The Great Simplification with Nate Hagens - Fossil Energy Subsidies: The Bottom Line | Frankly #43

Episode Date: September 1, 2023

In this week's Frankly, Nate reacts to recent analysis by the International Monetary Fund (IMF) critical of 2022 subsidies to fossil fuel. These subsidies - by IMF math totalling $7+ trillion - are not what they seem, resulting in widespread confusion on what is really going on.  By peeling back the layers of the onion on these oft-misunderstood benefits - Nate outlines what comprises these fossil fuel subsidies, who receives them, the purpose they serve, and who benefits from them (spoiler alert - we ALL do). How do these subsidies fit into the larger story of the huge energy surplus that fossil fuels have provided? What will it mean for societies when the subsidy that is fossil fuels goes away? Will we be prepared when the externalities - paid for in these subsidies - catch up with us and we need to learn to live with the aftermath of the Carbon Pulse? To Watch on Youtube: https://youtu.be/DpcjHqXYrFs For Show Notes and More: https://www.thegreatsimplification.com/frankly-original/43-fossil-energy-subsidies-the-bottom-line  

Greetings. I am going to be traveling the next three weeks. Hopefully I can record a couple of these Franklies before I leave. I have a lot to say. Keep in mind that these Franklies are not intended to be peer review, you know, heavily researched things, but rather fireside interdisciplinary chats at the fireside of the world that is starting to burn. So I usually kind of gear these up in my mind on a bike ride, come back, write some notes and I record them. If there are mistakes and I verbally make some snafus, we instead of re-recording them,

we'll put a little white note on the screen. I would like these to be kind of hot take. on what's going on in the news as well as my emotional, psychological take on issues relevant to our future. These are kind of anti-establishment viewpoints, and so I'm always a little sensitive to how they're going to land with people. I am not naturally anti-establishment. I just happen to be anti-establishment. narrative of this establishment because as events get more chaotic, I think the establishment, those in power are going to increasingly say things that are disconnected from our biophysical reality. So there are two events, speaking of anti-establishment over this past weekend that I wanted

to talk about, one of which is Der Spiegel had a major, 15 journalist article talking about what happened to the Nord Stream pipeline and all the clues and research and journalism pointed to the Ukrainians with backing from the West. This isn't news to many people, but I think the fact that it's in one of the main newspapers of Germany is news. and it pretends potentially a sea change of what's going on. I think the next two months are going to be really critical in the Russia-Ukraine-NATO predicament. I am hoping that there will be a de-escalation instead of a re-escalation, because a re-escalation could be bad. But I'm going to talk about something less likely to upset people, but still possible likely to upset people, which is earlier this year, the International Energy Agency released a report on the massive increase in fossil energy companies subsidies in 2022.

In this past weekend, the IMF followed that up with a paper and a blog saying they were even more massive. I was going to talk about the four shapes of the carbon pulse, which I will probably do next week. But this week I'd like to talk about why I scour the social media in my feeds and why people are calling the IMF's claim that fully, fully 14% of our GDP is subsidies to fossil energy companies. This is astounding. This is upsetting. But there are many layers of the onion here. And I would like to take this frankly and unpack what these subsidies acclaimed by the IMF and IEA really are and what the real story is here. Okay, so in this graph produced last week from the IMF, the shows that the subsidies to fossil fuel companies

has gone from $4 trillion to $7 trillion since 2015. They have implicit subsidies, which are in the light pink versus explicit subsidies in the darker red. These implicit subsidies are the pollution costs of fossil fuels on society. So these are not subsidies per se. These are externalities that people, us, around the world,

don't pay the full environmental cost in the goods that we produce. This is not a subsidy to fossil fuels. This is an externality that society is not paying. Blaming Exxon or Shell for the externalities and calling them subsidies is equivalent to calculating the cost of obesity and diabetes and metabolic syndrome to society and labeling that as subsidy to the food companies. So this is extremely misleading, though we do need.

to include the cost of externalities into the prices of our consumption and our behaviors and our decisions. If we did include the environmental externalities in our cost, there is not a single industry on the planet that would be profitable. So how to do that over what time frame and, you know, what's included is a real big question. Not only do we need to include the environment, environmental costs, but also the fact that the majority of inputs to our economy are non-renewable on human timescales. So we're not pricing in the depletion externality. So the first layer of this fossil energy subsidy onion is the fact that the vast majority of these subsidies are externalities. The second layer is the fact that the vast majority of what's left, the direct subsidies,

over 96% of that, is subsidies to poor people, mostly in countries like Venezuela and Iran and Iraq that produce oil and gas, but their consumers don't have enough money to pay for electricity or petroleum, gasoline, etc. So they're giving. given coupons and stipends from the government. So the vast majority of the direct subsidies go to consumers. This is made up by about half going to natural gas and 25% each going to oil and electricity. So you can see what happened in 2022. There was a spike in energy prices.

And so obviously there was a spike in energy prices. fossil fuel subsidies going to poor people. I would predict that if we have another cold winter in Europe, that a lot of people will be demanding more fossil fuel subsidies to pay their bills. I would also predict that as the economy gets diceyer and harder in the coming decade, there will be a lot more fossil fuel subsidies of this type, as governments have to support people that can't pay for basic inputs. So it turns out that of the total amount that the IMF claimed is 14% of global GDP went to fossil fuel subsidies, it's actually seven one-hundredths of one percent of GDP actually went to the oil companies, which is around $50 billion.

The majority of this was in the form of tax credits, which is how governments help businesses, not just fossil fuel companies, directing them towards things that society needs. They get a tax break on, their taxes. It's not just handing out money like many people in social media are saying. So this brings me to the core of the onion, which is, and long time viewers of this program know what I'm about to say, is the subsidy that society gets from oil, coal, and natural gas is massive in the form of hundreds of billions of human worker equivalents added to our economy

at pennies on the dollar. And if fossil fuels had a labor union, a lot of humans would be out of business. So the subsidies that governments give to fossil fuel companies is a rounding error for the subsidy that fossil fuels provide to human society. We need to stop burning the flammable fossils or we're going to lose a biosphere and a world. Really? No kidding. Lots of people know this. Lots of people will eventually know this.

Climate activists in this sense are dead right. But what they get wrong is who to blame and the cost of this and how to do. to get there. If the companies like Shell and Exxon that extract fossils had suddenly had their leadership swapped out by people from Greenpeace or the Sierra Club, not much would change because our society demands the products these companies are producing. Not to mention that, but of all the oil and gas reserves in the world, only 14% are owned by public companies. 86% of world fossil reserves are owned by national oil companies like Saudi Aramco or

Rosneft or PDVSA or the national oil company of Iran or the Chinese oil company. These are all government-owned enterprises. So there's been some critique on some of my franklies in the Just Stop Oil that there were executives at Exxon that knew about climate change 40 years ago and they suppressed it. While they were doing what corporate executives do in the rules of the system, they're sneaky and unethical. and some of them maybe should be punished or go to jail, I'm not letting bad behavior off the hook, but I'm trying to look at the broader story here of the metabolism of our society and the rules of society.

So I think this is important to have an objective look at what's going on without blame, trying to understand our situation, And we, collectively, we as a society, are going to be called upon to make sacrifices to save the biosphere. And we better make them because the air conditioners and the supply chains and the stuff that we've come to depend on is going to go away this century as these fossil laborer subsidies that we've become accustomed to are not going to be able to. be freed and are going to go to sleep. So the retiring of our fossil subsidy is relatively imminent on a human generational time scale in the lifetime of our children and theirs. This is going to reshape the human future. And I think we have to keep in mind in that longer term future without that subsidy of energy that makes electrons and moves all the

micro and macro things in our economies, what we really are going to want is a functioning global ecosystem on this blue-green planet, because that is and always has been our only real wealth. So that's my hot take on subsidies and fossil energy. I will be back with another frankly soon. Thank you.