The Environmental Audit Committee (EAC) of the UK House of Commons is investigating the extent of energy subsidies in the UK for nuclear, fossil fuel and renewable energy, and what the Government should be doing to identify and eliminate those subsidies which are—using the UN’s terminology—“harmful”.

The UK is a major producer of oil and gas, has concerns over fuel poverty and is a member of the G-20. Its overseas development assistance adds to its importance internationally. The EAC started its considerations by commissioning a wide-ranging background paper, which identified GBP 10 billion (US$ 15 billion) of annual subsidies to fossil fuel producers and consumers, to renewable energy and to existing and planned nuclear power. The estimate does not include subsidies for biofuels, although the GSI's own research estimates that UK support for biofuels will cost  motorists between GBP 1-2 billion per year by 2020.

The Committee’s second oral evidence session took place on Wednesday 15 May, focusing on energy subsidies in their international context. Peter Wooders, Programme Leader of the Global Subsidies Initiative, was interviewed as one of three expert witnesses.

The session began with a discussion of the reasons that countries typically provide energy subsidies. Wooders noted that energy subsidies are often provided in order to support the poor, a form of “basic, inefficient economic and social assistance scheme”, and that a range of more sophisticated assistance mechanisms—including cash transfers, tax reductions and alternative government expenditure—were typically better targeted. Internationally, subsidies are not largely directed at industrial competitiveness, as the majority go to uses such as private vehicles and home heating and appliances. One exception is renewable energy, where Wooders recommended that the UK and other countries should discuss what subsidies they would jointly consider fair and effective in countries’ common aim to develop profitable clean energy industries.

The Members of Parliament were also keen to understand more on the lessons from good and bad international experience of reform. Stating that reform was “possible but difficult”, Wooders highlighted the collation of experience contained within the GSI’s recently-published ‘Guidebook’ for policymakers, which showed that challenges and reform options were common across countries, and that the challenge was typically political. The economic case for subsidy reform is generally proven and understood, but carefully preparing and building support for reform against entrenched interests are challenges which need patient resolution.

Looking ahead, Wooders stressed the key role that the UK could increasingly play in energy subsidy reform. This is an international issue: while low energy prices for consumers are a largely a developing country issue, developed countries including the UK continue to subsidise energy production, and need to create long-term signals—through carbon pricing and other policies—to encourage investors to choose greener energy options. The G-20’s Members have committed to reforming subsidies, and, in common with all countries, they need support in identifying, measuring and evaluating their subsidies. Subsidy reform is increasingly recognised as a key issue across the world, and the work of the EAC and the UK’s wider role internationally, including as a donor and advisor to developing countries, is an important element in the reform effort.

A video recording of the 15 May 2013 oral evidence session is available at http://www.parliamentlive.tv/Main/Player.aspx?meetingId=13133, with a written transcript to follow.