In 2019, a European commission report concluded that the UK government had given £10.5bn in subsidies to the fossil fuel industry in that year — the most of any European country and £2.2bn more than the £8.3bn it spent on renewables.
The UK government argued against the report’s definition of a subsidy and claimed that by their definition, they hadn’t given no subsidies. If global governments don’t admit to funding the fossil fuel industry we need to force them to redirect funding to renewable energy and away from destructive industries.
fossil fuel subsidy explainer
By Jake Coleman
Most of us know little of the murky world of government funded business, but it is often the things that happen behind closed doors in private offices that cause the most damage. In the case of fossil fuel subsidies, the funds that are funnelled to companies by financial manoeuvres and tweaking tax tariffs lie behind a veil of secrecy that has only recently begun to be lifted.
The fossil fuel industry has grown to such a scale that the economy as a whole has become deeply entangled with the success and continued growth of fossil fuel companies. Globally, there’s a web of intricate and opaque measures designed specifically to directly and indirectly support these companies, making the overlap between fossil fuel interests and governments’ interests a grey zone that’s hard to navigate and unknot.
Subsidies can be divided into two main categories: producer subsidies and consumer subsidies.
Consumer subsidies are defined as when a government controls the price of fuel for consumers in their economy. Low fuel prices drive up consumption of fuel and fuel products, boosting the economy in the short term. Governments often justify these cost controls by saying they reduce transport costs, household electricity bills and general living costs. But these ostensible ‘social benefits’ come at a cost. Price controls are often applied to products only the relatively rich can afford at quantity, such as petrol, which further advantages the ability of the rich to accelerate their own wealth as those who are still priced out fall further behind. So effectively, price controls of this kind often function as a money transfer from the average taxpayer to the 1%, further increasing societal inequalities.
Producer subsidies are far more complex matter, as they can be awarded to companies in a variety of more indirect ways. Direct budgetary transfers are government stimuluses for the industry, which can be spent in any way companies choose, from helping to improve the efficiency of their operations — to handing out gigantic bonuses to their CEOs. Tax breaks on capital investment allow oil companies huge tax breaks on investments in machinery and the construction of new power plants. Having a lower share of profits given as tax means fossil fuel company profits are taxed at a lower rate than standard companies, if they are seen to be developing a resource such as a new oil source. Investment by state owned enterprises often isn’t counted as a subsidy at all — meaning that organisations that are owned by, but not a specific branch of, the government (including banks like NatWest Group), can invest in fossil fuel companies without their considerable support even being accounted for as a government subsidy. Finally, tax breaks manifest themselves even in lower VAT rates — while the UK’s VAT rate is 20%, the fossil fuel industry gets a generously discounted 5%.
For years, governments relied on the fact that it takes a team of diligent accountants to find all the ways subsidies benefit fossil fuel companies. But more and more people are starting to understand, if not all the ways subsidies are transferred, then at least the eye-watering amounts of money involved and how destructive their effects are.
how fossil fuel companies use government money
Fossil fuel companies use most of the money from these massive tax breaks and handouts to secure their dominant position at the heart of society. Large fossil fuel companies, like Exxon Mobil and Koch Industries, have funnelled funds into climate denial institutions — Exxon Mobil paid $686,500 to the Heartland Institute, a vocal anti-climate action policy think tank, between 1997 and 2006 — to discredit climate change science and protect their profits. Exxon also fund political campaigns that pledge to guarantee the future of fossil fuels in a certain region — Texas governor Greg Abbott recently exonerated fossil fuel companies from blame for the Texas power outages after receiving $26m in campaign donations from fossil fuel companies in the past 6 years.
BP and Shell also used the money to fund advertising campaigns to greenwash their products and reduce negative publicity around crises like the Deepwater Horizon oil spill. Fossil fuel companies are delaying decisive action from being taken by painting themselves as “rethinking the future of energy” - using cosmetic brand gestures like adding green colour to their logos and using vague, eco-friendly slogans to obscure the damage they are doing to the planet. This must end now. Government-backed methods of controlling public perception can only be combatted with an engaged popular movement that fights for policies that impose significant fines on companies who use greenwash in their advertisements.
