Strategy

Branson: Stop the handouts for Big Oil

Government subsidies for fossil fuels distort the market and block innovative technologies.

CB_bigoil

(Photo: Bruce Smith/AP)

As the operator of three airlines that fly over every continent, the Virgin Group is a major consumer of fossil fuels. Recognizing that carbon emissions resulting from consumption of these fuels is driving catastrophic global climate change, my role as leader of the company is to ensure that Virgin provides financial support to non-profit groups that are exploring renewable energy and seeking market-based solutions to climate change, like the Carbon War Room. We are also investing in this field ourselves: one of our airlines, Virgin Australia, is working in partnership with Dynamotive Energy Systems and Renewable Oil to develop an alternative jet fuel that will enable our global aircraft fleet to transition to clean energy. This innovation will be good for the planet and, in the long run, may boost Virgin airlines’ profitability.

Just listen to the urgent speeches from world leaders, and you might think that most governments agree that while we have no sustainable, clean alternative to fossil fuels that we can implement on a large scale today, we need to find one and put it in place quickly. This would help us to avoid the worst consequences of climate change, like dying oceans and widespread desertification, which will harm people around the world, especially the poor.

Unfortunately, however, government resources are actually flowing the other way: according to a report from the U.S.-based National Resources Defense Council, since 2009, global subsidies for fossil fuels have almost tripled to an estimated US$775 billion this year. Meanwhile, official worldwide support for clean energy is a paltry US$50 billion. This shameful investment ratio—15 dirty dollars invested for every clean one—shows that the perverse relationship between big government and big oil has not changed.

This means that entrepreneurs’ technological innovativeness and their hopes of building our clean-energy future are being stifled. Fossil-fuel subsidies drain government budgets, throwing up a fiscal wall that blocks state support for clean energy while protecting the interests of the oil industry.

This situation is well known. The G-20 and dozens of other nations have all pledged to phase these subsidies out. But three types remain common: consumption subsidies in developing nations, consumption subsidies in rich developed countries, and subsidies for fossil-fuel producers.

The latter two are inexcusable—rich nations have no business subsidizing rich oil, gas and coal companies or their own consumers. These companies use political contributions and armies of lobbyists to cajole governments to ignore the consequences: an economic crisis worse than the recent recession awaits if these nations fail to spark growth in areas that can stimulate growth and create jobs. Large oil companies like ExxonMobil, which in 2011 earned more than $40 billion, make no hiring or firing decisions based on government handouts, but startup green-energy companies will hire more engineers and technicians, more marketing professionals and managers if governments invest in them.

Consumption subsidies are most common in the developing countries that can least afford such inefficiency. For poor nations, providing fuel to their citizens at below-market prices is a crippling trap—any attempt to change them can cost a politician an election or cause riots. Developing-world governments should eliminate fuel subsidies and instead provide direct aid to their poor constituents.

Virgin will continue to develop alternative fuels, and eventually we and our competitors will find solutions that will scale up and become competitive. But while many businesses are trying to turn the situation around, governments can make the difference. By taxing fossil fuels and subsidizing renewables, governments can tilt the playing field toward a brighter future. State investments in innovative solar, bio and wind energy providers today will deliver breakthroughs in just a few years.

Richard Branson is a philanthropist, adventurer, entrepreneur and founder of the Virgin Group of companies

FILED UNDER: