Tuesday, May 31, 2016

The End of Fossil Fuel Subsidies

Providing handouts to the wealthiest corporations on earth does not make much sense, particularly when their activities are the leading driver of climate change. Ending fossil fuel subsidies is the most obvious next step in our efforts to tackle the climate crisis. In the wake of the Paris Climate Agreement forged at COP21, continuing fossil fuel subsidies is an oxymoron.

These subsidies take many forms including, tax breaks, cheap loans, price controls, purchase requirements, purchasing equipment, royalty breaks and direct spending. According to some reports there are over 800 ways that taxpayers support the fossil fuel industry.

According to the IMF, global energy subsidies amount to 5.3 trillion dollars, or $10 million a minute. This translates to 6.5 percent of global GDP, in 2015 alone. This is more than the entire health spending of all the world’s governments. The IMF suggests that removing fossil fuel subsidies could reduce greenhouse gas emission by 20 percent. Everybody from Prince Charles to the IMF have called for an end to fossil fuel subsidies.

Nicholas Stern, climate economist at the London School of Economics, said: “There is no justification for these enormous subsidies for fossil fuels, which distort markets and damages economies, particularly in poorer countries.”

Christiana Figueres, the UN’s climate change chief commented: “The IMF provides five trillion reasons for acting on fossil fuel subsidies. Protecting the poor and the vulnerable is crucial to the phasing down of these subsidies, but the multiple economic, social and environmental benefits are long and legion.”

The president of the World Bank, Jim Yong Kim, succinctly stated: “We need to get rid of fossil fuel subsidies now.”

Shelagh Whitley, a subsidies expert at the Overseas Development Institute, said: “governments around the world are propping up a century-old energy model. Compounding the issue, our research shows that many of the energy subsidies highlighted by the IMF go toward finding new reserves of oil, gas and coal, which we know must be left in the ground if we are to avoid catastrophic, irreversible climate change.”

The world's biggest providers of fossil fuel subsidies are China, ($2.3tn) US ($700bn), Russia ($335bn), India ($277bn) and Japan ($157bn), and the European Union ($330bn).

By making fossil fuels cheaper, subsidies increase the use of dirty energy resulting in more emissions. A new report shows how subsidies are increasing our emissions. According to the report's author Radek Stefansk from The School of Public Policy at the University of Calgary:
“The resultant 170-country, 30-year database finds that the financial and the environmental costs of such subsidies are enormous- and steadily increasing. The overwhelming majority of the world’s fossil fuel subsidies stem from China, the US, and the ex-USSR; as of 2010, this figure was $712 billion or nearly 80% of the total world value of subsidies. For its part, Canada has been subsidizing rather than taxing fossil fuels since 1998. By 2010, Canadian subsidies sat at $13 billion, or 1.4% of GDP. In that same year, the total direct and indirect financial costs of all such subsidies amounted to $1.82 trillion, or 3.8% of global GDP.”
Perhaps the most noteworthy statistic contained in the report show that in the absence of subsidies emissions would have been cut in half in 2010.

IMF

Numerous other studies including IMF research have come to similar conclusion as the Policy School study. The IMF called these subsidies "unsustainable"." The IMF described these subsidies as "perverse" saying "they are using public funds to create a problem the world has agreed to fix in Paris. And they leave us all to pay the societal costs that fossil-fuel pollution causes."

Ending the subsidies would also reduce the number of premature deaths from air pollution by half translating to about 1.6 million lives a year.

In 2014, IMF leader Christine Lagarde said reducing subsidies for fossil fuels and pricing carbon pollution should be priorities for governments around the world.

“We are subsidizing the very behaviour that is destroying our planet, and on an enormous scale. Both direct subsidies and the loss of tax revenue from fossil fuels ate up almost $2 trillion in 2011—this is about the same as the total GDP of countries like Italy or Russia,” Lagarde said.

G7

In 2009 the G7 (composed of UK, US, Canada, France, Germany, Italy, Japan and the European Union) announced that it would end fossil fuel subsidies but no timelines were given. At a recent meeting of the G7 in Japan, the world's wealthiest economies have agreed to end fossil fuel subsidies in the next decade.

“Given the fact that energy production and use account for around two-thirds of global greenhouse gas emissions, we recognise the crucial role that the energy sector has to play in combatting climate change,” said the leaders’ declaration, issued at the end their summit in Japan.

G20

In 2009, G20 countries promised to phase out "inefficient" fossil fuel subsidies. According to a report titled "Empty Promises: G20 subsidies to oil, gas and coal production," G20 countries are spending $452 billion US a year in direct subsidies to their respective fossil fuel industries. The study's co-author Alex Doukas, who is senior campaigner with Oil Change International, said,

"We're subsidizing companies to search for new fossil fuel reserves at time when we know that three-quarters of the proven reserves have to stay in the ground if we hope to avoid the worst impacts of climate change...So paying companies to find more fossil fuels is folly."

The report was produced jointly by Oil Change International, an advocacy group focused on moving the world away from fossil fuels, and the Overseas Development Institute, the U.K.'s leading independent think-tank on international development and humanitarian issues.

US

Despite numerous attempts to remove these subsidies in the US Congress (primarily the Republicans) have thwarted these efforts. The fossil fuel industry owns the Republican party who have consistently shown their loyalty to an industry that is rife with corruption and subterfuge. Internationally, the leaders from over 50 countries have made public commitments to phase out fossil fuel subsidies in the “medium term.” However there has not been much concrete action to date.

Canada

Canada's total federal and provincial support for the petroleum industry was close to $2.7 billion US ($3.6 billion Cdn at current exchange rates) in the 2013-14 fiscal year, with federal subsidies accounting for roughly $1.6 billion. In his election platform, Prime Minister Justin Trudeau pledged his government would end fossil fuel subsidies.

COP21

During the COP21 conference at the end of 2015, the UNFCCC released a statement which read: “An unprecedented coalition of close to 40 governments, hundreds of businesses and influential international organisations has called today for accelerated action to phase out fossil fuel subsidies, a move that would help bridge the gap to keep global temperature rise below 2°C.”

John Key, the New Zealand Prime Minister, presented the Fossil Fuel Subsidy Reform Communiqué to Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change (UNFCCC). Key said:
“Fossil fuel subsidy reform is the missing piece of the climate change puzzle. It’s estimated that more than a third of global carbon emissions, between 1980 and 2010, were driven by fossil fuel subsidies.
Figueres said in accepting the Communiqué: “These subsidies contribute to the inefficient use of fossil fuels, undermine the development of energy efficient technologies, act as a drag on clean, green energy deployment and in many developing countries do little to assist the poorest of the poor in the first place...low oil prices are a good opportunity to really get going on this issue.”

Stefan Löfven, Prime Minister of Sweden, said: “History will prove fossil fuel to be a dead end. Sweden will be amongst the first fossil free welfare nations of the world. And eliminating fossil fuel subsidies is an important step on this path.”

Hakima El Haite, Environment Minister of Morocco, candidate for the presidency of COP22, said: “Not only do fossil fuel subsidies put a strain on government coffers but they also don’t help the poorest of society.”

Solutions

The end of fossil fuel subsidies is coming and there are ways that we can expedite this transition. As reviewed by Price of Oil here are four major ways we can address the problem of subsidies:
  • Increased transparency – governments must stop hiding the handouts they give to fossil fuel companies!
  • Support for the poor and vulnerable – we need to be sure that poor countries and communities are supported to ensure access to energy while removing these subsidies.
  • Global coordination – without a way for the world to coordinate on this effort, countries will continue to drag their heels.
  • Phase-out Deadline – we all know that unless you have a deadline, you’re apt to procrastinate. It’s time to set one for fossil fuel subsidy elimination!

Related
Curbing Fossil Fuels - Carbon Pricing and an End to Subsidies (WEF Summaries)
Problems and Solutions to the Climate Crisis from the World Economic Forum in Davos
A Large and Growing Chorus is Calling for an End to Fossil Fuel Subsidies
Scientists Urge Government Action on Climate Including Removing Oil Subsidies
End Fossil Fuel Subsidies Totaling One Trillion Per Year
Success of the #EndFossilFuelSubsidies Campaign
Rio+20: 350.org Campaign to End Fossil Fuel Subsidies
Obama Striving to Put an End to Oil Subsidies
End Fossil Fuel Subsidies
Obama's Call for an End to Oil Subsidies
Infographic - Fossil Fuel Subsidies
Infographic - Climate Finance vs Fossil Fuel Subsidies: National Comparisons
Infographic - Fossil Fuel Subsidies and the US Congress

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