Summer reading: on fossil fuel subsidies

This is a good report on updated estimates of global fossil fuel subsidies that was produced by Oil Change International, a research, communication, and advocacy organization focused on exposing the true costs of fossil fuels and facilitating the coming transition towards clean energy.  The report highlights that, while there has been progress, there is definitely need for more transparency in the use of subsidies.

 

Low Hanging Fruit: Fossil Fuel Subsidies, Climate Finance, and Sustainable Development

Our latest report – produced for the Heinrich Boll Foundation in association with Vasudha Foundation (India), Greenovation Hub (China) and the Natural Resources Defense Council – provides updated estimates of global fossil fuel subsidies and overviews many of the issues surrounding subsidy removal. The figure for production and consumption subsidies is at least $775 billion annually and could be $1 trillion or even more.  There is an urgent need for transparency in subsidy reporting.

In a time of economic hardship, increasing urgency to address climate change, and growing demand for reliable and cleaner sources of energy, these fossil fuel subsidies are a reckless and irrational use of taxpayer money and government investments.

Indeed, in 2009, G20 leaders recognized this and committed to “phase out and rationalize over the medium term inefficient fossil fuel subsidies while providing targeted support for the poorest.”  A similar commitment was agreed at a subsequent Asia Pacific Economic Cooperation (APEC) Leaders meeting, which brings the total number of countries with such a commitment to more than fifty. However, progress towards meeting the goal of phasing out fossil fuel subsidies has been slow.

In international political discussions regarding climate finance and sustainable development, the conversation is often focused on the effectiveness and potential results of climate finance as justification for any potential financial support.  Annex II countries – those developed countries that are obligated to provide climate finance under the United Nations Framework Convention on Climate Change – often point to the responsibility their governments have to taxpayers to use scarce public funds wisely.

This same standard – responsibility to the taxpayers – must be applied to fossil fuel subsidies.  A recent Organization for Economic Cooperation and Development (OECD) study found that in 2010 more than US$60 billion was spent on fossil fuel subsidies in Annex II countries.  Scarce public funding can and should be used more wisely.

The report recommends four key steps that governments should take in the near term to translate their commitments to eliminate fossil fuel subsidies into concrete action:

1) Define Plans to Phase out Fossil Fuel Subsidies by 2015 
In Pittsburgh in September 2009, G20 leaders pledged to “phase out and rationalize over the medium term inefficient fossil fuel subsidies while providing targeted support for the poorest.” Progress however has been slow. In order to fulfill this historic commitment, leaders should immediately establish a time-line for this process. The G20 Summit in Los Cabos, Mexico, and the Rio+20 Summit provide key opportunities. Countries should agree to eliminate fossil fuel subsidies by 2015.

2) Increase Transparency and Consistency in Reporting of Subsidies
An obvious first step to removing subsidies is to catalogue all existing fossil fuel subsidies. Reporting and reform should be separate processes. Up to now, the disclosure of producer subsidies in particular has been lacking in many countries. It is imperative that governments commit to fully and fairly disclosing the existence and value of all fossil fuel subsidies in order to inform robust plans for reform.

3) Incorporate Assistance and Safeguards to Developing Countries, as well as Poor and Vulnerable Groups
Fossil fuel subsidy removal, particularly consumption subsidies, will only be successful by incorporating gender-aware safeguards for poor and vulnerable groups, and by assisting with financial, technical and capacity building in developing countries, where needed.

4) Establish or identify an international body to facilitate and support Fossil Fuel Subsidy Reform
An international body should be created or identified to support the global effort to phase-out fossil fuel subsidies.  This body, wherever it is housed, should be transparent, inclusive to allow for civil society participation and representation, include balanced representation from developed and developing countries, and sufficiently empowered to assess commitments by countries.

The report is available here.

 

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