target they should peak and eventually decline.

Identifying the regions with greatest impact

This global assessment is only part of our study. In addition, we show how the impacts of subsidy removal are different by region. In the major oil and gas exporting regions (Middle East and North Africa, Russia and its neighboring countries, and Latin America), removing fossil fuel subsidies lowers emissions by the same amount or more than these countries’ Paris pledges. Government revenues in these regions largely come from energy exports, which are squeezed by today’s low oil prices. Lowering government spending by removing subsidies is a real political opportunity to reduce emissions in these regions.

In other developing and emerging economies (India, China, the rest of Asia and Sub-Saharan Africa), removing fossil fuel subsidies has less of an effect on emissions than these countries’ Paris pledges. In addition, the number of people who might be affected by subsidy removal in these regions is higher, simply because there are many more people living below the poverty line, for whom subsidies make the most difference. Taken together, these two findings frame one of our main results: that subsidy removal would be most useful for the climate precisely in the regions where it would affect fewer people living below the poverty line.

Data on subsidies

The second theme we would like to address relates to our data and modeling. Some commenters claimed that we underestimate both production subsidies and the effect of their removal.

According to data from the IEA and OECD only about 4% of subsidies are production subsidies. The International Institute for Sustainable Development (IISD) and Overseas Development Institute (ODI) publish an independent estimate based on their own definition and approach. Extrapolating to the global level, production subsidies would be about 14% in 2013 under their approach. We ran a sensitivity analysis using this higher production subsidies estimate. This did not change our findings (discussed in the Supplementary Information to our article).

Some commenters claimed that our study does not consider electricity production subsidies. This is also not true. We use the IEA data where power generation subsidies are captured in electricity subsidies. The SI discusses how each model integrates electricity subsidies.

There are other, fragmented estimates for electricity generation subsidies in individual countries, which generally take a different view of subsidies. For example, the recent report from IISD on Chinese subsidies to coal-fired power plants indicates that in 2014 and 2015, between 89% and 97% of these subsidies went to incentivize air pollution control equipment or closing inefficient plants. According to the same report, these subsidies also dropped by half from 2014 to 2015. Few governments would consider this as an environmentally-harmful subsidy, and removing such support will increase, not decrease emissions.

For our main analysis, we relied on IEA and OECD data for both production and consumption subsidies because these inventories are aligned with governments’ own estimates which are prepared as part of the G20 pledge to remove subsidies from 2009 reaffirmed in 2016. By using the same input data as governments and international organizations who are pledging or considering fossil fuel subsidy removal, we ensure the policy relevance of our results for these actors. 

Estimating the effects of production subsidy removal

There were several comparisons of our results with those reported in a recent paper by Erickson et.al. in Nature Energy, which found that under the currently low oil prices, removing production subsidies in the US would make several oil fields unprofitable and eventually result in their closure. We find contrasting these two papers misleading as they ask very different research questions. Our study does not investigate how many oil fields in the US or elsewhere will become unprofitable after subsidy removal, but looks at the global effect of subsidy removal on emissions by taking into account trade in fossil fuels, the demand response and potential substitution of fuels and technologies. Erickson and his colleagues do not ask how much emissions will change as a result of closed oil fields. These are two very different questions.

Erickson and his colleagues compare the amount of carbon embedded in the oil reserves that may become unprofitable due to subsidy removal, to how much carbon the US would be allowed to emit under a stringent climate target. This creates an impression that they investigate the impact of removing oil production subsidies on US emissions. However, calculating the emission impact from removing oil production subsidies requires not only calculating the emissions embedded in foregone oil production, but also the possible emissions resulting from replacing this lost oil with other fuels, or changes in demand, for example if Americans choose to drive less if wells are closed, or if the US imports oil instead. We use these types of feedbacks in our models to calculate the emissions effects of subsidy removal (both consumption and production).

Redirecting subsidy funds

The third theme raised in the comments to our article was why we did not model redirecting subsidies to supporting renewable energy. While this is a very tempting question to ask from a climate perspective, and certainly one which we could do in our models, we did not consider it a realistic policy to be prioritized in our scenarios. In most countries fuel subsidies were introduced to support those on low incomes, although it is an inefficient way to do so. A state budget deficit and today’s low oil prices can often prompt successful subsidy reform. Indonesia for example recently expanded spending on infrastructure and programs to reduce poverty, while India introduced vouchers for cooking fuels. Iran, meanwhile introduced universal health coverage.

Fossil fuel subsidies do need reform

We would like to express our agreement with two comments, one from Ian Parry who wrote a commentary to our paper in Nature, and another from David Victor in his statement to Scientific American, that there are many reasons to reform fossil fuel subsidies other than emissions reductions. Our article does not cover these reasons and should not be interpreted as a comprehensive assessment of all aspects of subsidy removal.

We do however hope that our transparent and rigorous assessment of the effects of subsidy removal on CO2 emissions and energy use will support realistic and effective subsidy removal policies, and help in understanding the relative importance of a range of emission-reduction measures needed for achieving the ambitious long-term targets of the Paris Agreement.

As some commenters pointed out, we need all tools in the box to combat the enormous challenge of climate change. We fully agree. At the same time, we also believe in the need to understand how much each tool can do and where it can be most effective. This is exactly what our study answers.

Reference

Jewell J, McCollum, D Emmerling J, Bertram C, Gernaat DEHJ, Krey V, Paroussos L, Berger L, Fragkiadakis K, Keppo I, Saadi, N, Tavoni M, van Vuuren D, Vinichenko V, Riahi K (2018) Limited emission reductions from fuel subsidy removal except in energy exporting regions. Nature DOI: 10.1038/nature25467

Note: This article gives the views of the author, and not the position of the Nexus blog, nor of the International Institute for Applied Systems Analysis.

Less global inequality can improve climate outcomes

By Narasimha Rao, Project Leader of the Decent Living Energy (DLE) Project, IIASA Energy Program

Is there a conflict between reducing global income inequality and combating climate change? This seems like an odd question, given that these challenges have a lot in common. Raising the living standard of the poor for example, makes them resilient to climate impacts; less inequality can mean more political mobilization to establish climate policies; and changes in social norms away from material accumulation can reduce inequality and emissions. Academics have however been curious about the following phenomenon: In many countries, a dollar spent at higher income levels is less energy intensive than at lower income levels (known as “income elasticity of energy”). That is, rich people – although they consume much more in total – spend additional income on services or can afford energy-efficient goods, while the new middle class buy energy-intensive goods, like appliances and cars.

Many imagine China as a template for this type of fast growth. If globally significant, this effect would imply that growth that is more equitable would also be more emissions-intensive, and that we would have to pay particular attention to ensuring that climate policies reach the rising middle class in developing countries. While several studies have examined this phenomenon in specific countries, no one has examined its global significance. We set out to do that.

Energy intensity (MJ per $) lower in a high-growth, low inequality world (green line, Gini=0.29) compared to a low-growth, high inequality world (blue line, Gini=0.45). Gini reflects between-country inequality only.

Our analysis suggests that the energy-increasing effect of lowering inequality is more of a distraction than a concern. We compared scenarios of equitable and inequitable income growth, both within and between countries, assuming the most extreme manifestation of the income elasticity. Within any country, given the slow pace at which inequality typically evolves even with the most extreme known income elasticity and reduction in country inequality, greenhouse gas emissions would increase by less than 8% over a couple of decades. However, when one considers a more equitable distribution of growth between countries, global emissions growth may decrease when compared to growth that occurs in industrialized countries. This is because poorer countries have more potential for technological advancements that reduce the energy intensity of growth than richer countries do. That is, more income growth in poorer countries provides more opportunity for efficiency improvements that influence the emissions of very large populations. Furthermore, China is a poor model for poor countries at large, many of which have relatively low energy intensities, even today.

Climate stabilization at the level aspired to by the Paris Climate Agreement requires that we (i.e. the world) decarbonize to zero annual emissions around 2050, which means that even developing countries have to make aggressive strides towards integrating climate goals into development. Nevertheless, there is no sufficient basis for considering that equitable growth, and by implication the poor’s energy intensity, is part of the problem. To the contrary, the potential for co-benefits from equitable growth for climate change are enormous, but unfortunately under-explored, particularly in quantitative studies. Research should focus on quantifying the role of changing social norms – less consumerism, political mobilization, and other social changes that are typically associated with lower inequality – on reducing greenhouse gases. ­

Reference:

Rao, ND, Min J. Less global inequality can improve climate outcomes. Wiley Interdisciplinary Reviews: Climate Change. 2018;e513. https://doi.org/10.1002/wcc.513

Note: This article gives the views of the author, and not the position of the Nexus blog, nor of the International Institute for Applied Systems Analysis.

What would an oil spill mean for the Arctic?

By Parul Tewari, IIASA Science Communication Fellow 2017

As climate change warms up the planet, it is the Arctic where the effects are most pronounced. According to scientific reports, the Arctic is warming twice as fast in comparison to the rest of the world. That in itself is a cause for concern. However, as the region increasingly becomes ice-free in summer, making shipping and other activities possible, another threat looms large. That of an oil spill.

©AllanHokins I Flickr

While it can never be good news, an oil spill in the Arctic could be particularly dangerous because of its sensitive ecosystem and harsh climatic conditions, which make a cleanup next to impossible. With an increase in maritime traffic and an interest in the untapped petroleum reserves of the Arctic, the likelihood of an oil spill increases significantly.

Maisa Nevalainen, as part of the 2017 Young Scientists Summer Program (YSSP), is working to assess the extent of the risk posed by oil spills in the Arctic marine areas.

“That the Arctic is perhaps the last place on the planet which hasn’t yet been destroyed or changed drastically due to human activity, should be reason enough to tread with utmost caution,” says Nevalainen

Although the controversial 1989 Exxon Valdez spill in Prince William Sound was quite close to the Arctic Circle, so far no major spills have occurred in the region. However, that also means that there is no data and little to no understanding of the uncertainties related to such accidents in the region.

For instance, one of the significant impacts of an oil spill would be on the varied marine species living in the region, likely with consequences carrying far in to the future. Because of the cold and ice, oil decomposes very slowly in the region, so an accident involving oil spill would mean that the oil could remain in the ice for decades to come.

Thick-billed Murre come together to breed in Svalbard, Norway. Nevalainen’s study so far suggests that birds are most likely to die of an oil spill as compared to other animals. © AllanHopkins I Flickr

Yet, researchers don’t know how vulnerable Arctic species would be to a spill, and which species would be affected more than others. Nevalainen, as part of her study at IIASA will come up with an index-based approach for estimating the vulnerability (an animal’s probability of coming into contact with oil) and sensitivity (probability of dying because of oiling) of key Arctic functional groups of similar species in the face of an oil spill.

“The way a species uses ice will affect what will happen to them if an oil spill were to happen,” says Nevalainen. Moreover, oil tends to concentrate in the openings in ice and this is where many species like to live, she adds.

During the summer season, some islands in the region become breeding grounds for birds and other marine species both from within the Arctic and those that travel thousands of miles from other parts of the world. If these species or their young are exposed to an oil spill, then it could not only result in large-scale deaths but also affect the reproductive capabilities of those that survive. This could translate in to a sizeable impact on the world population of the affected species. Polar bears, for example, have, on an average two cubs every three years. This is a very low fertility rate – so, even if one polar bear is killed, the loss can be significant for the total population. Fish on the other hand are very efficient and lay eggs year round. Even if all their eggs at a particular time were destroyed, it would most likely not affect their overall population. However, if their breeding ground is destroyed then it can have a major impact on the total population depending on their ability and willingness to relocate to a new area to lay eggs, explains Nevalainen.

Due to lack of sufficient data on the number of species in the region as well as that on migratory population, it is difficult to predict future scenarios in case of an accident, she adds. “Depending on the extent of the spill and the ecosystem in the nearing areas, a spill can lead to anything from an unfortunate incident to a terrible disaster,” says Nevalainen.

©katiekk I Shutterstock

It might even affect the food chain, at a local or global level. “If oil sinks to the seafloor, some species run the risk of dying or migrating due to destroyed habitat – an example being walruses as they merely dive to get food from the sea floor,” adds Nevalainen. As the walrus is a key species in the food web, this has a high probability of upsetting the food chain.

When the final results of her study come through, Nevalainen aims to compare different regions of the Arctic and the probability of damage in these areas, as well as potential solutions to protect the ecosystem. This would include several factors. One of them could be breeding patterns – spring, for instance, is when certain areas need to be cordoned off for shipping activities, as most animals breed during this time.

“At the moment there are no mechanisms to deal with an oil spill in the Arctics. I hope that it never happens. The Arctic ecosystem is very delicate and it won’t take too much to disturb it, and the consequences can be huge, globally,” warns Nevalainen.

About the Researcher

Maisa Nevalainen is a third- year PhD student at the University of Helsinki, Finland. Her main focus is on environmental impacts caused by Arctic oil spills, while her main research interests include marine environment, and environmental impacts of oil spills among others. Nevalainen is working with the Arctic Futures Initiative at IIASA over the summer, with Professor Brian Fath as her supervisor and Mia Landauer and Wei Liu as her co-supervisors.

This article gives the views of the author, and not the position of the Nexus blog, nor of the International Institute for Applied Systems Analysis.

Interview: Living in the age of adaptation

Adil Najam is the inaugural dean of the Pardee School of Global Studies at Boston University and former vice chancellor of Lahore University of Management Sciences, Pakistan. He talks to Science Communication Fellow Parul Tewari about his time as a participant of the IIASA Young Scientists Summer Program (YSSP) and the global challenge of adaptation to climate change.  

How has your experience as a YSSP fellow at IIASA impacted your career?
The most important thing my YSSP experience gave me was a real and deep appreciation for interdisciplinarity. The realization that the great challenges of our time lie at the intersection of multiple disciplines. And without a real respect for multiple disciplines we will simply not be able to act effectively on them.

Prof. Adil Najam speaking at the Deutsche Welle Building in Bonn, Germany in 2010 © Erich Habich I en.wikipedia

Recently at the 40th anniversary of the YSSP program you spoke about ‘The age of adaptation’. Globally there is still a lot more focus on mitigation. Why is this?
Living in the “Age of Adaption” does not mean that mitigation is no longer important. It is as, and more, important than ever. But now, we also have to contend with adaptation. Adaptation, after all, is the failure of mitigation. We got to the age of adaptation because we failed to mitigate enough or in time. The less we mitigate now and in the future, the more we will have to adapt, possibly at levels where adaptation may no longer even be possible. Adaption is nearly always more difficult than mitigation; and will ultimately be far more expensive. And at some level it could become impossible.

How do you think can adaptation be brought into the mainstream in environmental/climate change discourse?
Climate discussions are primarily held in the language of carbon. However, adaptation requires us to think outside “carbon management.” The “currency” of adaptation is multivaried: its disease, its poverty, its food, its ecosystems, and maybe most importantly, its water. In fact, I have argued that water is to adaptation, what carbon is to mitigation.
To honestly think about adaptation we will have to confront the fact that adaptation is fundamentally about development. This is unfamiliar—and sometimes uncomfortable—territory for many climate analysts. I do not believe that there is any way that we can honestly deal with the issue of climate adaptation without putting development, especially including issues of climate justice, squarely at the center of the climate debate.

COP 22 (Conference of Parties) was termed as the “COP of Action” where “financing” was one of the critical aspects of both mitigation and adaptation. However, there has not been much progress. Why is this?
Unfortunately, the climate negotiation exercise has become routine. While there are occasional moments of excitement, such as at Paris, the general negotiation process has become entirely predictable, even boring. We come together every year to repeat the same arguments to the same people and then arrive at the same conclusions. We make the same promises each year, knowing that we have little or no intention of keeping them. Maybe I am being too cynical. But I am convinced that if there is to be any ‘action,’ it will come from outside the COPs. From citizen action. From business innovation. From municipalities. And most importantly from future generations who are now condemned to live with the consequences of our decision not to act in time.

© Piyaset I Shutterstock

What is your greatest fear for our planet, in the near future, if we remain as indecisive in the climate negotiations as we are today?
My biggest fear is that we will—or maybe already have—become parochial in our approach to this global challenge. That by choosing not to act in time or at the scale needed, we have condemned some of the poorest communities in the world—the already marginalized and vulnerable—to pay for the sins of our climatic excess. The fear used to be that those who have contributed the least to the problem will end up facing the worst climatic impacts. That, unfortunately, is now the reality.

What message would you like to give to the current generation of YSSPers?
Be bold in the questions you ask and the answers you seek. Never allow yourself—or anyone else—to rein in your intellectual ambition. Now is the time to think big. Because the challenges we face are gigantic.

Note: This article gives the views of the interviewee, and not the position of the Nexus blog, nor of the International Institute for Applied Systems Analysis.

How clean is green gas?

By Piera Patrizio, IIASA Ecosystems Services and Management Program

Biogas–renewable fuel that can be produced from a variety of natural materials including manure, food waste, plant matter, and other organic matter–has the potential to solve a number of environmental challenges simultaneously: It can reduce the emissions of greenhouse gases  such as methane (for example, from manure storage) and is the only mature type of renewable energy that can be directly used in electric power generation, heat generation, and transport sectors, and it leads to reduced impacts of pollution from waste disposal.

Biogas can be produced from crops like maize as well as waste and ohter organic materials © Giuliano Del Moretto | Shutterstock

However, biogas is not without impacts of its own. The environmental benefit of using agricultural biogas in particular may be smaller than previously thought, because of the farming activities required for the production of suitable biogas feedstock (such as maize, wheat and triticale), which in turn generates local airborne pollution. Such factors are not adequately reflected in current energy measures.

In other words, existing policy instruments that have been adopted so far in Europe do not reflect the environmental impact associated with the production of certain biofuels because they do not account for other relevant environmental burdens generated along the supply chain.

This is especially the case for biogas, whose production contributes to several environmental burdens such as land use, traffic, and local emissions from the intensive use of fertilizers.

To overcome this issue, my colleagues and I have proposed the adoption of a monetization procedure through which the so-called external costs are incorporated in energy wholesale prices. This method, allows to allocate a cost to the environmental damage associated with emissions of a wide range of pollutants, which can be consequently incorporated in any economic optimization model.

 

Biogas production plant, Italy © Roberto Lo Savio | Shutterstock

In a new study, which I conducted with Sylvain Leduc and Florian Kraxner, we took a look at the biogas situation in my home country, Italy. We incorporated the total internal and external costs of different biogas utilization pathways in the BeWhere model—a model used for optimizing renewable energy systems–and compared with the performance of the current Italian energy mix.

We found out that, although each type of biogas leads to reduced CO2 emissions compared to fossil fuels, such environmental benefits are sharply reduced when we take other pollutant emissions into account. .

In particular, farming activities generate high non-carbon emissions such as nitrogen oxides (NOx), sulfur dioxide, and particles. Most of this pollution comes from chemical fertilizers and diesel combustion in farming activities–and these emissions corresponding to almost 6% of the energy content of the raw biogas produced.

The second cause of external costs is transportation of the biomass, which mainly produces local emissions of NOx.  Local concerns about this issue, are a main source of opposition to new plants, and based on our study, these concerns appear reasonable.

Our results suggest that carbon emission mitigation alone is not always a satisfactory measure to evaluate the sustainability of biogas technologies in order to define energy policies. Other environmental burdens need to be considered when we discuss the environmental sustainability of energy production processes.

Reference

Patrizio PLeduc S, Chinese D, & Kraxner F (2017). Internalizing the external costs of biogas supply chains in the Italian energy sector. Energy 125: 85–96

This article gives the views of the author, and not the position of the Nexus blog, nor of the International Institute for Applied Systems Analysis.