IEA: To promote efficiency, cut fossil fuel subsidies

June 8, 2010 7:56 AM PDT

by Martin LaMonica

The International Energy Agency on Monday published an analysis that found subsidies for fossil fuels are higher than previously thought. Cutting subsidies would encourage energy efficiency and low-carbon fuels, it said.

The amount of money paid to subsidize fossil fuels around the world was $557 billion in 2008, which is up from $342 billion in the previous year. The key findings on fossil fuel subsidies (click for PDF) were published in advance of the IEA's annual World Energy Outlook report, which is due in November.

The IEA, which gathers energy industry data, recommended that governments set up programs to phase out fossil fuel subsidies, which would create incentives to use energy more efficiently and use fuels that emit fewer greenhouse gases.

Phasing out subsidies for fossil fuels between 2011 and 2020 would cut global oil demand by 6.5 million barrels per day in 2020, or about one-third of current U.S. demand. It would also cut global energy demand by 5.8 percent by 2020, the equivalent of the energy consumption of Japan, New Zealand, Korea, and Australia combined. Greenhouse gas emissions would be the equivalent of current emission of France, Spain, Germany, the U.K., and Italy combined.

In its initial report, the IEA warned that fossil fuels directly related to electricity generation and other "essential energy services."

The IEA said that the upcoming Outlook report will focus on making information on energy subsidies available and transparent, which it said is "an essential step in building momentum for global fossil fuel subsidy reform."

"I see fossil fuel subsidies as the appendicitis of the global energy system, which needs to be removed for a healthy, sustainable development future," Fatih Birol, the chief economist with the IEA, told the Financial Times."