Crypto News: The sneaky kind of fossil fuel subsidy

Today our Sparklines columnist digs into indirect, or implicit, subsidies for fossil fuels and finds a possible path to reducing them. You can read and share the column on Bloomberg.com. For unlimited climate and energy news, please subscribe.

By Nathaniel Bullard

The world is headed for a record year of investment in the energy transition. Every new clean electron generated by wind turbines and solar arrays, and each new battery-powered car and hydrogen electrolyzer, will reduce some measure of the fossil fuels consumed on the planet's roads and grids. More than $1 trillion was spent on the transition last year, and almost certainly will be spent again in 2023.

Big as that figure is, it pales in comparison to another energy-related outlay: subsidies for fossil fuels and electricity. The International Monetary Fund calculated that just over $7 trillion in subsidies went to fossil fuels last year. That is a record for at least the past decade. Since the IMF's report expresses all figures in 2021 dollars, inflation cannot explain away the increase. In short, the world has never spent this much to subsidize fossil fuels.

Workers sort rocks near a coal mine in Datong, China. Photographer: Noel Celis/AFP

About one-quarter of the total — $1.33 trillion — is made up of what the IMF terms explicit subsidies, or undercharging for the cost of supplying a fossil fuel or electricity. The figure is a record in its own right, and more that the total investment in the energy transition tracked last year by BloombergNEF.

But that still leaves a balance of $5.7 trillion in implicit subsidies, or undercharging for the environmental costs of a fuel, as well as forgone taxes on consumption. This amount is another record, and up 10% from 2021. Implicit subsidies grew less in percentage terms than explicit ones, but given their scale, they increased nearly as much in absolute terms — by more than $500 billion.

Oil companies run PR campaigns all the time, but none has taken off quite like the "carbon footprint." It taps into a question we all have: Can our choices lower emissions? If so, how? And if they don't…why bother? This week on Zero, Akshat is joined by Kira Bindrim, the editor of Bloomberg Green's Greener Living, to talk through that question, what she's observed in a year of editing stories about products and the importance of using "joy" as a metric. Subscribe to Zero on Apple, Spotify, or Google to get new episodes every Thursday.

These subsidies aren't just huge. They are also fairly predictable, unlike explicit subsidies, which vary significantly from year to year depending on fuel prices and government policy decisions. For instance, explicit subsidies declined by a quarter in 2016 and rose by 39% a year later. The years 2020 and 2021 are outliers due to Covid-19, but in this sense energy subsidies are hardly unique.

Last year, three fuels received more than a trillion dollars each in implicit supports. Gasoline got just over $1 trillion (for the first time); diesel, more than $1.5 trillion; and coal, $2.1 trillion — the third year since 2015 in which it received at least $2 trillion.

The difference between implicit and explicit subsidies for a given fuel (or electricity) can be significant. Gasoline receives "only" $80 billion in explicit terms, and diesel $140 billion; they receive, respectively, 11 and 12 times more in implicit terms. Kerosene gets an even greater implicit subsidy compared to its explicit one: $146 billion versus $9 billion.

There are some exceptions to this general pattern. Natural gas is the only fuel to receive less implicit than explicit subsidy. But with half a billion dollars separating more than $640 billion for both subsidy types for gas, calling them "equal" would be better. Electricity receives more than $300 billion in explicit dollars, according to the IMF, but zero implicit ones.

And then there is coal. Last year, coal received all of $8.6 billion in explicit subsidies and $2.1 trillion in implicit subsidies — a more than 240 times' difference.

The IMF notes in its report that keeping fuel prices below their "fully efficient levels" also keeps greenhouse gas emissions high. Were the world to raise prices to the level that accounts for both their explicit and implicit costs, then carbon dioxide emissions from fossil fuels could fall more than 40% below their baseline levels (and a third lower than emissions in 2019) by the end of the decade.

Yet the very persistence of multi-trillion-dollar indirect subsidies suggests how hard such a move would be in practice. We may be inured to the cost of underpricing, even if it's more than 5% of global gross domestic product.

The IMF's data itself, though, also suggests a path toward reducing implicit subsidies without a coordinated global effort of raising prices to efficient levels. As noted above, only one energy source has zero implicit subsidy: electricity. It does have more than $300 billion of explicit subsidy, of course, but as an energy source, it does not carry with it the same implicit costs as kerosene, or coal.

That means that wherever electricity displaces another energy source, it is also reducing implicit subsidy. And at the same time, wherever that electricity is low-cost and renewable, it is reducing reliance on fossil fuels and their own fuel-based subsidies too. Electricity is an outlier in the world's $7 trillion energy subsidy landscape, and that's a good thing.

Nat Bullard is a senior contributor to BloombergNEF and writes the Sparklines column for Bloomberg Green. He advises early-stage climate technology companies and climate investors.

Six months after becoming the chief executive at Shell Plc, Wael Sawan quietly ended the world's biggest corporate plan to develop carbon offsets. The oil giant had earlier committed to spend up to $100 million a year to build a pipeline of carbon credits, part of the firm's promise to zero out its emissions by 2050. Those offsets goals have been retired, along with a plan to harvest a whopping 120 million carbon credits annually by the end of the decade from projects that sequester carbon with trees, grasses or other natural resources. The pullback reflects both Sawan's renewed commitment to the oil-and-gas business that generates most of Shell's profits, and an admission that the prior goals were simply unattainable.

Wael Sawan, chief executive officer of Shell Plc, speaks during the 2023 CERAWeek by S&P Global conference in Houston on March 9, 2023. Photographer: Aaron M. Sprecher/Bloomberg

Are carbon offsets a credible climate solution? Yes, if they deliver additional reductions — meaning the climate-friendly activity wouldn't have occurred in the absence of the carbon payments. However, the market is flooded with blatantly non-additional projects.

We need to find better ways to fight wildfires. Australia's Indigenous groups are promoting "cultural burning" as a firefighting tactic. This requires more frequent fires, smaller, cooler blazes, and nighttime and early morning burns.

Florida has a dangerous flood insurance gap. Areas hit hard by Hurricane Idalia have low rates of flood coverage, even as the threat from extreme weather rises.

By Brian K. Sullivan

The Atlantic has produced 11 storms so far in 2023 — including three that are currently spinning in the ocean — making it a relatively active year already for tropical systems. The similar patterns being seen in the Pacific are making this year highly unusual for storm trackers.

Tropical Storm Idalia, with 60 mile-per-hour winds, is back out over the Atlantic off the coast of South Carolina, after striking Florida as a major hurricane Wednesday. Hurricane Franklin is still churning away with 100-mph winds heading east-northeast into the deep Atlantic. Tropical Storm Jose, which is nearby, grew out of a persistent tropical depression, and it's not predicted to last long. With Jose, however, the Atlantic has produced 11 storms, counting an unnamed January system. The list includes two major hurricanes.

A table is covered in debris and tree branches after Hurricane Idalia made landfall in Horseshoe Beach, Florida, US, on Wednesday, Aug. 30, 2023. Photographer: Christian Monterrosa/Bloomberg

In a typical year, the 11th storm would arrive by Oct. 2 and the second major hurricane by Sept. 19, according to the National Hurricane Center. While the storms this year have been less than ferocious, it's still relatively early in the year for them. Atlantic hurricane season runs from June 1 to Nov. 30.

While climate change is making hurricanes worse, it doesn't fully explain why the numbers of storms are increasing. Part of the reason for the jump is a more liberal naming convention and part of it is better technology. For the last few decades sub-tropical storms, which are a hybrid between typical storms and hurricanes, have been given names. (This is what the unnamed storm in January was.) In addition to that, satellites are more advanced so they can see things that would have been missed years ago — such as Jose.

What's strange about this year is that the Pacific and Atlantic are both unusually active at the same time. Often when one basin is cranking out the storms the other is relatively quiet, but in 2023 hurricanes and typhoons have raged across the world's two largest oceans, even striking California for the first time in decades, and Super Typhoon Saola is casting a shadow across Hong Kong. Many scientists say this is because the world's oceans are simultaneously record warm and that is something being blamed on climate change.

And in case it may be forgotten, before the Atlantic and Pacific got started with storms, the Indian Ocean had already set several records for the ferocity of cyclones early in 2023. So, there has been no let up and it is likely that 2023 will be the year that launched a thousand research papers.

In other weather news:

Asia: In addition to Saola, there are other storms to watch. Tropical Storm Haikui is forecast to clip the northern end of Taiwan as a typhoon over the weekend. Tropical Storm Kirogi looks like it will graze western Japan next week.

US: Phoenix hit 116F on Wednesday, which set a record for the date. Dallas has been lingering in the high 90s, but will get back up to 100 by Sunday and Monday. The heat will return to the central and eastern US for the start of September. Commodity Weather Group calls for temperatures to rise 5 to 8 degrees across the central US through Sept. 14. In the East, it will be 5 to 8 degrees above normal through Sept. 9.

India: The country received the lowest August rains since at least 1901, prompting concerns about weaker crop output and the potential for more export restrictions following the South Asian nation's curbs on rice.

Europe: The cool, wet weather that's predominating across northern Europe as August draws to a close will give way to higher temperatures over the weekend.

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