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Do As I Say. Not As I Do

Energy subsidies and the G20

By Taylor Dimsdale

To preserve any chance of keeping the global average temperature well below 2 degrees Celsius, most of the world’s coal, oil, and natural gas will need to be left in the ground. A quick look at how the major economies are spending their money, however, shows that government policy has not yet caught up with climate science. The Overseas Development Institute (ODI) and Oil Change International have compiled data showing that the G20 countries are spending over $440 billion annually to support fossil fuel production. (1) Accounting for subsidies is difficult business because countries use different definitions, and accurate data are not always available. To arrive at their own figures, the researchers broke down support for fossil fuels into three categories: direct spending and tax incentives, spending by state-owned enterprises (SOEs), and public finance from development banks or export credit agencies.

The International Energy Agency estimates that the value of fossil fuel subsidies worldwide totaled $493 billion in 2014, up from $390 billion in 2009.

Given these trends, it would be easy to forget that in 2009 the G20 agreed to “rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption.”

While renewable energy has also received public support over the past decade or so through policies such as feed-in tariffs and production tax credits, this is far outweighed by subsidies for oil, gas, and coal.

So how much difference do fossil fuel subsidies make to the climate? According to analysis by the International Institute for Sustainable Development (IISD) and ODI, ending fossil-fuel production subsidies would result in a reduction of GHG emissions by up to 37 Gt by 2050—or roughly 6 percent of the total needed to have a good chance (66 percent) of reaching the 2 degrees Celsius target. (3) Such an approach would mean that 15 percent of all fossil reserves in existing and under-construction oil and gas fields and coal mines in 2015 would be uneconomical
to produce.

Progress since the G20 commitment in 2009 has been slow, and the most recent (2016) G20 communiqué failed to make any further commitments on the reform of subsidies or financing for fossil fuels. The G7 took an important step forward last year by urging all countries to eliminate inefficient subsidies by no later than 2025. (4)

The G20 will get another chance to make good on its promises when the major economies meet in July
in Germany.

Taylor Dimsdale is head of research at Third Generation Environmentalism (E3G)
Notes and Sources
* While the researchers made efforts to avoid double counting, it is possible that some government support through national subsidies may also be accounted for in the SOE investment and public finance calculations.
The graphs presented here were produced by the author using data from the Overseas Development Institute and Oil Change International. The graphs do not appear in the original report.
1. Bast E et al. Empty promises: G20 subsidies to oil, gas and coal production. ODI and Oil Change International. 2015.  2. Koplow D. Global energy subsidies: Scale, opportunity costs, and barriers to reform. Chapter 15 in Halff A, Sovacool BK, and Rozhon J, eds. Energy Poverty: Global Challenges and Local Solutions. Oxford University Press. 2014.  3. Gerasimchuk I et al. Zombie Energy: Climate benefits of ending subsidies to fossil fuel production. IISD, Global Subsidies Initiative, & ODI. 2017.  4. G7 Ise-Shima Leaders’ Declaration. 2016.
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