What would the world look like if all the government subsidies propping up fossil fuel companies suddenly came to an end?
For Ian Parry, it's an easy answer.
"It would certainly help level the playing field between fossil fuel technologies, which have large environmental costs, and renewable technologies which do not," he tells ABC RN's Future Tense.
That's because without subsidies, fossil fuel companies would lose their competitive advantage and investors would look elsewhere.
But they would still be culpable for all the emissions they pump into the environment.
Parry isn't an environmentalist. He's a senior fiscal analyst with the International Monetary Fund (IMF), and by his estimate, the global fossil fuel industry is currently subsidised to the tune of around US$5.9 trillion every year.
For context, that's larger than the annual budgets of both Japan and Italy combined.
"We estimate that if fossil fuel prices were fully reformed — so prices reflected both the costs of producing the fuel and all of its environmental costs — then in 2025, global carbon dioxide emissions would be reduced by 36 per cent."
That, he argues, would put the world on track to meet its climate stabilisation goals. Emissions would rapidly go down as coal and gas operations became too expensive to run and they would be forced to shut down.
"It would accelerate the transition," he says.
It would also have a significant impact on global health, reducing deaths associated with air pollution by around a million worldwide.
Then there are the economic benefits: scrapping fossil fuel subsidies would free up more money for innovation, raising around 3.8 percentage points of GDP in extra revenue, according to IMF calculations.
But for all the problems they cause, fossil fuel handouts shouldn't be seen in isolation, critics argue.
Many point the finger at corporate subsidies in general.
They argue that funding profit-driven private sector operations from the public purse is the real problem — it not only sustains the environmentally unsustainable, but also leads to inequality and poor business practices.
Sink-or-swim attitude
One of the latest scourges of corporate welfare is Tesla's founder and CEO, Elon Musk.
Musk, the world's richest man with personal wealth estimated at somewhere around US$218 billion, recently railed against corporate tax breaks and loans, proclaiming on Twitter: "It has been raining money on fools for too long".
"Some bankruptcies need to happen," he declared, "companies that are inherently negative cash flow (ie value destroyers) need to die, so that they stop consuming resources."
US-based columnist Andrew Lawrence says Musk's sink-or-swim attitude is true to form.
"He just feels that the current economy is being propped up by a COVID-aided relief bubble and that we need this depression [or] recession to set things back to normal, so that the badly run businesses can recede and stronger companies can prevail."
It's an interesting position for Musk to take given the mega-billionaire's own track record, Lawrence says.
"He frowns on other businesses taking corporate welfare, but over the decades he has shown that he is more than happy to take it himself.
"We forget just how much of [his success] was made possible through the largesse and the relationships that Elon Musk had with state and local governments in the US who pumped all kinds of money into the expansion of that company, even as it burned through cash from investors."
Lawrence estimates total government support for Tesla and Musk's other operations at somewhere around US$5 billion.
And he says it shouldn't be forgotten that the high-end electric vehicle manufacturer only declared a profit in 2021, after 18 straight years of losses.
Meaning that Musk's flagship company was exactly the kind of "value destroyer" he now derides.
"Bloomberg had a counter on its website to show how much money Tesla was burning through per minute," says Lawrence, "because it was doing it so much faster than any other company.
"And a lot of that, again, comes back to not only the tremendous support it had among investors … but because of state and federal subsidies to help even out their losses.
"So yes, it's a sort of 'do as I say, not as I've done' … deal with him."
Shopping for handouts
For Matthew Mitchell, a senior research fellow at George Mason University, Musk's contradictory stance on corporate welfare follows form.
Dr Mitchell has been tracking the rise of what he calls "targeted economic development subsidies". It's a system of economic handouts that has tripled in size in the last two or three decades, he says.
"Every state in the United States hands out subsidies. The best estimate is that it's now [worth] somewhere around US$90 billion a year, so it's a pretty big industry, unfortunately."
Worse still, according to Dr Mitchell, governments often compete to entice large firms to relocate to their jurisdiction.
It's a process, he says, that can have disastrous consequences for state and regional economies.
"For a lot of people it just seems kind of intuitive — if you subsidise a firm to come here, maybe that will create new economic growth. The benefits seem obvious. The costs are more hidden."
He cites the giant Taiwanese semi-conductor manufacturer Foxconn as a case in point.
In 2017, the company was given US$3.6 billion in tax breaks and other subsidies by the state of Wisconsin.
As part of the deal, Foxconn was also exempted from specific environmental regulations. But almost as soon as the deal was signed, it began to unravel.
"Foxconn kept walking back their promises, walking back what they were going to do," says Dr Mitchell.
And then there were the lost opportunity costs, which he puts in the hundreds of millions of dollars.
"Wisconsin has one of the highest corporate income taxes in the United States. Absent the subsidy, they could have reduced their corporate income tax rate and benefited thousands of other local small new firms.
"That could have been a source of growth," he says.
"You really have to look at both sides of the ledger: what are the benefits to the firm, but also account for the costs that the community pays."
A worldwide phenomenon
While Dr Mitchell's research focuses specifically on the US, he says the rapid growth of corporate welfare is not just an American phenomenon.
In Australia, a wide range of profit-driven companies including casinos, airlines, elite private schools and mining operators are all the recipients of ongoing state and federal funding.
Greens leader Adam Bandt recently called on the federal government to axe more than $1.9 billion in "zombie fossil fuel subsidies" — subsidies that had been announced by the previous government, but not yet formally committed.
"Public money should not fund coal and gas," he told Guardian Australia. "If money is as tight as the treasurer says it is, then Morrison-era handouts to coal and gas should be the first to get the chop."
But if excessive corporate welfare is ultimately a negative for the environment, for societies and their economies, why does it continue apace?
Ian Parry believes governments find it politically difficult to say no to corporations because of the widely held yet incorrect belief that ending subsidies will damage industries and households.
And he rejects claims that the poor would be disproportionately harmed by any reduction in subsidisation of the fossil fuel sector.
"Holding down fossil fuel prices below their efficient levels is actually a very inefficient way to help low-income households, because most of the benefits accrue to households that aren't poor, that aren't in the bottom fifth of the income distribution."
Dr Mitchell says corporate welfare has become the "normal state of nature" in politics. And, he says politicians — not just corporate lobbyists — need to accept their share of the blame.
"A targeted subsidy offers a politician an opportunity to stand in front of a specific factory, often with a golden shovel in hand, and take claim for that economic activity," he says.
"What's not seen is the fact that, absent the subsidy, taxes for all firms could be reduced or, absent the subsidy, public good, public service provisions could be increased.
"That sort of thing is just more hidden."
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