Obama has a big idea on how to help the world kick the habit: the elimination of fossil fuel subsidies globally, amounting to over $300bn every year.
It will not escape the notice of G20 participants in Pittsburgh – a city built on coal – that America has become rich on fossil fuels. Petrol taxes are far lower in the US than in Europe; many complain that US oil, gas and coal companies still get too many tax breaks. Such observations are a reminder of what the US has yet to do. But they should not detract from the case, both principled and self-interested, against fuel subsidies globally. Elimination of fuel subsidies – for producers and consumers – is an idea whose time has come.
Fuel subsidies are often seen as a form of poverty alleviation. But blanket fuel subsidies are a crude weapon in this fight. Worse, they tend to lock developing countries into a needlessly profligate development path, heavily skewed towards fossil fuel. Energy poverty is a real problem; fuel subsidies are not the solution. They can have a particularly pernicious effect in apparently energy-rich countries. In Nigeria, subsidies have managed to both undermine local refining (turning one of Africa's largest oil producers into a gasoline importer) while providing an incentive for smuggling oil out of the country. In Russia, artificially low gas prices for the home market leads to inefficient consumption, reducing the gas available for export, while reducing incentives for investment in new production.