S03E12 - Planet - The Great Climate Spending Paradox: When Actions don't match words (Transcript)

[00:00:00]

Daniel (real): Hello and welcome back to the Supply Chain Dialogues. My name is Daniel Helmig and as usual my AI co host AImee joins me today.

AImee: Hello ! Today, we're diving into one of the most glaring contradictions in modern policy-making: the stark disconnect between governments' climate commitments and actual spending patterns.

Daniel (real): We're calling this episode the Great Climate Spending Paradox, when actions don't match words. And let me tell you, when we started digging into the numbers for this episode, even I was surprised by what we found.

AImee: Indeed. While world leaders made so far bold declarations at climate conferences and set ambitious targets, the flow of money tells a very different story. For instance, would you believe that Germany, often seen as a climate leader, still provides €70 billion in fossil fuel subsidies while simultaneously pledging to phase out coal power?

Daniel (real): As always in our podcast, we don't just throw around opinions. We're using hard data, looking at governmental spending figures, subsidy patterns, and actual policy implementation across different countries with a focus on the G7. And what we found is, well, let's just say it's a bit like watching someone order a Diet Coke with their triple cheeseburger.

AImee: Today, we'll break down these differences using data from major economies, examine why they exist, and discuss what this means for global climate efforts. And: just as a pre-emptive message: we did our best to ensure that all numbers are correct, but please check and validate the numbers we use, if you plan to build on them further.

Daniel (real): And before anyone thinks we're just here to criticize, we'll also look at potential solutions in some success stories where actions align with commitments.

AImee: Shall I start with some of the telling numbers out of our research?

Daniel (real): Yes. Let's dive right in and today's numbers. [00:02:00] Well, they tell quite a story.

AImee: Let's start with a striking figure: The world's major economies are spending $147 billion on emission reduction while maintaining $200 billion in fossil fuel subsidies. Helpe our dear listener understand what this means in practical terms

Daniel (real): Let me break this down with an analogy that might resonate. Imagine you're trying to quit smoking, but instead of just buying nicotine patches, you're also stockpiling cigarettes just in case.

That's it. Essentially what governments are doing with climate policy right now. And just like with our hypothetical smoker, this approach isn't just ineffective. It's counterproductive.

AImee: The numbers become even more interesting when we look at specific countries. Take Germany, for instance. They've committed to being a European climate leader, but the data tells a complex story.

Daniel (real): Yes. And that's where it gets really interesting. Germany provides 20 billion euros for climate transformation in 2022.

Sounds great, right? But simultaneously they're spending 70 billion on fossil fuel subsidies.

It seems to me like driving with one foot on the accelerator and one on the brake.

AImee: In any other industry that polluted and was bad for humans health, no one in their right mind would have given them any subsidies when finally they were legally ostracized. Neither cigarette, nor asbestos manufacturers received transition funding and compensations, after their business models rightly went up in smoke. And it's not just Germany. China, often criticised for its environmental policies, shows similar contradictions. They're investing since 2009 €540 billion in green technology, with 290 billion specifically for renewables and 120 billion for EVs. Yet simultaneously, they [00:04:00] maintain 130 billion in fossil fuel subsidies and 62 billion in coal subsidies during the same tim.

Daniel (real): And you know what's fascinating about these numbers, although saying fascinating in this context is kinda lousy. They reveal something deeper about how governments operate. It's not just about the money.

It's about trying to please everyone while satisfying no one. And let me share something from my corporate experience. When you try to pursue two contradictory strategies simultaneously, you usually fail to do both.

AImee: Speaking of contradictions, let's look at something that rarely makes headlines: aviation fuel tax exemptions. The EU alone loses €27 billion annually through these exemptions, with Germany accounting for 8.3 billion of that.

Daniel (real): This is a perfect example of what I call hidden subsidies.

Most people don't realize that when they buy an airline ticket, they benefit from massive government subsidies. The aviation industry effectively gets a free pass on fuel taxes, while other sectors and individuals pay full price.

It's like having a secret discount card that's costing our climate dearly. And for the record, 80 plus percent. 80 plus percent of all travel is private by people like you, our dear listener, and me.

AImee: The numbers also reveal interesting patterns in how different regions approach this challenge. The Nordic countries, for instance, show some notable contrasts. Despite its reputation for environmental leadership, Norway provides €4 billion in oil exploration incentives while simultaneously offering strong EV incentives.

Daniel (real): And you know what's ironic about Norway? They're using their oil revenues to fund their green transitions. And while it might work in the short term, it raises serious questions about long term sustainability.

AImee: Should we discuss the impact of these contradictory policies on actual emission reductions?

Daniel (real): Absolutely. But before we do that, let's put these numbers into perspective. The total annual fossil fuel subsidies [00:06:00] we're talking about across all major economies could fund the complete renewable energy transition for several medium sized countries.

Instead, we're using it to make fossil fuels artificially cheaper, effectively undermining any carbon pricing or emission trading schemes.

AImee: When we look at emission reductions versus subsidies, we see something quite remarkable. Take the EU's example - they're targeting a 55% reduction in emissions by 2030, yet their member states collectively provide €72 billion in fossil fuel subsidies annually

Daniel (real): You know what's particularly frustrating about this? These subsidies aren't even economically necessary anymore. Let me give you an example.

The cost of solar and wind power has dropped by over 80 percent in the last decade. Yet instead of redirecting fossil fuel subsidies to support this transition, governments are running a dual track expensive and

AImee: The data shows that for every euro spent on emission reduction, about 50 cents is simultaneously spent on activities that increase emissions. From your corporate experience, how would this kind of strategy be viewed in the business world?

Daniel (real): In the business world, this would be a career limiting move, to put it politely. Imagine going to your board and saying, we're going to invest heavily in automation to reduce labor costs, but we're also going to hire more people for the same jobs. You'd look for a new job before you finished the presentation.

AImee: The numbers become even more interesting when we look at the return on investment. According to our research, every billion euros in fossil fuel subsidies locks in approximately 0.6 million tons of CO2 emissions annually. Meanwhile, the same amount invested in renewable infrastructure could reduce emissions by 1.2 million tons.

Daniel (real): Let me add something here that really bothers me as someone who worked in supply chain optimization for decades. These subsidies are just not about direct [00:08:00] financial cost. They distort entire market systems. When you artificially lower the cost of fossil fuel, you're not just affecting energy prices.

You're influencing transportation choices, industrial development, urban planning, basically every aspect of your economic system. You take away the normal market based incentives to switch to sustainable production and transportation.

AImee: The kerosene tax exemption you mentioned earlier is a perfect example of this distortion, isn't it?

Daniel (real): Absolutely. Absolutely. And this is where it really gets interesting.

Airlines pay no tax on their fuel due to an international agreement from, drumroll, 1944, the Chicago Convention. Meanwhile, if you drive your car to the airport, you're paying significant fuel taxes. This isn't just unfair, it's actually encouraging more carbon intensive travel options.

AImee: The numbers from our research show that removing these aviation fuel tax exemptions alone could reduce aviation emissions by 11% due to higher ticket prices reducing demand. Yet no government wants to be the first to challenge this system.

Daniel (real): You know what this reminds me of? It's like the famous prisoner's dilemma from game theory. Every country knows we must change these policies, but no one wants to move first for fear of losing competitive advantages. Meanwhile we are losing in the bigger climate change game. Now, let's look at how these contradictory spending patterns ripple through different sections of the economy. And believe me, having worked in multiple industries, the effects are both fascinating and scary.

AImee: One sector that particularly stands out is the automotive industry. Just look at Germany: they're pushing hard for EV adoption with incentives worth billions, yet simultaneously subsidising their traditional auto industry through various industrial support programs.

Daniel (real): You know what's really interesting about that? When I was working in the automotive sector, we could see this coming.[00:10:00]

The industry knew electricity was the future, but instead of going all in on the transition, we kept one foot in each camp. And now look what has happened. Chinese EV manufacturers are eating our lunches in the global market because China made the conscious decision when looking at the need for greenhouse gas emission reductions that they needed to put their money where the next generation's mouth is.

AImee: The numbers support that observation. China invested €290 billion in renewable manufacturing capacity while focusing on grid infrastructure and production-oriented subsidies. Meanwhile, the EU focused more on consumer incentives and local manufacturing protection.

Daniel (real): And that's where it really gets absurd. Take steel production as an example. In Europe, governments are simultaneously subsidizing both green hydrogen for steel production and coal based steel manufacturing.

It's like betting on both horses in a race. Sure, you'll back a winner, but you're as well backing the loser.

AImee: Could you explain how this affects supply chain decisions?

Daniel (real): This is where my supply chain background really makes me want to pull my hair out. These contradictory policies create massive uncertainty in supply chain planning.

How do you make a 10 year investment decision when government policies are pulling in opposite directions? Look just what happens on shipping. We're subsidizing both the development of hydrogen powered vessels and giving tax breaks for traditional bunker fuel.

AImee: The data shows that shipping alone receives about €27 billion in fossil fuel subsidies globally, while only 8 billion is allocated to developing clean sustainable ships.

Daniel (real): And here is what really gets me. These numbers don't even include the hidden cost. When governments subsidize fossil fuels, they are not just spending tax money directly. They are also creating what economists call stranded assets. Infrastructure and systems that will become worthless as we transition to clean energy. It's like building a brand new [00:12:00] VHS factory in 2005. You know it will be obsolete, but you're doing it anyway.

AImee: Let's talk about what's really driving these contradictory policies. It's fascinating how psychological factors and institutional biases shape these decisions.

Daniel (real): You know what?

After analyzing over 1, 200 scientific studies for my doctorate, I've noticed something interesting. The same cognitive biases we discussed in our earlier episode about behavioral science are actually showing up in institutional decision making as well.

AImee: Are you referring to the availability heuristic we discussed recently?

Daniel (real): Exactly. But at an institutional level, it's even more complex. Think about it. Politicians and policy makers are constantly bombarded with immediate concerns. Job losses in traditional industries, pressure from unions, regional unemployment. These are very available problems in their minds.

Meanwhile, climate change impacts feel distant and abstract.

AImee: Looking at our data, democratic countries consistently spend more on protecting existing industries than on future-oriented transitions. Germany's €48 billion in coal subsidies, for instance, is largely justified by concerns about mining communities and jobs.

Daniel (real): Ha! You know what this reminds me of?

It's like the famous marshmallow experiment we discussed in our behavioral science episode but at a governmental level. Policymakers are constantly choosing the immediate marshmallow, protecting current jobs and industries over the bigger reward of a sustainable future economy.

And, as in the experiment, the long term effects of governments that can resist the temptation will be better equipped to handle things to come, similar like the marshmallow kids, where, when you looked at them with 30 years, they were doing so much better.

AImee: The data shows something else interesting too. Countries with shorter electoral cycles tend to have more contradictory climate and subsidy policies. It's almost [00:14:00] as if the political system itself enforces short-term thinking.

Daniel (real): Let me share something from my advisory experience that perfectly illustrates here. When we are working with major corporations on sustainability transitions, we often saw, one, two, three. the same patterns.

Everyone agreed with a long term goal. But when quarterly results were at stake. Suddenly those goals become flexible. Now imagine that same pressure with votes instead of profits.

AImee: That brings up an interesting point about institutional inertia. Our research shows that bureaucracies tend to defend existing programs while adding new ones, rather than replacing old policies with new ones.

Daniel (real): Absolutely. That's what I call the policy layering effect. Instead of making hard choices about eliminating fossil fuel subsidies, governments just add clean energy subsidies on top. It's like trying to diet while keeping all your old eating habits. It just doesn't work.

What's fascinating about public opinion and policy implementation is the infrastructure paradox as well. Governments will spend billions maintaining outdated fossil fuel systems, like Germany's 48 billion in coal infrastructure we mentioned, while hesitating to invest similar amounts in future proof technology.

AImee: Public surveys show that while 76% of people in developed nations support climate action in principle, this drops to 34% when specific costs are mentioned.

Daniel (real): And here's where policy makers face their own cognitive dissonance. They know the long term cost of climate change far outweigh current subsidy cost, but they're trapped in what psychologists call the present bias.

AImee: Sounds like using your gambling winnings to fund adiction therapy. Now, speaking of cognitive dissonance, our research shows something fascinating about how governments communicate these policies. They often announce new climate initiatives with great fanfare while keeping fossil fuel [00:16:00] subsidies quietly running in the background.

Daniel (real): This reminds me of a fascinating conversation with a senior policymaker I had.

I won't name names. He told me, we know these subsidies are bad. But have you seen what happened when we tried to remove them? He was referring then to the Yellow Vests protests in France, which started as a response to fuel tax increases.

AImee: That points to another psychological factor: loss aversion. Studies show that people react more strongly to perceived losses than to equivalent gains.

Daniel (real): Exactly. And this is where policy makers often get it wrong.

Instead of transparently communicating the true cost and benefits, they try to please everyone. Look at Germany. Germany.

You're not solving the problem, you're just making it more expensive. Effective policymaking requires clear headed assessment of trade offs, not trying to have it both ways. Now, let's follow the money trail and see what it reveals about real priorities versus public commitments. And trust me, this is getting interesting as well.

AImee: Indeed. Let's start with some concrete examples. China's spending tells a fascinating story: €540 billion for green tech, but simultaneously 130 billion in fossil fuel subsidies. What do you think, this dual-track approach tell us?

Daniel (real): China is actually being more transparent about this contradiction than most western countries. They're openly saying, yes, we're building the world's largest renewable energy system and we're supporting our coal industry.

Other countries do the same thing but try to hide it in complex policy frameworks. If all governments would stop incentivizing coal, coal would be expensive enough that consumers would change automatically and revenues would pour into renewable energy systems giving the market an incentive to invest and increase supply even more and quicker.

AImee: Let's break down the [00:18:00] numbers for the EU. They're committing €189.4 billion to their green agenda, but member states collectively provide over 72 billion in fossil fuel subsidies.

Daniel (real): Yeah, there is a term for this, we call it strategic ambiguity. It's when you want to keep all your options open, but in reality you're just avoiding making tough decisions. The problem is, with climate change, we don't have the luxury of ambiguity anymore.

AImee: The aviation sector provides a particularly striking example. The EU loses €27 billion annually through kerosene tax exemptions while simultaneously promoting their 'Fit for 55' climate package.

Daniel (real): Let me tell you something about aviation subsidies that really shows how absurd the whole thing gets. We're literally paying airlines to pollute through tax exemptions, then spending additional money to offset their emissions through other programs.

AImee: Let's look at some specific national examples. Let's use France which is quite revealing: They've committed €70 billion to energy transition but maintain 11 billion in fossil fuel subsidies through fuel tax reductions and industry support. But, at least they are not spending the same amout of tax payers money like the Germans.

Daniel (real): You know what's fascinating about France? They actually have one of the lowest carbon electricity systems in Europe thanks to nuclear power. But instead of building on that advantage, they're spending billions subsidizing still fossil fuels while simultaneously trying to reduce emissions.

It's like having a perfect hand in poker and still asking for new cards.

AImee: Speaking of contradictions, let's look at Norway again, which presents perhaps the most interesting case.

Daniel (real): Yeah, Norway. Now, this is a fascinating example of cognitive dissonance at a national level. They're the EV adoption champions in the world, right? But here's what people don't talk about.

They're funding their green transition with oil money. They provide 4 billion in oil exploration incentives while promoting [00:20:00] themselves as a climate leader.

AImee: The data shows that Norway's oil exploration incentives actually exceed their domestic EV incentives by a factor of 1.3.

Daniel (real): And here's something even more interesting about Norway that I learned during my research.

They're actually increasing their oil exploration while promoting, as well, green technology. They justify it by saying their oil is cleaner than others.

AImee: Let's jump over the pond and look at the United States. Their numbers show $370 billion for the Inflation Reduction Act package while maintaining 55 billion in fossil fuel subsidies.

Daniel (real): The US situation is interesting because it shows how these policies get locked in through political gridlock. They're essentially trying to solve climate change by adding new spending on top of old subsidies rather than restructuring the system. It's like trying to lose weight by exercising more while continuing to eat junk food. You might see some improvement, but you're making it much harder than it needs to be.

AImee: Let's as well look at Asia, where the spending patterns tell an even more complex story. I've spent considerable time working with Asian country research, and their approach to this issue is... well, let's say pragmatic.

Daniel (real): You know what's really interesting about this? China for example is doing something that western nations often criticize but secretly envy. They're maintaining complete control over their energy transition pace.

They're building massive solar panels and EV manufacturing capacity while keeping coal as a backup. It's not environmentally ideal, but it's strategically coherent.

AImee: Especially as long as renewable energy can not fully take over. Different again in Germany, where just this month we have something the Germans call "Dark Doldrums", meaning due to missing wind and less sunshine, the renewable energy is creating a gap in power supply. Now the German Government says: Don't worry, we still can import more. But in reality, this lack of foresight like the Chinese do, is costing. Well, who do you [00:22:00] think? It's as alway the public, like in every other bad governement decision. The price for electricity just hit a new high benchmark in Germany. Now, Japan presents another interesting case with €140 billion in green transformation funding while maintaining €45 billion in fossil fuel subsidies.

Daniel (real): Yeah. Japan's approach is particularly ironic because they're one of the most energy efficient economies in the world.

But after Fukushima, they got spooked about nuclear and doubled down on fossil fuels. No, they're trying to transition away from the very energy sources they just invested in.

AImee: And then there's Singapore, with their Green Plan 2030 worth €15 billion while maintaining €5.2 billion in fossil fuel subsidies.

Daniel (real): Singapore is fascinating because they're basically running an experiment in pragmatic environmentalism.

They're saying, we'll go green, but we're keeping our petrochemical industry because it makes money. It's probably the most honest approach we've seen, even if it's not the most climate friendly.

AImee: Let’s make a bit of an excursion and look at another aspect of how governments use your hard-earned money in the form of taxes. In France, the government spends 59.2% of everything produced in the country. That's nearly 60 cents of every euro generated! Meanwhile, Singapore, which consistently ranks among the world's most efficient governments, operates on just 17.4%. Switzerland, another well-functioning state, runs on 32.8%.

Daniel (real): But don't we need high government spending to provide essential services?

AImee: That's where it gets really interesting. Let me share some historical perspective on one aspect, that particularly now is hotly debated. In 1960, when most people agreed that governments provided their core functions effectively, G7 nations spent significantly more on defence - their primary constitutional responsibility - but much less overall. The US, UK, and France spent over 6% of GDP on defense [00:24:00] alone. Today, most G7 nations except the US spend between 1-2.2%, while their total government spending has exploded.

Daniel (real): So governments are spending more overall but less on their core functions?

AImee: Exactly! This is where the Austrian School of Economics provides interesting insights. They argue that the government's role should be limited to protecting individual rights, maintaining law and order, and providing certain public goods that markets can't efficiently deliver. Karl Popper, the famous Austrian–British philosopher, academic and social commentator, added to this with his concept of the 'open society,' emphasising that institutions should focus on preventing harm rather than trying to engineer specific outcomes.

Daniel (real): This perfectly illustrates our earlier point about contradictory policies. Now back to our original topic. After all this doom and gloom, what's the path forward?

And before our listeners turn off thinking this is hopeless, I think there are some realistic, but let's be clear, painful solutions.

AImee: Based on our analysis, the first step seems clear: governments need to stop trying to have it both ways.

Daniel (real): Exactly. And you know what? The numbers actually show that isn't as economically painful as politicians make it out to be.

Look at the subsidies we discussed, 27 billion in EU aviation fuel, tax exemptions alone. That money could fund a massive transformation in green transportation right there.

AImee: Simply redirecting existing fossil fuel subsidies to green technology would accelerate the transition without requiring additional public spending.

Daniel (real): Or, as the Austrian School of Economics would suggest, just stop the subsidies, reduce the taxes, provide some high level guardrails, and let the markets and people figure it out themselves.

Let me share as well something I've learned from decades in large change management. When you're managing a transition, you need to be decisive. [00:26:00] You can't keep one foot in the old system and one in the new. It just multiplies your costs. The same principles apply here.

AImee: The economic implications of maintaining these contradictory policies are significant. Our data shows that countries with clear, consistent energy policies attract more private investment in green technology.

Daniel (real): Let me be really clear about what needs to happen. First, governments need to stop the double speak. Get a clear timeline for phasing out fossil fuel subsidies. Tomorrow would be great, but it should be done with a realistic scale that business can plan around.

Second, redirect those funds to support affected communities and industries in transition, or just reduce taxes. And third, this is crucial, maintain policy consistency.

AImee: The numbers suggest that policy uncertainty is more damaging than strict environmental regulations.

Daniel (real): Absolutely. In the last episode we looked at the avalanche of policies, regulations and laws coming down from Europe and the national governments who all think that they know it even better than the EU

And here's my final thought. We don't have a technology or money problem. We have a political courage problem. The solution exists. The math works out. We just need governments to stop trying to please everyone and start making the tough decisions.

AImee: After looking at all these numbers, one thing becomes crystal clear: we cannot wait for governments to fix climate change. They might be just too caught up in their contradictory policies and short-term political thinking.

Daniel (real): Here's the reality. Business creates about 70 percent of global emissions to enable our way of life.

And you know what? That means businesses, must become the room's grown ups. They have to take our fate into their own hands. Because governments seem not to be up for the task. And probably by definition never will be.

AImee: So what can our listeners do to drive this change?

Daniel (real): [00:28:00] First, if you're working in business, especially in leadership, recognize that waiting for government leadership is a losing strategy. Start driving change from within. Ask tough questions about your company's energy usage, supply chain emissions, and yes, even about those comfortable subsidies we have been discussing so far.

And if you need an incentive, look into the eyes of the children sitting today in the strollers you pass on the streets and in the stores. And now imagine how they have to fight floods, migration, droughts, massive social unrest and distribution wars of epic proportions.

AImee: It seems that leaders that take the challenge by the tail, actually can gain competitive advantages.

Daniel (real): Because they have guts and not only do this right but as well a lot of other things. Second, if you're in a leadership position, stop using government inaction as an excuse. Yes, clear policy would be nice, but we can't wait for that any longer.

Start treating climate action as if it's really a business and human imperative. Your shareholders, customers and employees. All humans, as well, last time I checked, are already demanding it.

AImee: This reflects what we're seeing in market trends, where proactive companies are increasingly outperforming their peers.There are tons of academic papers with thousands of companies analysed to bring this point home.

Daniel (real): Third, and this is crucial, if you're in a position to influence investment decisions, start pushing for real transition plans.

No vague commitments. Not greenwashing, but actual measurable change. Because here's the truth. The companies that figure this out will be as well the ones that survive.

AImee: And for those not in business leadership positions, meaning the other 90% of people?

Daniel (real): Become an active voice wherever you are. Push your company to take leadership. As a consumer, support businesses that are taking real [00:30:00] actions.

And yes, still pressure your politicians. Not because they will solve the problem, but because they must stop making it worse with contradictory policies.

AImee: This marks quite a shift in perspective from waiting for government solutions.

Daniel (real): Because waiting isn't working. We've seen the numbers today.

 Markets have to step up, not because it's noble, but because it's essential for survival, even for long term profits. The companies that understand this first will shape our future.

AImee: And those that don't get the memo?

Daniel (real): Well, they become the next Kodak or Blockbuster case studies in failure to adapt.

We don't have the luxury of waiting for perfect governance policies. Break out of the echo chambers of your country's politics. and often direct or indirect government sponsored media. Look at the signs. Look outside the window. And again, look into your or other grandchildren's eyes, whether real or imaginary yet to come, and be bold.

 This is Daniel Helmig, for the Supply Chain Dialogues.

Stay safe and see you in two weeks. Until then, remember, business leaders, it's time to be the grownups in the room and government officials, step out of your echo chambers. And if you realize you're part of the problem, maybe get a job outside of politics and work in business on a solution.

These are the supply chain dialogues produced and copyrighted by helmig Advisory in 2024.