Ajay Banga, the new president of the World Bank, has raised concerns about the substantial government subsidies allocated to fossil fuels. During the bank’s annual meeting in Morocco, he emphasized that the yearly $1.25 trillion (€1.18 tn) directed towards making fuel, fisheries, and agriculture more affordable is excessive. These sectors collectively contribute up to $6 trillion (€5.7 tn) to environmental impact, and the World Bank advocates for a shift towards prioritizing climate change action instead.
Why do governments subsidize fossil fuels?
Governments subsidize fossil fuels for several reasons, despite increasing calls to phase out these subsidies due to their negative environmental and economic impacts. Here are some key reasons:
- Political Popularity: Subsidizing fossil fuels can be politically popular, as it often results in lower energy and fuel costs for consumers. This can help win support from voters who benefit from cheaper gasoline, heating, and electricity.
- Economic Stability: In some cases, governments use fossil fuel subsidies to stabilize their economies. By controlling energy prices and ensuring they don’t rise too quickly, governments can prevent social unrest and economic instability.
- Energy Security: Governments may view subsidizing domestic fossil fuel production as a way to enhance energy security and reduce reliance on imports. This is especially true for countries with significant domestic fossil fuel reserves.
- Job Creation: The fossil fuel industry is a major employer in many regions. Governments may subsidize it to protect jobs and economic activity in these areas.
- Industrial and Economic Interests: Powerful fossil fuel industries often lobby for subsidies to protect their interests and maintain their profitability.
- Historical Practices: Fossil fuel subsidies have a long history in many countries, and removing them can be a complex and contentious process.
However, there is growing recognition that these subsidies come at a high cost. They contribute to climate change and air pollution, have regressive effects (often benefiting the wealthy more than the poor), and can hinder the growth of renewable energy sources. Many organizations, including the IMF, the World Bank, and the International Energy Agency, advocate for phasing out these subsidies in favor of more sustainable and efficient policies that promote clean energy and reduce fossil fuel consumption.
What power does the World Bank have?
Comprising five institutions and 189 member countries, the World Bank aims to wipe out poverty in developing countries.
It is also increasingly committed to sustainable development solutions. The bank is pivoting to focus more on climate change, following calls from wealthy governments like the US and Germany that fund it, according to reports from Climate Home News.
The World Bank doesn’t have the power to force governments to get rid of fossil fuel subsidies; it can only advise and pressure them. But pressure is mounting on this system from numerous quarters.
“People will say that there isn’t money for climate but there is – it’s just in the wrong places,” said the World Bank’s senior managing director Axel Van Trotsenburg when ‘Digital Detox’ came out.
“If we could repurpose the trillions of dollars being spent on wasteful subsidies and put these to better, greener uses, we could together address many of the planet’s most pressing challenges,” he added.
Source: EuroNews
