Is the time right to remove fossil fuel subsidies?
Sverker Carlsson Jagers who is a Professor in Political Science at Gothenburg University as well as Zennström Professor in Climate Change Leadership at Uppsala University, has recently co-published* his second research article in the renowned journal Nature Climate Change. Titled Cross-national analysis of attitudes towards fossil fuel subsidy removal, the study analyses public attitudes towards the introduction of a carbon dioxide tax as well as the removal of fossil fuel subsidies on industrial and private consumption. It was conducted in Ecuador, Egypt, India, Indonesia and Mexico that subsidise both the consumption and production of fossil fuels, and have some of the highest levels of subsidies on consumption in the world, according to the research study.
The article also studies whether policies that reallocate money spent on subsidies to investments that increase social and economic welfare systems, so-called revenue recycling, lead to more positive attitudes towards subsidy removals.
If you are interested in the feasibility of removing fossil fuel subsidies, then this is both an interesting and eye-opening read!
Sverker is a busy scientist but we managed to sit down with him to talk about the most surprising findings in the study, an existing successful example of revenue recycling (go Canada 🇨🇦), and how the global energy crisis might affect people’s attitudes. Let’s jump into it!
— — —
Another Tomorrow (AT): Sverker, congratulations on the publication, we’re very excited for you! Tell us, what stuck out the most to you about the findings in your study?
Sverker Jagers (SJ): Thank you very much! I’d say there were two things that stuck out the most. The first was related to the comparison of people’s attitudes towards two types of policies, the removal of fossil fuel subsidies and the introduction of a carbon dioxide tax. I think all of us expected that removing subsidies would be less popular than introducing a carbon tax which wasn’t the case. It really was beyond our expectations that the aversion to losses of something positive didn’t trump the introduction of a new tax which in many cases is seen as something negative.
The second thing that surprised me was with regards to having conducted the study in developing countries. As these kinds of studies have hardly ever been done in developing countries and since they have very little experience of environmental policy instruments (such as a carbon tax), we expected that the acceptance of the instruments would be relatively low compared to developed countries but this wasn’t the case either. If anything, the levels of acceptance were higher than in most OECD countries, including Sweden, where we have a long history with policy instruments.
The reason for this could perhaps be that people in developing countries have already started to experience climate change and therefore see a much greater need for policies than we do in a country like Sweden.
“It really was beyond our expectations that the aversion to losses of something positive didn’t trump the introduction of a new tax which in many cases is seen as something negative”
AT: What stuck out to me was that your second hypothesis — public acceptance of removing fossil fuel subsidies for private consumption is lower than removing subsidies for industrial use — was rejected as there were barely any differences between the attitudes. The reason it surprised me is that, according to your research, a range of previous studies have demonstrated that individuals show a more positive attitude towards policies directed towards industry compared to themselves. This is also in line with my own perception of how people view the “big players’” responsibility versus their own. Were you able to dig deeper into this and can tell us more about your findings?
SJ: It is indeed a bit puzzling. This really needs more research but it could be that people understand that subsidies aren’t a good thing despite who they are directed towards and also the money that goes into subsidies is primarily taxpayers’ money. So, the more subsidies are removed, the more money can be used for welfare-increasing investments like healthcare and education - basically, better things than getting paid to ruin the climate.
AT: Interesting! Your third hypothesis stating that ‘public acceptance of removing fossil fuel subsidies for private consumption is higher when the revenue use is specified as opposed to non-specified use’ turned out to be correct. Although it does depend on what kind of revenue recycling is being suggested as well as the national context. Do you have any real-life examples of revenue recycling already in use?
SJ: Yes! A recent example is the carbon dioxide tax in Canada. One important reason why Trudeau managed to implement it is because he promised that all revenues would be paid back to taxpayers at the end of the year. What’s good about this system is that the payback is to everyone so those who earn the least may not afford to own a car but they still receive the money. It’s a reallocation of wealth within the country, a very clever design and a great example of how it actually can work.
We’ve done some studies on the attitude towards just compensating those who’ve paid the tax but it’s actually less popular than the Canadian design which proves that it’s definitely doable. This whole logic is underutilised and underestimated by many politicians whereas I wish that it would be applied much more.
Environmental economists are becoming pragmatic
AT: Do you think we will see a change in how this is used?
SJ: It has great potential for change. But in order for this to happen we need to see a shift in a very established paradigm in Western world politics which is influenced by economic reasoning and research. Most policies are guided by the idea that they should be as cost-efficient as possible, basically to pick the lowest hanging fruit. But usually they are also the least appreciated ones. So, I think that the more urgent it becomes to see behavioural change if we are to avoid the worst effects of climate change, the more we have to move away from only focusing on cost-efficiency. We need to see feasibility as an important driver. Many environmental economists gradually begin to understand that perhaps it’s better to go with the second best solution that is implementable than with an optimal solution that only remains a theory. So yes, I think we will see some changes going forward.
AT: In your article you suggest a possible venue for future research: to study whether and how much public acceptance is affected by price fluctuations since your study was conducted before the global energy crisis. If you had to guess, how much do you think that it would impact the public’s opinion towards new policies?
SJ: I think it affects it quite a lot and in a negative way. Prices on all kinds of products are, understandably so, really important for households and if several of the major cost categories are increasing, the space for accepting additional costs will decrease. We have a survey that we’ve been running every year with Sweden’s population for about 15 years and where we’ve studied people’s acceptance for the existing price and for an increased price of carbon taxes. So far, the acceptance for the current price level has been quite stable but I can imagine that in this year’s study, we’ll see a decrease of acceptance. Although the awareness of climate change and what needs to be done has increased which might also compensate for it. We’ll get the data in a couple of weeks so stay tuned!
Governments need to take on the infrastructural investments needed
AT: You’ll definitely have to tell us about it then! In a recently released report, the International Energy Agency states that “It is far better for governments to spend time and money on structural changes that bring down fossil fuel demand, rather than on emergency relief when fuel prices go up.” They also noted that if governments had transitioned to renewable energy and correcting artificially low fossil fuel pricing much earlier, the energy crisis wouldn’t have necessitated as much additional spending on fossil fuel subsidies. What’s your take on this?
SJ: The larger the transition needs to be, the more likely it is to have high cost risks associated with it. The climate transition is the largest transition ever and I don’t think it’s likely that any private actors are willing or able to take many systemic risks associated with going from one system to a completely new one. So, it’s absolutely necessary that governments step in and take on the infrastructural investments needed. For instance, there are very few fully privately owned nuclear power plants because if something happens, no private company in the world can cover the costs. When it comes to the climate transition, it’s very similar. We just can’t expect the private sector to electrify society without government help and initiatives that could both encourage and push society in the same direction.
The private sector keeps pushing
There is definitely a push coming from the private sector. The proposed withdrawal of so many initiatives - that were established by previous governments regardless of colour - by our current government comes as a shock for the industries who have decided to be at the forefront and have already made large investments. To make major shifts during such a transition period can be very risky and it decreases the industry’s trust in the political system and may withhold propensity to do additional investments, at least within Sweden. My prediction is that many suggestions from our current government, especially those about removing previous political initiatives, will be difficult to implement.
AT: Your study was recently published in the renowned scientific journal Nature Climate Change. What impact do you wish to make?
SJ: I hope the article will highlight the importance of reducing and removing fossil fuel subsidies and that it at least gives indications that it actually is possible to do so. It may not be as politically controversial as it might be expected and I hope for this to happen for three reasons:
Many countries who have fossil fuel subsidies will not be able to live up to their Paris Agreements unless they remove the subsidies so they can introduce other policies.
Already by removing the subsidies, we will see major reductions in emissions.
In many of the countries where you have the most subsidies you have extremely low social and economic welfare. By removing them, funding that can be used for better purposes will be freed up and can also be used to equalise these often highly unequal societies. I hope others will continue to follow after me and study these problems more.
*Cross-national analysis of attitudes towards fossil fuel subsidy removal was co-published by Niklas Harring, Erik Jönsson, Simon Matti, Gabriela Mundaca, and Sverker C. Jagers. Read the research article here.
Sverker Carlsson Jagers is a Professor in Political Science at Gothenburg University, Zennström Professor in Climate Change Leadership at Uppsala University, as well as the Director of the Centre for Collective Action.
Another Tomorrow is lucky to have him as one of our climate science partners and we are on a shared mission to help organisations accelerate their green transition. Together we have developed TransitionView, a tool to map and track organisation’s transition capability - go check it out!
