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Dirty money

Dirty money ArturNyk
12 Nov
The countries of the G20 have been collectively subsidising the fossil fuel industry to the tune of $452billion a year

The scale of the problem facing the need to keep the majority of known carbon reserves ‘in the ground’ has been exposed by a report jointly produced by the Overseas Development Institute (ODI) and Oil Change International. Entitled Empty Promises: G20 subsidies to oil, gas and coal production, it finds that despite committing to scale back the size of fossil fuel subsidies as far back as 2009, the G20 – the world’s biggest economies, including the US, China, India and the EU – paid out a total of $452billion to subsidise the production of coal, oil and gas in 2013 and 2014.

This figure breaks down as $78billion delivered directly through spending and tax breaks, $286billion through investments by state-owned enterprises, and $88billion through payments from majority government-owned banks and financial institutions. It comes on top of a previous ODI/Oil Change International report, which found the G20 to be collectively spending $88billion annually on oil, gas and coal exploration.

These findings come at a crucial time, with world leaders from the G20, in addition to another 100+ countries, preparing to meet in Paris at COP21, to implement action on climate change. In contrast to the various commitments made by the different countries with regards to curbing and reducing carbon emissions, the report describes these subsidies – almost four times the $121billion the International Energy Agency (IEA) estimates was provided in global subsidies to renewables in 2013 – as ‘tantamount to G20 governments allowing fossil fuel producers to undermine national climate commitments, while paying them for the privilege.’

‘What it’s doing is making all of the other subsidies have to work 100 times harder,’ says Shelagh Whitley, research fellow at the ODI, and co-author of the report. Whitley also makes the point that these figures are ‘quite conservative’ given the lack of information available to fully calculate this figure, as well as the complexity involved with subsidies involved in part-fossil fuel, part-renewable energy generation.

The UK stands out as a member of the G20 that, despite its pledge to phase out fossil fuel subsidies, has dramatically increased its support to the production of fossil fuels in recent years

Whitley explains how the G20’s $452billion figure is compatible with the $5.3trillion estimate of annual global fossil fuel subsidies published in an International Monetary Fund (IMF) report in May 2015. The IMF report included all potential externalities, such as the failure to cover the costs of detrimental impacts caused by fossil fuel-generated energy – like air pollution – within its definitions of ‘subsidies’. This ODI/Oil Change International report – using the World Trade Organization definition of a subsidy – instead focuses entirely on direct policies, such as grants and tax breaks. ‘It’s much more about trying to understand all the tools that governments currently use, and could be redirecting,’ Whitley adds.

The report finds that ‘the UK stands out as a member of the G20 that, despite its pledge to phase out fossil fuel subsidies, has dramatically increased its support to the production of fossil fuels in recent years, and has responded to the low oil price by lowering taxes on oil and gas rather than raising them’. The UK provided an average of $9billion (£5.9bn) a year in national subsidies – most of it supporting oil and gas majors – as well as a further $5.5billion (£3.6bn) which was provided in public finance, and mostly helped prop up fossil fuel production in countries such as Russia, Saudi Arabia and China.

As well as COP21 commencing at the end of November, the ODI/Oil Change International report also precedes the annual G20 leaders summit, which takes place this weekend in Antalya, Turkey, as part of Turkey’s G20 presidency for 2015, before it passes to China for 2016. Whitley insists that the question of fossil fuel subsidies is also on the table for discussion during the summit.

‘We’re really fortunate because China has already said that, in its next presidency, it plans to take the G20 commitment, which since 2009 has been relatively empty, and put some real criteria around what it considers subsidies to be, and put some dates around when this phase-out needs to happen by. Turning it from rhetoric into reality,’ continues Whitley. ‘So much of this is about encouraging transparency. What you want to see is regular, annual reporting. We hope that the more we put out this data, governments will start putting it out themselves.’

Separately, the IEA has also released its World Energy Outlook 2015 report, in which a figure of $493billion is estimated for total fossil fuel subsidies for 2014, covering the G20 as well as the rest of the world, which IEA Executive Director Fatih Birol criticised as creating ‘not a fair competition’. Furthermore, the IEA report calculates that this 2014 figure could in fact have been as high as $610billion, were it not for policy changes taken in countries such as Indonesia, abolishing gasoline subsidies and capping them for diesel, and India, who halted diesel subsidies.

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