Fossil fuel subsidies persist despite calls for climate action

July 23rd, 2019, Published in Articles: Energize

Leaders of G20 countries have failed to phase out nonsensical fossil fuels subsidies, again. Politicians, as everyone knows, say one thing and often do another. For years, many of the global leaders have been saying that fossil fuel subsidies are unhelpful, do great damage to the environment, and cannot be economically justified. But they do little to phase them out.

We are not talking about major oil, gas or coal exporting countries alone but also some of the most prosperous and diversified global economies.

At the G20 summit ten years ago, the leaders of the world’s 20 biggest economies agreed to “phase out and rationalise” fossil fuel subsidies – what rationale is needed was not adequately explained. Ten years later, the fossil fuel subsidies have increased from US$75-billion in 2007 to $147-billion in 2016, the last year for which data is available.

Who uses coal?

Fig. 1 shows how much each of the 19 countries, plus the EU as a single entity, which are members of the G20, depend on the burning of coal as a source of primary energy. According to figures released by the International Energy Agency, the top five G20 users of coal, in terms of a percentage of the sources of primary energy employed, are, from highest to lowest: South Africa, India, China, Australia and Indonesia. These five countries use the burning of coal more than any other source of primary energy. By extension, the emission of harmful atmospheric pollutants in both gaseous and particulate form, is high in these countries – ed.

Fig. 1: Users of coal by country according to figures published by the International Energy Agency.

Pointing out the discrepancy between statements and action, Enrique Maurtua Konstantinidis, senior advisor on climate policy for the Environment and Natural Resources Foundation (FARN), said, “Since 2009, the G20 is limited to copying and pasting the same statement every year in its annual document, stating that fossil fuel subsidies are inefficient and hinder the energy transition.  But that’s not enough.”

Ipek Gencsu, a specialist on fossil fuel subsidies at the Overseas Development Institute (ODI), agrees, “Ten years have passed since the group’s (G20) commitment and it hasn’t been possible to advance a definition of subsidies or a specific date to remove them.”

The ODI, an independent think tank based in the UK, released an embarrassing report titled “G20 coal subsidies which exposed government support for coal in time for the G20 summit, thus exposing the hypocrisy of the world’s major leaders as they prepared to meet in Osaka. As is always the case at such meetings – aside for photo opportunities – little was accomplished. The G20 economies represent more than 80% of the global GDP, 75% of global trade and 79% of global emissions.

Needless to say, what they do – or don’t do – matters for the rest of the world. Experts agree that state support for fossil fuels is difficult to justify because of pollution and greenhouse gas emissions. As renewables become increasingly cost competitive with fossil fuels, maintaining the subsidies are becoming more difficult to justify economically.

A more accurate way to put it is that it is absurd to continue subsidising polluting fossil fuels when renewables are plentiful and cheaper. According to the International Renewable Energy Agency (IRENA), the cost of solar energy, for example, has fallen 73% since 2010. Yet fossil fuel subsidies persist, which explains why investment in fossil fuels remain high globally. And these subsidies not only do enormous damage to the environment but come at a significant cost.

The International Monetary Fund (IMF) reckons that fossil fuel subsidies represented 6,3% of global GDP in 2015, with China, the US and the EU among the worst culprits, not the oil exporting Saudi Arabia or Russia, even though they do their part. Without subsidies, the IMF says global greenhouse gas emissions would have been 28% lower than they are today.

Stated differently, the world’s biggest economies spend billions year after year to keep emissions high rather than reducing them. ODI points out that the support for coal – the fuel with the heaviest carbon content – goes even deeper with several countries providing “substantial subsidies” not just for production and/or export of coal but also for coal consumption in coal-fired power plants with “very limited transparency” to these policies.

Ivetta Gerasimchuk, a co-author of the report, said, “In reality, government support for coal is much larger than our report’s numbers show, because many G20 countries still lack transparency on the many ways they subsidise coal.”

Coal, however, is not the only fossil fuel that receives substantial subsidies; oil and gas are also recipients of massive government subsidies that dwarf those offered to renewables in most countries. The most obvious unreported subsidy, of course, is that the price of fossil fuels does not include the negative externalities they cause, most important of which is the emissions of enormous quantities of greenhouse gases.

Instead of taxing carbon emissions, we are in effect subsidising them. It defies logic. But what is even more astonishing is that at the latest G20 summit in Osaka, the world’s leading economies, again, failed to agree to phase out wasteful fossil fuel subsidies. Japan’s Shinzō Abe, this year’s host, bowed to the US pressure to remove references to climate change in the final communiqué.

Editor’s comment

Public attention was drawn to the above-mentioned countries’ attitude towards fossil-fuel subsidies in a report published by The Guardian on 25 June this year: “G20 countries triple coal power subsidies despite climate crisis”

Acknowledgement

This article first appeared in the August 2019 edition of EEnergy Informer and is republished here with permission. Additional comments, in italics, have been added.

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