Thursday, August 6, 2015
New figures from the International Monetary Fund (IMF) show that the US, which hosted the G20 summit in 2009, gives $700bn a year in fossil fuel subsidies, equivalent to $2,180 for every American. President Barack Obama backed the phase out but has since overseen a steep rise in federal fossil fuel subsidies.
Australia hosted the most recent G20 summit, where prime minister Tony Abbott was forced to reaffirm the commitment to the phase out, but it still gives $1,260 per head in fossil fuel subsidies.
The UK, which is cutting renewable energy subsidies, permits $41bn a year in fossil fuel subsidies, which is $635 per person. In contrast, Mexico, India and Indonesia, where per capita subsidies average $250, have begun cutting fossil fuel support.
The vast fossil fuel subsidies estimated by the IMF for 2015 include payments, tax breaks and cut-price fuel. But the largest part is the costs left unpaid by polluters and picked up by governments, including the heavy impacts of local air pollution and the floods, droughts and storms being driven by climate change.
The IMF, which published a global estimate – $5.3tn a year – of fossil fuel subsidies in May, calculates that ending fossil fuel subsidies would slash global carbon emissions by 20%, a huge step towards taming global warming.
Ending the subsidies would also prevent 1.6m premature deaths from outdoor air pollution, a 50% cut. The money freed by ending fossil fuel subsidies could be an economic “game-changer” for many countries, says the IMF, by driving economic growth and poverty reduction.
“The [new] figures reveal the true extent to which individual countries are subsidising pollution from fossil fuels,” said Lord Nicholas Stern, an eminent economist at the London School of Economics. “The failure to reflect the real costs of fossil fuels in prices and policies means that the lives and livelihoods of billions of people around the world are being threatened by climate change and local air pollution.”
“In particular, these figures reveal that the G20 countries are wasting trillions of dollars each year on subsidies for fossil fuel pollution,” Stern said. “It is time for the G20 to recognise that the extent of subsidies is far greater than has been previously understood, and to honour their commitment.”
Stern criticised the UK government’s recent attacks on renewable energy subsidies: “The government should remember that if it wants to cut the subsidies for low-carbon energy, it should cut the subsidies for fossil fuel pollution that are at the core of the problem for which clean technology is the sensible and attractive solution.”
In July, Stern estimated that tackling climate change would require investment of 2% of global GDP each year. The IMF work indicates that ending fossil fuel subsidies would benefit governments by the equivalent to 3.8% of global GDP a year.
Christiana Figueres, the UN’s climate change chief charged with delivering a deal to beat global warming at a crunch summit in December, said: “The IMF data reveal a simple and stunning truth: that fossil fuel subsidy reform alone would deliver far more funds than is required for the global energy transformation we need to keep the world below a 2C temperature rise [the level governments have promised to hold them to].”
In April, the president of the World Bank, Jim Yong Kim, told the Guardian that it was crazy that governments were still driving the use of coal, oil and gas by providing subsidies. He said they should be scrapped immediately as poorer nations were feeling “the boot of climate change on their neck”.
The new IMF data show that national fossil fuel subsidies are significant – about the same as defence spending – when compared to national GDP in the US (3.8%), Australia (2.0%) and UK (1.4%). In nations with severe air pollution problems, the subsidies are an even higher as a proportion of GDP, such as China (20%), India (12%) and Ukraine (60%).
The countries with the highest fossil fuel subsidies per person are the middle eastern oil states, with subsidies in Qatar amounting to $6,000 a year and those in Saudi Arabia $3,400. The UAE gives $3,000 a head, but announced on 22 July it was ending its $7bn-a-year petroleum subsidies.
Fossil fuel subsidy reforms are beginning in dozens of countries, including India where subsidies for diesel ended in October 2014.
“You could look at the glass as half empty or half full,” said Ian Parry, the IMF’s lead green taxes expert. “There are some encouraging signs, such as reforms in Mexico, India and Indonesia, and 40 countries now have some form of carbon pricing, albeit typically at a too low level. On the other hand, these schemes cover only 12% of global carbon emissions, so we are an awful long way from where we need to be. We are at base camp.”
Parry defended the inclusion of the costs of air pollution and climate change impacts in the IMF’s subsidy estimates: “We think that energy prices need to cover both the production and environmental costs. This is largely in countries’ own interest, as many of the environmental costs, like air pollution, are local.” Lord Stern said the IMF had actually underestimated the costs of global warming.
Fossil fuel subsidies can benefit some of the poorest in the world, but Parry said: “There are much more efficient ways to address those concerns. Most current benefits, from holding down energy prices, are poorly targeted, with much going to higher income groups.”
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