Opportunity in Copenhagen: take on energy subsidies

Global oil prices are inching up and energy security isn't going to get better at the rate the world is consuming energy.

Instead of waiting for the next big crisis to emerge, there is a way the US and other nations can enact policies to reduce energy consumption, moderate damage to the environment, save money, and even bring benefits to the poor by removing blanket energy subsidies.

In fact, world leaders at the Copenhagen climate summit should recognize that most nations still subsidize consumption of fossil fuels. Removal of these subsidies can be one of the most effective tools for reducing energy consumption and thus the danger of climate change. According to International Energy Agency data, energy subsidies worldwide amount to $300 billion a year.

Though they're designed to spur economic development, problems with them outweigh any economic benefit. One of the prevalent forms of subsidies is regulating general energy prices that aren't targeted to the neediest sectors of society.

Thus, energy subsidies chiefly benefit the rich. In most developing nations, the poor are still unable to afford significant energy use even with the subsidies. Barely half of the subsidized kerosene in India is consumed by the poor.

Moreover, in many developing countries such as India, large areas of the population do not have regular access to electricity, so they cannot consume the subsidized energy even if they could afford it.

Then there is the fact that these subsidies eat up a huge proportion of a nation's budget. Russia is the world's No. 1 energy subsidizer: It spends about $40 billion a year. Iran comes in second, spending close to $36 billion a year on consumption subsidies.

China, Saudi Arabia, Ukraine, and Egypt each spend more than $10 billion a year in energy subsidies. Until 2008, Malaysia allocated more funds to energy subsidies than to health, education, and welfare. Indonesia spends 4 percent of the nation's gross national product on energy subsidies, expending more in 2007 on energy subsidies than health and education combined.

Another problem is that energy subsidies lead to large-scale smuggling of oil to neighboring nations that do not subsidize – which results in shortages in the nation granting the subsidy.

In addition, because there is little incentive to provide for the domestic market, many energy-exporting countries that subsidize experience large-scale energy shortages at home. Look no further than the domestic shortages of natural gas in Iran and in Russia for evidence.

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