Why are global elites demanding poor nations make energy expensive?
By Michael Shellenberger
Demonstrators block roads and set fires during nationwide protests against the Haitian government’s decision, made under the advice of the United Nation’s International Monetary Fund, to cut fossil fuel subsidies (Photo by Georges Harry Rouzier/Anadolu Agency via Getty Images)
Over the last decade, the World Economic Forum (WEF), the United Nations’ International Monetary Fund (IMF), and the World Bank have all urged poor nations to stop subsidizing fossil fuels. “End fossil fuel subsidies and reset the economy for a better world,” read the headline of a June 2020 WEF article about the launch of its “Great Reset” initiative.
The WEF article quoted the Managing Director of the IMF, Kristalina Georgieva. “We now have to step up, use all the strength we have, which in the case of the IMF is $1 trillion,” she said to create “the great reset, not the great reversal.” By “reversal” she meant returning to the use of fossil fuels, after the pandemic. By “reset” she meant moving to renewables. “I’m particularly keen to take advantage of low oil prices to eliminate harmful subsidies,” she said.
Last week, the government of the small Caribbean island of Haiti took the advice of the IMF, WEF, and World Bank and announced the end of fuel subsidies. The result has been riots, looting, and chaos. A powerful gang leader used public outrage at the announcement to block a port and organize the overthrow of the government. Looters stormed warehouses, making off with food aid. Rioters burned down beach houses and businesses. And several European embassies shut down to protect their staff.
The underlying cause of Haiti’s problems cannot be laid at the feet of the WEF or IMF, and many have exaggerated the role of the Great Reset in policymaking. Haiti has been a ward of the US government and international agencies for decades. In 1994, the UN Security Council authorized a military occupation of Haiti after its military overthrew a democratically elected president in 1991. An earthquake killed over 100,000 and devastated infrastructure in 2010. As for WEF, it has been the subject of ridiculous conspiracy theorists.
But there is no question that it was the Haitian government’s announcement of fossil fuel subsidy cuts that triggered the current chaos, nor that it was encouraged by WEF, IMF, and the World Bank. Conspiracy theories aside, the influence of the WEF is quite real, and one of the central demands of the Great Reset was, upon its launch, the phase-out of fuel subsidies in poor nations. And after the government of Haiti, last week announced it would do just that, thousands of Haitians surged into the streets to burn tires for roadblocks. “The population cracked,” a truck driver told the Wall Street Journal.
In an email to me, an IMF spokesperson defended the agency’s advocacy of fossil fuel subsidy cuts. “The Fund supports the objectives of the current government in Haiti as regards fuel reform,” said the spokesperson. “The Fund has also recommended for several years a gradual reduction in fuel subsidies, but only after careful preparation and launch of (i) offsetting social benefits for vulnerable groups affected, including the transport sector, and (ii) clear communications about the rationale and end-goal of subsidy reform.” [Emphasis in original.]
But the IMF should have known that any cut to fossil fuel subsidies would inflame citizens. In 2018, the Haitian government agreed to IMF demands that it cut fuel subsidies as a prerequisite for receiving $96 million from the World Bank, European Union, and Inter-American Development bank, triggering protests that resulted in the resignation of the prime minister. And in 2014, the government of Haiti, on the advice of the World Bank, combined fuel price increases with greater spending on health and education, as IMF recommends, and the result was widespread strikes that forced the government to resume subsidies by early 2015.
And, it’s not just Haiti. Over 40 nations since 2005 have triggered riots after cutting fuel subsidies or otherwise raising energy prices. It happened earlier this year in Kazakhstan, Ecuador in 2019, Nigeria in 2012, Bolivia in 2010, and Indonesia in 2005. “What is interesting,” note researchers, “is that the story plays out in almost the same way, and the consequences of both action—and inaction—are very similar as well.”
All of which begs the question: why, if cutting fuel subsidies results in social chaos and the overthrow of governments, do global elites at the WEF, UN, and World Bank keep demanding poor nations do it?
The Global Elites’ War on Energy
WEF Chairman Klaus Schwab; IMF Managing Director Kristalina Georgieva; UN Secretary-General António Guterres (Getty Images)
In 2017, an obscure agency within the World Bank called the Energy Subsidy Reform Facility (ESRF) published a report about what went wrong with its 2014 efforts in Haiti to remove fuel subsidies. In it, ESRF revealed itself to be the architect of the Haitian government’s plan to cut fuel subsidies. ESMAP ran economic simulations to predict the impact of fuel price increases on different social groups, held workshops with government officials, and staffed an “inter-ministerial reform committee” to devise ways “to contain possible social and political unrest.”
The report is so damning I was surprised the World Bank allowed it to be published.
What went wrong? According to ESRF, the Haitian government’s public relations. “Research points out there was a widespread lack of information,” ESRF staff wrote, “and understanding on the cost of subsidies and whom they benefit.” The problem was not, the report insisted, that there was anything wrong with the policy of increasing energy prices in a nation where the per capita GDP is $1,814 per year.
Next time, ESRF, the Haitian government simply needed to better explain to Haitians why they needed to pay more for energy. “The design of a communication strategy,” it wrote, “focusing on explaining the costs of fuel subsidies and benefits that reform could bring, supplemented with a one-off targeted action to mitigate negative impacts from the reform on critical and most vocal groups is under preparation… More advocacy is hence needed.”
Perhaps the finding wasn’t so shocking. After all, ESRF’s entire mission, it explains, is “to help countries remove fossil fuel subsidies,” including by bringing the wisdom of global elites to poor nations, which it refers to as “knowledge-exchange for a global community of reformers.”
The real question is why global elites at the World Bank, and other organizations, including the UN, IMF, and WEF, keep promoting such policies, and creating agencies like ESRF, even though they result in serial episodes of chaos, political instability, and the fall of governments.
Part of the reason appears to be that global elites are arrogant and disconnected from reality, a phenomenon that has been well-studied and much-discussed since the Vietnam war. The people who work at the U.N., IMF, and World Bank, and attend WEF conferences in Davos, don’t, in my experience, spend much time interviewing the people in poor and developing nations who are most affected by energy price increases. They are armchair intellectuals.
Relatedly, intelligent people in powerful institutions are especially blind to their biases because they view people who disagree with them as their intellectual inferiors. As a result, institutions like WEF, the UN, and World Bank systematically stamp out dissent, so there is nobody around to point out bad ideas.
That was the sense I got reviewing the dozens of reports, white papers, and studies by think tanks and international agencies about how governments can cut fossil fuel subsidies, or otherwise raise energy prices, without triggering a backlash. Most of these studies say the same things that the IMF spokesperson said in an email to me: governments should move gradually, engage in intensive public relations, and provide new subsidies, such for health care, or for direct cash payments, to offset the fuel subsidy cuts.
I was struck, while reading the reports, by the pervasive assumption that, first, public relations could overcome the public backlash to fuel subsidy cuts, as though words could trump material reality, and second, the assumption that the subsidy cuts were vital, no matter how high the social and political costs.
There isn’t a lot of fiscal or economic justification for such a view. In 2014, Haiti’s fuel subsidies amounted to 2.2% of Haiti’s GDP. That’s not nothing. Health spending was 0.8% of GDP that year. But 2.2% is hardly a major drain on the federal budget, particularly considering how much of it depends on foreign aid, which totaled $13 billion over the last decade. And it’s effectively nothing for politicians who want to stay in power.
The underlying problem is that cheap energy is a necessary precondition for economic development. Subsidizing energy rather than, say, subsidizing health care, or simply giving people cash, may be a way of subsidizing productivity, and have positive knock-on economic benefits that are difficult to measure, inefficiencies aside.
The IMF appears to address this by claiming that the energy subsidies disproportionately benefit more affluent people: “Haitians with cars and generators,” in the words of IMF’s spokesperson. But many of those more affluent Haitians are using the energy to power buses that transport workers and generators that run industries, and if they have to pay more for energy, they’ll simply pass on the higher costs to their customers.
In other words, it’s not just consumers who need energy, it’s also the producers, the people who drive growth. I find it hard to believe that the economists and others who work at WEF, IMF, and World Bank don’t know that expensive energy retards economic growth. It’s Economics 101.
One clue as to what might be going on is that the very same people and institutions that promote cuts to fossil fuel subsidies are promoting subsidies for renewables. The ESRF is part of another World Bank agency called the Energy Sector Management Assistance Program (ESMAP), which was created in 2011 as part of the World Bank’s “Sustainable Energy for All,” program, which promotes renewable energy and energy efficiency in poor nations. Sustainable Energy for All tends to promote energy consumption as something for consumers, like solar-powered light bulbs, rather than as something for producers, like diesel-powered generators.
As such, it’s clear that the concern global elites have with subsidies isn’t that they are energy subsidies but rather that they are fossil fuel subsidies.
Dig a little deeper and it’s obvious that the real concern among global elites is global warming. Proof comes in the fact that the IMF counts as subsidies the externalized costs of global warming, a highly unorthodox measure that stretches the meaning of the word “subsidy.”
Moreover, the way IMF uses this standard is biased against fossil fuels and renewables. Under IMF’s definition, the absence of any requirement that the producers of solar panels, wind turbines, and electric vehicles pay for their “externalities,” namely the cost of disposing of their waste by-products, should count as a subsidy. And yet it doesn’t: neither IMF nor any other agency makes any such mention of renewable energy’s externalities.
As such, what’s driving the demand from Western elites that poor nations make energy more expensive is the same neoliberal, Malthusian, and anti-civilization ideology that is being used to justify the closure of nuclear plants in Germany and the blocking of natural gas production in the United States, which has been promoted by global elites, including WEF since 1973.
Corporate Execs Find Their Backbone
Rep. Rashida Tlaib (left) and JP Morgan CEO Jamie Dimon (center) clash over fossil fuel subsidies. Saudi Aramco CEO Amin H. Nasser (right). [Getty Images]
At the 2020 WEF meeting, Bernard Looney, the CEO of BP, pledged his whole-hearted support for the Great Reset, including an end to fossil fuel subsidies in poor nations. Looney touted BP’s alternative energy portfolio, which includes billions in investment for wind turbines, solar panels, and biofuels. “We all know there is a carbon budget. It is finite, it is running out,” he said. Looney’s was just one of many statements made by the leaders of the world’s largest oil and gas industries suggesting that they have become willing participants in the war on cheap and reliable energy.
That war was on display yesterday when Rep. Rashida Tlaib (D-MI) demanded that America’s top banking executives promise to immediately halt all funding of fossil fuel production. “You have all committed, as you all know, to transition the emissions from lending and investment activities to align with pathways to net-zero in 2050,” said Tlaib. “So no new fossil fuel production, starting today. That’s, like, zero… Please answer with a simple yes or no. Does your bank have a policy against funding new oil and gas products, Mr. Diamond?”
Tlaib was referring to JPMorgan Chase CEO Jamie Dimon, who was on the witness stand. Given the capture of fossil fuel companies by renewable energy true believers, I expected Dimon to say “yes.” I was thus floored when he instead said, “Absolutely not. That would be the road to hell for America.”
Dimon’s response infuriated Tlaib. “Sir, you know what, everybody that got relief from student loans — has a bank account with your bank — should probably take out their account and close their account,” she huffed.
Others in the energy industry are starting to show similar backbone. On, September 20, Amin H. Nasser, the CEO of Saudi Arabia’s state-owned oil company, Aramco, made headlines when he said that underinvestment in oil and gas over the last decade was behind today’s energy crisis. “When historians reflect on this crisis, they will see that the warning signs in global energy policies were flashing red for almost a decade.”
Said Nasser, “oil and gas investments crashed by more than 50% between 2014 and last year, from $700 billion to a little over $300 billion… when you shame oil and gas investors, dismantle oil- and coal-fired power plants, fail to diversify energy supplies (especially gas), oppose LNG receiving terminals, and reject nuclear power, your transition plan had better be right.”
Nasser is, obviously biased, but he is also right. As I noted last year, six months before Russia invaded Ukraine, it was under-investment in oil and gas production, due to the ESG movement and climate activism, that had resulted in their scarcity.
Nasser poured cold water over renewable energy plans. “As Europe aggressively promotes alternatives and renewables technologies to reduce one set of dependencies it may simply be replacing them with new ones,” he said. “As investments in less carbon-intensive gas have been ignored, and contingency planning disregarded, global consumption of coal is expected to rise this year to about 8 billion tonnes.”
Change is coming, and not just to Haiti and other poor and developing nations. Neoliberal and Malthusian dogma already resulted in the fall of one government, Sri Lanka, in August. The riots in Haiti suggest that it could soon result in the fall of others, very soon. As Nasser noted, the fantasies of a world powered by renewables are “just a chain of sandcastles that waves of reality have washed away. And billions around the world now face the energy access and cost of living consequences that are likely to be severe and prolonged.”
Eventually, that change will arrive at WEF, the UN/IMF, and World Bank, or they will become irrelevant. After all, the leaders of poor and developing nations around the world read the news. They will soon learn from what’s happened in Sri Lanka and Haiti. They will be reminded that fossil fuels and synthetic fertilizers are, for now, and in the foreseeable future, vital to cheap energy and food and that Western, neoliberal, and Malthusian institutions cannot be trusted.
Before long, we will go from the dark and delusional fantasy, “End fossil fuel subsidies and reset the economy,” to a more pro-human and hard-headed one: “Make energy abundant and cheap and reset the elites.”