Where to Start on Climate? How About Subsidies for Dirty Energy

The agreement reached in Copenhagen last December left much unsettled. It established a target of keeping global warming to less than 2 degrees Celsius (3.6 Fahrenheit), but it left the specific goals and actions they would take to meet those goals up to individual countries.

Arguably, one of the most specific points of agreement among nations last year was that they would phase out fossil fuel subsidies, a deal reached by G20 nations ahead of last year’s UN climate summit. Countries agreed to “rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption.” But now, more than a year later, countries have done very little to make good on that promise.

Oil Change International, a group that encourages policies to cut reliance on oil and other fossil fuels, and Earth Track, a group that focuses on environmentally harmful subsides, recently took stock of the efforts taken so far to meet that commitment. Their conclusion: “No country has initiated a subsidy reform specifically in response to the G20.” Half of the G20 countries have reported efforts to cut some subsidies, but everything they’ve put forward was already in the works before last year’s G20 agreement.

There hasn’t even been very much progress on identifying and disclosing those subsidies. Most members of the G20 have been reluctant to offer up subsidies they are willing to cut. The report states:

G20 reporting of fossil fuel subsidies remains spotty. Of the 20 member countries, eight stated that they have no fossil-fuel subsidies at all subject to phase out, of which two (United Kingdom and Japan) provided no information at all. Only one of the twelve countries (the United States) reported more than ten subsidies subject to reform. Three countries discussed energy subsidies in a general sense without listing any specific subsidy policies (Indonesia, Russia, and Mexico).

The report notes that countries have been reticent to list subsidies that could be eliminated, as leaders believe the subsidies support job creation or rural development, or don’t artificially deflate the prices enough so as to matter. The report also points out that there are a number of problems with the fossil fuel agreement that G20 leaders outlined. For one, there’s been no agreement on what they mean by phasing them out in the “medium term.” Nor do they define the terms “subsidy,” “inefficient subsidy,” or “wasteful consumption”–each country has basically been allowed to make its own definition so far.

The subsidies are pertinent to the climate negotiations underway in Cancun right now. If the Copenhagen Accord pledges were fully implemented, the world would be 70 percent of the way to its goal of limiting warming to less than 2 degrees by 2020, according to a report from the International Energy Association released earlier this year. Phasing out those subsides alone could account for almost a 7 percent reduction in emissions by 2020, however.

The IEA report found that 37 countries are responsible for the bulk of these subsides—representing more than 95 percent of subsidized fossil-fuel consumption in the world. In 2008, nations provided $557 billion in subsidies for fossil fuel consumption—up fro $342 billion in 2007. (Iran, which is not one of the G20, leads the world in subsides, at $101 billion.)

Another way to think about it: Phasing out those subsides, the IEA found, could cut global demand for energy by 5.8 percent—equal to the energy used by Japan, Korea, Australia and New Zealand combined. It would also cut demand for oil by 6.5 million barrels per day by 2020. “Phasing out such subsidies would send a price signal to create incentive for more efficient use,” the report concludes.


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