Opportunity in Copenhagen: take on energy subsidies

Also, there is a direct correlation between energy subsidies and low energy efficiency. In fact, the subsidies generate wasteful use of energy and aid fossil fuel consumption. Where nations subsidize energy consumption, when oil prices go up the public continues to consume at the same level.

In contrast, what has helped slow public thirst for oil are price squeezes: After the round of global oil price hikes that culminated in 2008, consumption dropped first and fastest in nations where consumer prices responded to the market.

In the US, for instance, extended high prices were the only factor to significantly reduce miles driven. When gasoline prices soared, miles driven in the US declined in 2007 by almost 10 percent. And it was only when gasoline prices fell in the fall of 2008 that they rebounded. Chinese gasoline consumption, meanwhile, dropped in response to a cut in fuel subsidies following the 2008 Olympics.

In crafting their energy policies, nations should remove these detrimental blanket energy subsidies. If subsidies are maintained at all, they should target specific areas, such as the needy, rather than "blanket" an entire industry. When reducing energy subsidies, governments should outline plans for using the saved funds to directly benefit the poor.

Governments should also publicize the data on the extent of fuel smuggling from subsidized nations to neighboring countries. Most are aware of the large-scale drain of the resources outside the nations' borders, and publication of this data would provide a political tool to mobilize support to end subsidies.

President Obama pressed leaders at the Group of 20 summit in September to end the billions of dollars of subsidies that encourage the use of fossil fuels around the world and help drive climate change.

That was a smart first step. The next one for Mr. Obama is to use direct market mechanisms to lower energy consumption, such as taxes that reflect the economic damage incurred from fossil fuel use.

Critics fear that ending subsidies would result in widespread political instability. Iran's president, Mahmoud Ahmadinejad, announced limitations on the amount of subsidized gasoline to each citizen, and demonstrators responded with the burning of hundreds of gasoline stations and government buildings. However, if offered a concrete alternative benefit, such as improved air quality and water supply, and meaningful improvement of health and education services, people would embrace the change.

Nations should redirect some of the funds from subsidizing fossil fuels to supporting new nonfossil technologies. This strategy would provide a true engine for economic growth, rather than letting fuel go down the drain.

Brenda Shaffer, the author of "Energy Politics," is faculty chair of the MA program in Energy Policy and Management at the University of Haifa in Israel.

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