Reforming environmentally harmful subsidies, a game of profit and power?

EHS are subsidies that have a negative impact on water, land, air, and, more generally, on the planetary boundaries. In many cases, they are linked to over-extraction, such as fossil fuel subsidies that perpetuate oil and gas extraction. It’s time to phase out these subsidies, as they are supporting an extractive system that is causing irreversible damage to the planet and its people.

One element of the answer lies in what I call the "morality gap." My role, as an environmental scientist working with corporations and policymakers around the world, is to influence systems change that enables purpose-driven companies. It is immoral that we have oil and gas companies making $2.8 billion in windfall profits per day, untaxed, while people are suffering from energy poverty.

Big companies that benefit from these subsidies are blocking legislation or decisions on subsidies and often use the argument of “access to the poor”—for example, claiming that the low price of gas and fuel is meant to enable more people to access energy. But alternatives are possible. For instance, these trillions of dollars in subsidies could be redirected from fuel and gas companies to a just transition fund, enabling people to shift toward electrification and breaking the vicious cycle of dependency on cheap gas and fuels.

We have successful examples of such transformation in recent history. A couple of years ago, in Europe, people did shift to cleaner fuels. Despite the oil and gas sector pushing back against removing sulfur or lead from their fuel mixes—both of which are not only pollutants but also deeply carcinogenic and harmful to human health—the transition happened. At the time, the sector argued that removing these substances would increase costs for consumers. But what did we do? We implemented a tax incentive that allowed consumers at the pump not to notice the price difference between highly pollutant fuel and cleaner fuel. Slowly, the cleaner fuel became cheaper, while the dirty fuel became more expensive. The differential was created by manipulating tax incentives and fuel pricing across Europe. This allowed the oil and gas sector to raise the price of "dirty" fuel in comparison to the cleaner alternative.

During this transition period, companies were still able to profit because it took time for consumers to shift. And in that time, the oil and gas sector was able to invest some of that differential in cleaner technologies. Slowly but surely, people began transitioning to the cheaper, cleaner fuel.

We need to use these kinds of strategies where the burden of transition doesn’t fall on consumers, but on the big companies that can afford it.

It’s profit and power, absolutely. It’s the fact that the incumbents don’t want to let go of that power, and they don’t want to let go of those profits. For example, some major oil and gas companies are now moving away from their net-zero objectives. Not only are they continuing to emit, but they are also continuing to extract, which is the opposite of what they promised to do ten years ago. We now have companies that are so driven by shareholder value, and so focused on both power and profit, that they don’t care if they don’t meet those objectives anymore. They’re ready to burn this planet in order to increase shareholder value and maximize their own profits.

That is why simply shifting subsidies is not enough. We need to tax the right things, we need to subsidize the right things, and we need brave leadership that holds the biggest polluters accountable for the climate and nature impacts we’re facing today.

We should ask ourselves: what is the responsibility of a company today? It is not power. It is not greed. Profit is important, but we must work together to create a new prosperity motive—one that truly focuses on collective well-being. What is good capitalism? What is responsible capitalism? It’s ensuring that nature and social value are embedded in everything. It’s about moving beyond GDP. If productivity is the only signal you get from the economy, and if shareholder value is the only signal you get from the market, then we’re heading in the wrong direction.

At +1.5°C since pre-industrial times, we lose 3% of GDP. We’re on a pathway toward +2°C. At 3°C, we lose 10% of GDP. If we continue down the pathway of focusing solely on productivity and extraction, without any consideration for the planet and people, we are driving ourselves into the ground. Climate change is not just an environmental crisis; it’s a humanitarian crisis. And social tension is bad for everyone—assets, stocks, bonds, businesses, and politicians. Right now, we’re enabling a situation where we’re driving our financial and economic markets so far away from the needs of people and the planet that we’re starting to see the results, which is a shift toward greater social tension.

Beyond GDP means putting in place social and environmental indicators at the economic level, driving decisions in public funding, and also creating regulations that ensure our industrial base does the same.