Rich countries have a bill to pay. A study in the journal Nature says they will owe low- and middle-income countries an estimated $100 trillion-$200 trillion by 2050 since they have caused the climate crisis with their outsized emissions, while developing nations bear the brunt of the impacts. 

As negotiators gather in Bonn this week to prepare for November’s COP29 climate summit, wealthy governments have to face the music and pay their fair share of climate finance. With low-income countries struggling with rising seas and spiralling unjust debts, the stakes have never been higher. The good news? Rich countries can deliver the funds needed for climate action. What is lacking is the political will, as usual. But we can change this.

Bonn bulletin: Crunch time for climate finance

At last year’s COP negotiations, world leaders recognised for the first time that all countries must “transition away from fossil fuels” in energy systems. This year they must agree on a new climate finance goal for 2025, which will set a new benchmark for the quantity and terms of the money owed.

Year after year, wealthy countries have failed to pay up. While transitioning away from fossil fuels is technically possible and relatively low-cost, the failure to finance transformative climate solutions like 100% renewable-ready grids, energy access, and programs to support workers and community transitions is one of the key remaining obstacles to tackling the climate crisis. Meanwhile, the lack of funding to adapt and respond to climate impacts means fires, droughts and floods are already bringing devastating consequences.

As UN Climate Change Executive Secretary Simon Stiell has said, “A quantum leap this year in climate finance is both essential and entirely achievable.” But, as negotiations have begun to establish a new global climate finance target, wealthy countries are once again trying to shirk their responsibilities.

Loans and ‘private-sector first’

They have come to the table with only tiny amounts of money. Worse, they argue it should be delivered mostly as loans, investments and guarantees – which they profit from, while climate vulnerable ‘recipient’ countries rack up debt. The US, Canada, UK and their peers claim that there is not enough public money to do anything else. Yet we know they can come up with enormous sums, like for COVID stimulus plans and for bailing out the banks.

Wealthy countries say the private sector can cover most of the costs instead. This ‘private sector first’ approach is particularly emphasized for energy finance. The idea is that all that is needed is a bit of public finance to ‘de-risk’ energy investments and attract much greater sums of private finance.

But as a former World Bank Director has argued, this approach has consistently delivered far less money than promised and “has injustice and inequality built in,” while reducing the role of government action for creating the right market conditions to deliver profits to investors. We need much more public funding to be delivered as grants for a fair energy transition.

Developing countries suggest rich nations tax arms, fashion and tech firms for climate

Rather than relying on the private sector, rich countries can afford the grants and highly concessional finance required for a fast, fair and full phase-out of fossil fuels, which societies and communities want. There is no shortage of public money available to fund climate action at home and abroad. Rather, a lot of it is currently going to the wrong things, like dirty fossil fuels, wars and the super-rich.

The lack of progress is also a symptom of a larger global financial system where a handful of Global North governments and corporations have near-full control. This unjust architecture results in a net $2 trillion a year outflow from low-income countries to high-income countries, historic levels of inequality and food insecurity, and record profits for oil and gas companies.

Make polluters pay

To raise the funds, wealthy governments can start by cutting off the flow of public money to fossil fuels and making polluters pay. The science is clear that there is no room for any new investments in oil, gas or coal infrastructure if we want to secure a liveable planet. And yet governments continue to pour more fuel on the fire, using public money to fund continued fossil fuel expansion to the tune of $1.7 trillion in 2022. 

There is already momentum to stop a particularly influential form of fossil fuel support. At the COP26 global climate conference in Glasgow, 41 countries and institutions joined the Clean Energy Transition Partnership (CETP). They pledged to end all direct international public finance for unabated fossil fuels by the end of 2022 and instead prioritise their international public finance for the clean energy transition.

Rich nations meet $100bn climate finance goal – two years late

With the passing of the end of the 2022 deadline, eight out of the sixteen CETP signatories with significant amounts of international energy finance have adopted policies that end fossil fuel support – and we see international fossil finance figures dropping by billions as a result.

Making fossil fuel companies pay for their pollution through a ‘windfall’ tax on fossil fuel companies in the richest countries could raise an estimated $900 billion by 2030. Alongside taxing windfall profits, a progressive tax on extreme wealth starting at 2% would raise $2.5 trillion to 3.6 trillion a year. Brazil currently has a proposal to tax the super-rich globally, which is gaining momentum at the G20. 

Canceling illegitimate debts in the Global South can free up even more.

The public money is there for a liveable future for all. As leaders negotiate on the next climate target, we must ensure those most responsible for the climate crisis finally pay up.

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Activists have been protesting against this for years, and now we’re seeing the fight spill into courtrooms. In the face of climate breakdown, civil society is sending a clear message: governments that continue to use taxpayers’ money to fund fossil fuels should expect a lawsuit.

Litigation has the power to make or break fossil fuel expansion. With more than 2,000 cases filed across the globe since 2017, climate litigation has, so far, focused on the shortcomings of government or company policies, challenging inadequate emissions reduction targets or reparations linked to climate damages. Today, we’re seeing a new wave of climate litigation focused on institutions that channel public finance towards fossil fuels – with recent lawsuits in Australia, the UK, Mozambique, Brazil, South Korea and beyond.

These lawsuits allow citizens to take back control over their public finances and force public financial institutions – whose investments are notoriously opaque – to become more transparent. One critical step governments can take to avoid such lawsuits is to live up to their commitments and come to a global agreement on oil and gas export finance restrictions at an Organisation for Economic Cooperation and Development (OECD) meeting coming up in mid-March.

Clean, cheap or fair – which countries should pump the last oil and gas?

The UK, Canada and EU already tabled a proposal for such restrictions which, with sufficient support, can succeed in limiting public finance for fossil fuels. This would free up billions of dollars that can be reinvested in reliable, affordable and secure renewable energy, efficiency measures, and facilitating a just transition.

To achieve this, getting the US on side is key, after which remaining OECD members will likely follow. If President Biden is serious about tackling climate change, it’s vital that he backs strong measures to stop international finance for fossil fuels.

Despite the US, as well as several G20 countries and major multilateral development banks (MDBs), committing to end international public finance for fossil fuel projects by the end of 2022, they continue to pour billions of dollars into international fossil fuel projects. Data also shows that far more public money goes into fossil fuels than renewables or energy efficiency measures.

G20 governments and MDBs provided at least $55 billion for fossil fuels each year from 2019-2021, while allocating only $29 billion to renewables. Bankrolling these toxic industries is fundamentally incompatible with limiting global heating to 1.5C, which, according to the International Energy Agency, requires an immediate stop to investments in new coal, oil, gas and Liquefied Natural Gas (LNG) infrastructure.

State support for gas exports

A crucial part of this fight is holding Export Credit Agencies (ECAs) and similar development institutions accountable. ECAs are government-owned or controlled institutions that provide financing, often at subsidised rates, to large infrastructure projects around the world. ECAs are the world’s largest public financiers of fossil fuels, providing seven times more support for fossil fuels ($34 billion) than clean energy projects ($4.7 billion) between 2019 and 2021.

Without government-backed finance, these projects may not otherwise go ahead. This is especially true for the expansion of more than 80% of new LNG exports over the last decade. While President Biden’s recent announcement of a pause in approvals for new LNG export terminals in the US is welcome, we need to make much more rapid progress to stay within safe planetary limits. A crucial part of this fight is holding ECAs to account and governments to comply with international law.

Civil society groups are turning to the courts. The NGO Jubilee is suing Export Finance Australia and the Northern Australia Infrastructure Facility for failing to adequately report the environmental effects and climate impacts linked to their financing activities, which play a crucial role in determining how ECAs disclose relevant information.

Last year, Friends of the Earth UK took the UK’s ECA to court over its investment in a major LNG project in Mozambique. Friends of the Earth argued that the $1.15 billion in export finance support was unlawful, inconsistent with the latest science, and incompatible with the Paris Agreement. Although the court ruled in favour of the ECA, the case exerted enough pressure to stop funding for new overseas fossil fuel projects. Without the publicised court battle flagging the issue for the UK public and policymakers, this result may never have been achieved.

In Brazil, the human rights NGO Conectas sued the Brazilian Development Bank for failing to assess the negative climate impacts of its investments. Similarly, South Korean ECAs were challenged over the funding they provided for the Australian Barossa gas pipeline project, which would run through a protected marine park, forcing the financiers to review the necessity of LNG imports, as well as their environmental impacts.

Despite Cop28 pledge, France keeps fossil fuel subsidies for farmers

At COP26, 34 governments, including a majority of OECD members, signed up to the Clean Energy Transition Partnership (CETP), pledging to end international public finance for unabated fossil fuels by the end of 2022. Despite this, governments are failing to keep their promises and continue to fund international fossil fuel projects.

The Jubilee case comes at a time when Australia announced its commitment to the CETP – we now need to see policies follow commitments. Put simply: when governments make promises, they need to keep them, or the courtroom awaits.

Maria Alejandra Vesga Correa is a legal officer in the global public finance team at Oil Change International. Leanne Govindsamy is programme head for corporate accountability and transparency at the Centre for Environmental Rights. Lorenzo Fiorilli is a lawyer working on public finance, energy markets and competition with ClientEarth.

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Financial support from the Export-Import Bank (Ex-Im) will help a state-controlled plant on the island of Borneo turn 40% more oil into products like jet fuel and diesel.

In a closed door meeting last Thursday, Ex-Im’s board approved $99.7 million in support for the Balikpapan oil refinery run by Indonesia’s national oil company Pertamina. Ex-Im said the loan would enable an expansion of the facility, alongside fuel efficiency and safety upgrades.

‘Untenable’ decision

But the plan has been criticised for seeming to contradict a climate finance commitment.

At Cop26, the US and 19 other countries signed the Glasgow Statement pledging to end new direct public finance for overseas fossil fuel projects by the end of 2022.

Since then the US has been accused of backsliding on its promise. Unlike other signatories, the White House has not released publicly any policy explaining how the pledge would be implemented.

Shruti Shukla from advocacy group the Natural Resources Defense Council (NRDC) said the lack of transparency is allowing for “untenable” decisions to slip through.

“To spend the limited public finance available on the upgrade of an oil refinery is not the best use of those resources which should go towards clean energy alternatives,” she said.

Cop28 moots oil and gas initiative despite greenwash accusations

Adam McGibbon, a campaigner at Oil Change International, said president Joe Biden risks not being trusted to keep climate promises by “breaking” the Glasgow pledge.

A senior Ex-Im official told Climate Home News that the agency is trying to align with the Biden administration’s climate agenda while still respecting its statutory limitations, including the prohibition against discrimination based solely on industry, sector or business.

Biden’s appointees

Ex-Im is the official export credit agency of the US. It operates as an independent authority but its board members are appointed by the US president and confirmed by the Senate.

The sitting president, Reta Jo-Lewis, was picked by Biden in February 2022. The current government selected three of the board’s members, while the other two were appointed by Donald Trump.

Local business group tries to keep South Africa’s coal plants alive

Like other countries’ export credit agencies, Ex-Im is influential in directing investment towards specific sectors by offering exporters government-backed loans, guarantees or insurance. This limits the risk taken by companies selling services and goods in countries or industries considered high risk.

Production boost

The new loan will allow the Balikpapan refinery to increase its capacity by nearly 40%, with the production of up to 360 million barrels of oil per day.

According to Ex-Im, the project will unleash 2.9 million tonnes of carbon dioxide emissions every year. That is as much as the annual carbon footprint of Iceland or Guyana.

A petrol station operated by oil and gas company Pertamina in Indonesia. Photo: tian yake/Flickr

Pertamina claims the project “not only aims to increase the refinery capacity but also realises a green refinery”. This is because the facility plans to switch to the production of a more energy-efficient type of gasoline.

Indonesia relies mostly on oil and coal for its energy supply. In November 2022, the US and Japan led a group of rich nations and banks in pledging $20 billion to speed up the country’s transition from coal to clean energy. But the plan has no provisions for phasing out other fossil fuels.

Support for US jobs

Ex-Im justified its backing of the project by claiming it would allow Indonesia to reduce its reliance on imported fossil fuels and said it would support hundreds of jobs for US manufacturers.

The project previously received much greater support from the South Korean export credit agency, which committed $1.19 billion to finance the oil refinery expansion in December 2022. Korea Eximbank said its support helped Korean engineering giant Hyundai win a construction contract on the project.

Vietnamese anti-coal campaigner freed early from prison

Unlike the US, however, South Korea did not sign the public finance pledge at Cop26 in Glasgow.

Analysts and campaigners told Climate Home News that the Indonesian oil refinery expansion falls within the scope of the Glasgow agreement to end public subsidies for fossil fuels projects overseas.

The UK stopped direct government support for the fossil fuel energy sector overseas in March 2021. Its guidance explicitly includes oil refining within its scope. France also put an end to providing public finance to international fossil fuel projects, including oil refining, last November.

Pledge backsliding

The US – together with Germany – has not yet published its public finance policies to meet the Glasgow agreement, according to a recent report by Oil Change International.

Ex-Im’s support for the oil refinery appears to contradict a claim made last month by G7 climate ministers that public support for unabated fossil fuel energy overseas had ended in 2022.

The NRDC’s Shukla said any more financing of fossil fuel projects would send the wrong message ahead of Cop28. “We hope there are no more similar projects that slip through.”

Oil and gas projects accounted for around 27% of Ex-Im’s portfolio in the fiscal year ending in September 2022, rising by one percentage point compared to the previous period. The agency is currently considering financing other fossil fuel projects, including an oil and gas field in Bahrain.

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A group of 13 nations and the European Union agreed to give those developing projects like renewable energy, electricity infrastructure and low-emission transport longer to pay back loans and charge them less for insurance.

The Organisation for Economic Co-operation and Development (OECD)’s head Matthias Cormann hailed the deal as a “great milestone to help increase the impact of trade and finance flows on securing our climate objectives”.

But campaigners claim there is no clear definition of green projects and criticised the inclusion of technologies like hydrogen and carbon capture and storage.

They claim that, as many hydrogen and CCS projects are driven by fossil fuel companies, that sector will be among the beneficiaries of the reform, potentially for polluting projects.

The agreement is part of a package of reforms secured within a group of the OECD responsible for setting rules for the export credit agencies (ECAs) of member states.

ECAs influential role

Participants are the USA, France, Germany, Italy, Canada, the United Kingdom, Japan, the European Union, South Korea, New Zealand, Australia, Norway, Switzerland and Turkey.

The reform is expected to come into effect later this year once national ECAs have implemented it.

ECAs are highly influential in directing investment towards specific sectors by offering exporters government-backed loans, guarantees or insurance. This limits the risk taken by companies selling services and goods in countries or industries considered high-risk.

Revealed: How Shell cashed in on dubious carbon offsets from Chinese rice paddies

Under the new agreement, maximum repayment terms will be increased from 15 years to 22 years for investments including ‘environmentally sustainable energy production’, carbon capture storage and transportation, clean hydrogen and ammonia, low-emissions manufacturing, zero and low-emissions transport and clean energy minerals and ores.

The reforms will introduce further flexibilities on repayment schedules and adjust the minimum premium rates charged for insurance cover.

Uncertain ‘climate-friendly’ label

The statement released on Monday does not give any more detailed explanation of what specific type of projects will be given favourable treatment.

A definition for ‘clean hydrogen’, for example, could range from green hydrogen produced with renewable energy to gas-derived blue hydrogen.

An OECD spokesperson said the member states are still in the process of negotiating the final text, which will incorporate the agreement in principle and make all the details public.

OECD boss Matthias Cormann said the reforms will allow the scaling up and better targeting of public and private finance to support climate-friendly investments.

The European Commission said this is “the culmination of more than two years of negotiations”.

‘Incentives for fossil fuel sector’

The reforms have been met with disappointment by campaigners who had pressured governments for more far-reaching changes, including the end of public export finance for fossil fuel projects.

Nina Pusic of Oil Change International told Climate Home the group is worried this will enable benefits to fall into the lap of oil and gas industries that are already heavily supported by export credit agencies.

“Better incentives for truly climate-friendly projects are needed at OECD level, but we are concerned about the definition used here,” she added. “It is still subject to further refinement but the scope has now been set”.

Governments battle over carbon removal and renewables in IPCC report

Steven Feit, a senior attorney at the Center for International Environmental Law, said carbon capture, hydrogen or ammonia are the primary avenues through which the fossil fuel industry seeks to legitimise itself in the wake of climate action. “Labeling these projects as ‘green or climate friendly’ perpetuates a false narrative,” he added.

Carbon capture and storage is where carbon dioxide is sucked out of the air, often directly from a polluting smokestack. Hydrogen and ammonia are products used for a wide variety of purposes. They can be made using clean electricity or polluting fossil fuel electricity.

Bankrolling fossil fuels

In recent years, ECAs have come under fire for being a prominent source of public funding for fossil fuel projects worldwide.

The ECAs of G20 nations provided seven times as much export finance to fossil fuel projects ($33.5 billion) than for renewable energy ($4.7 billion) between 2019 and 2021, according to data compiled by campaigners.

In 2021 the OECD group agreed to end ECAs’ support for unabated coal-fired power plants.

Uncertainty on renewable retraining frightens South Africa’s coal communities

But campaigners and some countries urged it to go further. The Council of the European Union called for an agreement to end officially supported export credits for projects in the fossil fuel energy sector, including oil and gas projects.

Backsliding on pledges

Additionally, at Cop26 in Glasgow 20 countries – including the biggest EU members, the UK, the US and Canada – signed onto a commitment to end public finance for overseas fossil fuel projects by the end of 2022.

But countries have subsequently been accused of watering down the terms of the pledge, by inserting exemptions.

Italy has U-turned on its promise. Its ECA’s new funding policy carves out a wide range of exemptions for the continued support of fossil fuel projects beyond the deadlines on energy security grounds.

Germany and the United States have yet to publish their policies outlining how their pledge will work in practice.

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On Friday, the Airline Operators of Nigeria (AON) association wrote an open letter to the government. They warned that the cost of aviation fuel was rising and therefore they must “regrettably” discontinue operations indefinitely from Monday.

Sigh. pic.twitter.com/jeVIWttHEU

— Mo-Mo (@Morris_Monye) May 6, 2022

After air passengers scrambled to rebook flights before the shutdown, the AON announced on Monday that their strike was cancelled after the government agreed to talks.

The next day, the government agreed to subsidise aviation fuel, ensuring it costs no more than N480 ($1.15) a litre for three months. This is likely to cost Nigerian taxpayers between $1-3 million.

On social media, Nigerians accused the government of spending money on the elite who use air travel while neglecting road and rail transport.

“Another subsidy for the rich!” tweeted Ajiboye Ridwan, a physio from Ibadan. “They couldn’t come up with this sort of intervention for… the education sector”, said Samuel Ajao.

Another subsidy for the rich! https://t.co/RlX5XSCzCY

— Ajiboye Ridwan (PT) (@PT_ajiboye) May 10, 2022

Appearing on Arise News, Allen Onyema, one of the airline owners behind the strike threat claimed air travel was “no longer elitist”. But a one-way flight from Lagos to Abuja costs around $227, nearly twice what the average Nigerian earns in a month.

Across the world and particularly in developing countries, most flying is done by a wealthy minority. In Nigeria in 2021, there were 13 million domestic passengers, many of them the same individuals counted more than once, in a nation of 206 million.

Most Nigerians rely on road and rail to get around the country, which is cleaner but less convenient. Roads are often unpaved and both roads and the rail can be dangerous. Last month, a train carrying 362 passengers was bombed and most of the passengers were killed or kidnapped.

On social media, critics expressed fears the subsidy would become permanent. “Another subsidy scam. Three months that will never end,” said one Twitter user. “Subsidy is addictive. It is like narcotics. When you start, it is difficult to stop,” tweeted another.

Subsidy is addictive. It is like narcotics. When you start, it is difficult to stop. https://t.co/puuXgZqvG6

— Victor (@VOChuku) May 10, 2022

After the pandemic hit airlines’ profits, the government provided N4bn ($9m) to 18 domestic airlines. Air Peace CEO Allen Onyema said the government has “helped the growth of aviation more than any other government I can think of”.

He told Arise News: “We don’t pay customs duties, we don’t pay [value added tax] on ticket sales, we don’t pay [value added tax] on imported aircraft, we don’t pay [value added tax] on spares and so many other things they’ve done for us.”

Onyema is wanted in the US over 36 charges related to an alleged $20 million bank fraud.

Nigeria spends around a quarter of its budget subsidising petrol, against the advice of the World Bank. These subsidies mean that, although it is Africa’s biggest oil producer, the recent rise in the global oil price has cost the government money.

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EU institutions and 11 member states handed out at least €112bn ($131bn) a year to support coal, oil and gas during that period, a report by the Overseas Development Institute (ODI) and Climate Action Network (CAN) Europe revealed on Thursday.

Nearly half went to the transport sector, including €21bn a year in tax breaks for diesel. The fuel continued to get favourable treatment despite its harmful impact on health and the environment and pledges by various governments to phase out petrol and diesel cars.

“I was quite surprised at the scale of support to the transport sector and out of that, how much was supporting diesel was quite shocking,” Shelagh Whitley, head of climate and energy at ODI, told Climate Home.

“What you are basically doing is falsely incentivising something you are trying to get rid of. People will be driving diesel cars for longer than they would have, for economic reasons.

“And it is money the government then doesn’t have to use for other things – it makes it that bit harder to build a clean energy system.”

Analysis: Fiat, Renault, VW scams will hasten rise of electric car

A number of European governments have historically encouraged drivers to switch from petrol to diesel fuel, on the basis it emitted less CO2 when burned. The agricultural lobby has also argued for lower taxes on diesel fuel as it powers much of the machinery used on farms.

In the UK, a 2001 fuel duty cut encouraged a boom in diesel drivers. In 2016, Italy applied a 23% lower tax rate to diesel than petrol.

But a steady trickle of studies has eroded diesel’s climate credentials and exposed a high level of nitrogen oxide pollution created by burning the fuel. The 2015 “dieselgate” scandal exposed widespread rigging of emissions tests by the car industry. The failure of the car industry to meet standards for diesel vehicles causes 38,000 people to die prematurely every year, according to a recent study.

The political tide has begun to turn against diesel in the wake of the scandal. In London on Wednesday, a pollution alert was issued for what mayor Sadiq Khan described as “the shocking and illegal state of our toxic air”.

London: the shocking & illegal state of our toxic air means another high air pollution alert. For more details visit https://t.co/aKV4AVYgjn pic.twitter.com/lQBwA9DZEo

— Sadiq Khan (@SadiqKhan) September 27, 2017

France, the UK and the Netherlands are among countries planning to end sales of new petrol and diesel cars by 2040, in a shift to electric vehicles.

The EU has committed to phase out subsidies to fossil fuels in various strategy papers and international forums. The most aggressive of these aims to end such support by 2020.

ODI and CAN’s latest report identified a total of 997 mechanisms to support fossil fuel consumption and production. Gas pipeline builders and coal power generators are among the other beneficiaries.

Wendel Trio, director of CAN Europe, singled out direct subsidies from Brussels for criticism. “The €4bn spent by the EU on fossil fuels, most of which goes to gas infrastructure, locks Europe into fossil fuel dependency for the decades to come. This violates the Paris Agreement’s requirement to make finances work for the climate,” he said in a statement.

“The EU must stop subsidising fossil fuels. Instead, the scarce resources of the EU budget and the EU’s development and investment banks should serve higher climate ambitions by financing the clean and sustainable energy transition.”

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What counts as a subsidy is contested territory. The UK government, for example, has previously insisted it does not subsidise fossil fuels, adopting a definition that excludes tax breaks for oil and gas producers. On Tuesday, chancellor Philip Hammond announced £5m of funding for exploring new oil and gas in the North Sea.

In 2015, the International Monetary Fund decided to factor in the health and environmental costs of burning fossil fuels, inflating its global estimate for subsidies to $5.3 trillion.

This latest report takes a middle path, following World Trade Organisation guidelines and using data published by governments and the OECD.

The EU has committed to phasing out environmentally harmful subsidies by 2020 in its Europe 2020 Strategy; and ending “inefficient fossil fuel subsidies” by 2025 as a member of the G7 or over the “medium term” as part of the G20.

Whatever the deadline, it has no systematic approach to monitoring progress. The last European Commission report on the subject came out in 2014 and the European Semester stopped requiring member states to submit relevant data in 2015.

A Commission spokesperson on economic affairs told Climate Home the bloc was committed to phasing out fossil fuel subsidies “in coherence with” international agreements.

The spokesperson added: “Fuel subsidies are mostly within the responsibility of Member States and the Commission closely monitors national developments to further encourage the phasing-out of fossil fuel subsidies. The Commission has and will continue to integrate environmental concerns, including phasing out harmful subsidies, into its policy and spending proposals.”

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Hiking the price of petrol is widely favoured by economists as an efficient way of tackling air pollution and climate change. Yet with no common definition of a subsidy and patchy data, progress has been hard to measure and compare.

A study published in Nature Energy on Monday provides a much broader analysis – with some curious findings. China emerges as a stealth leader in the green tax stakes, while globally petrostates are dragging down the average.

Researchers amassed 12 years worth of data from 157 countries representing 98% of global greenhouse gas emissions.

Rather than try to unpick the complex mish-mash of policies that can influence the outcome, they focused on a single metric: the difference between the retail price of a litre of gasoline and the global reference price.

The good news for the environment is that two thirds of countries oversaw an increase in taxes or decrease in subsidies between 2003 and 2015. The bad news is that was outweighed by gas-guzzling in jurisdictions that eased the cost on motorists. Globally, the net tax decreased by 13.3%.

“Most countries have taken steps in the right direction,” lead author Michael Ross told Climate Home. “But globally, the mean tax on gasoline has actually been declining now since 2003.”

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Predictably enough, 22 “persistent subsidisers” identified in the paper are all oil producing countries. They include Ecuador, Angola and Gulf states, where citizens expect to share in the resource wealth.

Saudi Arabia’s discount on pump prices deepened from −US$0.09 a litre to −0.40 over the period studied – the biggest regression among the top 20 petroleum-based CO2 emitters.

“People in oil producing countries often view this as an entitlement,” said Ross. “Partly because they fear that they are not going to benefit in other ways from all of this oil money in places like Nigeria and Venezuela, they demand that they get their benefit up front in the form of cheaper petrol.”

Rewriting this social contract is a recognised challenge. Subsidy reform has sparked protest in at least 19 countries since 2006, the paper notes.

The International Monetary Fund and World Bank advise using the funds freed up to mitigate the impact of higher fuel prices on the poor.

Into the abyss: oil states face turmoil as climate policies bite

More surprising is that the biggest petrol tax rise occurred in China, from $0.03/l in 2003 to 0.47 in 2015, with little publicity.

In absolute terms, Singapore has ended up with the highest tax at $1.36/l. The Netherlands, Italy, UK and Germany also charge more than a dollar.

“We found often that what governments say they are doing and what they are actually doing are completely different things,” said Ross.

“Governments sometimes claim they are making big reforms when they are simply shifting subsidies from one arm of the government to another.

“In other cases, governments make dramatic reforms without announcing them, because they are afraid of political opposition. China is an example of a quiet reform.”

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The documents, released on Monday by China’s G20 presidency, reveal the long road ahead. The G20 has commited to eliminate “inefficient” subsidies for coal, oil and gas in the medium term and the G7, of which the US is a member, has tightened the timeline to 2025.

Of 16 policies marked for elimination by the US, all but three concluded with the sentence: “The United States Congress must pass enabling legislation for this proposal to become law”.

Since 2010, the Obama administration has put forward 11 proposals to eliminate fossil-fuel subsidies. None have yet passed the house.

The fossil fuel subsidy reforms Congress can or is blocking (highlighted) https://t.co/r9GfZOvFQV pic.twitter.com/zraYnFfwAZ

— Karl Mathiesen (@KarlMathiesen) September 20, 2016

In a pointed observation about the drawbacks of the US political structure, a review panel of officials from China, Germany, Mexico, and the Organisation for Economic Cooperation and Development (OECD) noted: “A result of this system is that political processes can only happen if a sufficient number of citizens are informed about the case for reform and are motivated enough to express their views to their representatives in Congress.”

The reviewers called upon the administration to deliver an “effective communication strategy” to convince constituents of the need for subsidy reform.

China was not even able to estimate the annual cost of six of the nine policies it identified as subsidies, citing a rapidly changing policy environment. The remaining three totalled around US$15.42bn – almost all of which was directed to lowering petrol prices. The government’s submission to the peer review set out a framework for “rationalising” subsidies, without setting a timeline, simply tagging some policies as short-medium term and some as medium-long term.

“Although the production and consumption of non-fossil energy is booming worldwide in recent decades, it can be predicted that for a long time in the future, production and consumption of fossil fuels is still dominant,” said the Chinese government document, adding that: “The excessive total fossil fuel consumption in China is, to a certain degree, linked to the unsatisfactory system and mechanism relating to energy subsidies.”

The US Congress has block 11 proposals to reform fossil fuel subsidies put forward by the Obama Administration since 2010. (Pic: Mark Fischer/Flickr)

Despite its lack of firm commitments, the review process is seen as a major step forward in cooperation and transparency between two nations whose generally cagey international relations have seen a flowering of cooperation when it comes to climate change. China called on other G20 nations to join the two nations in the peer review process.

“This gesture of openness signals a genuine desire to remove subsidies that are both environmentally and economically harmful,” said Peter Wooders, director of the energy programme at the International Institute for Sustainable Development.

Morrocco’s environment minister Hakima El Haité, who will host the next UN climate conference in November, was at Climate Week in New York on Monday, where she called on nations to arrive in Marrakech with cuts to subsidies foremost in their minds.

In all, the US self-assessment identified $8.2bn in subsidies, of which $4.8bn was deemed inefficient. The remainder was tied up in the Low Income Home Energy Assistance Program (LIHEAP), which was not marked for reform. This result expands dramatically the size of US subsidies previously estimated by the OECD at $4.2bn (including the LIHEAP).

El Haite wants governments to come to Marrakech and pledge not to use any more coal + nix fossil fuel subsidies

— Ed King (@edking_I) September 19, 2016

The US subsidies identified for culling included a $52m excise exemption for tar sands, the most carbon intensive source of oil. Like many of the subsidies, the exemption is earmarked for a cut, but waits on the approval of the Republican-controlled Congress.

The review of China’s submission was conducted by officials from the US, Germany and Indonesia as well as the International Monetary Fund (IMF) and Organisation for Economic Cooperation and Development (OECD). In their report they noted that Chinese authorities “indicated that they do not consider lower rates of resource tax to be an inefficient subsidy on the grounds that these tax reductions seek to encourage greater resource recovery”.

The review process worked from a definition for subsidies similar to the OECD’s. The argument over how subsidies are defined is vexed. For example, the IMF believes they should account for the extra burden on public health systems caused by pollution. This leads them to estimate the total public spend on fossil fuels to be around $5.3tn each year. The OECD’s narrower definition estimates it to be $160-200bn for its member states.

The post US and China release fossil fuel subsidy peer reviews appeared first on Climate Home News.

Instead, they issued yet another cut and paste communiqué (French language version), reaffirming for the eighth time in as many years their ‘medium term commitment to rationalise and phase out inefficient fossil fuel subsidies’.

These 20 countries – the richest in the world, pocketing 80% of the world’s GDP – have the greatest capacity to act on climate change. They are also responsible for 75% of global greenhouse gas emissions, and must lead by example.

So, what’s the hold up?

There are different views within the G20 about how fast to move on phasing out subsidies. The G7, EU and Mexico have been leading the charge for a 2025 deadline, while a handful of countries have sought to block the move.

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This year, however, the world’s biggest polluters China and the US did engage in a peer review process for the first time, feeding back on each other’s fossil fuel subsidies.

If ever made public, this may provide a small step towards greater transparency, but in the context of the radical pace of change needed to decarbonise our energy systems, it is no more than a token gesture.

Fossil fuel subsidies incompatible with climate commitments

According to a new study, current G20 climate pledges under the Paris Agreement fall way short of what is needed. In fact, they need a six-fold increase in emission cuts up to 2030 – sticking to their current plans will almost certainly push the world beyond the two degree limit.

#G20 today failed to end ‘world’s dumbest policy’: #FossilFuelSubsidies. Read @shelaghwhitley's response: https://t.co/hhyJTJWYMX

— ODI (@ODI_Global) September 5, 2016

Although fossil fuel subsidies were noticeably absent in the Paris deal due to political sensitivities, a first step – and a quick and easy win – would be to stop handing out public money and tax breaks to big business to search for, dig up and produce yet more oil, coal, and gas.

Yet on average, the G20 continues to spend $444 billion a year supporting fossil fuel production alone.

After ratifying the Paris Agreement, all governments must put all decisions through a simple climate test; does this policy fit within our carbon budget according to the latest climate science?

As three quarters of known fossil fuel reserves are ‘unburnable’ if the world is to stay within 2 degrees of warming, production subsidies would undoubtedly fail the test every time.

World’s dumbest policy

Just last week Bloomberg said fossil fuel subsidies are the world’s ‘dumbest policy,’ and leading insurers called for a 2020 deadline for phasing out ‘simply unsustainable’ subsidies in a statement targeting the G20.

Every month in 2016 has been the hottest on record, with NASA labelling the pace of this year’s warming as ‘unprecedented’ in the last one thousand years. Fossil fuel subsidies are moving from mere ‘policy contradictions,’ to become one of the most scandalous betrayals by a government of its people.

Excuses are running out – the time for action is now. The last chance for G20 countries to set an end date for fossil fuel subsidies will be at their summit in Germany in July 2017.

Failing to do so will lock yet another generation into a lifetime of dependency on centuries-old energy systems, putting a break on the transition to clean energy and passing the bill – and the climate fallout – onto far more vulnerable groups and countries.

Shelagh Whitley is head of green growth at the Overseas Development Institute.

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The G20 has already committed to phase out “inefficient fossil fuel subsidies that encourage wasteful consumption” over the “medium term”. In May, the G7 nations pledged to achieve this by 2025.

When the leaders of the 20 largest economies on earth meet in Hangzhou on Thursday and Friday, they must go further, said a joint statement from multinational insurers Aviva, Aegon and Amlin, and commit to an end to assistance for fossil fuel companies within four years.

“Given the urgency of the climate change crisis, underscored by the Paris Agreement reached in December of 2015, the next steps on this commitment are long overdue,” the statement read.

The three insurers manage $1.2tn in assets. Aviva CEO Mark Wilson said: “Climate change in particular represents the mother of all risks – to business and to society as a whole. And that risk is magnified by the way in which fossil fuel subsidies distort the energy market. These subsidies are simply unsustainable.”

Considering the planetary crisis we face, it is completely inappropriate to continue giving billions in tax breaks to fossil fuel companies.

— Bernie Sanders (@SenSanders) August 28, 2016

Estimates of fossil fuel subsidies vary widely depending on the definition of a subsidy. The OECD reports that its member states contribute $160-200bn each year to the production of coal, oil and gas.

But the International Monetary Fund (IMF) has said this neglects to account for the damage to the environment and human health for which governments carry the cost. The IMF estimates this to amount to a staggering $5.3tn a year, or $10m per minute.

“We’re calling on governments to kick away these carbon crutches, reveal the true impact to society of fossil fuels and take into account the price we will pay in the future for relying on them,” said Wilson.

Analysis: Do asset managers have a duty to reduce their climate risks?

Last year the US and China issued a joint statement in which they said they would use China’s G20 presidency to put a timeline on the phase out.

Shelagh Whitley, research fellow at the Overseas Development Institute (ODI), said the current G20 pledge to end fossil fuel subsidies was “empty” if it lacked a concrete timeline. ODI’s own estimate puts fossil fuel subsidies at $444bn each year.

“These subsidies fuel dangerous climate change,” said Whitley. “If we are to have any chance of meeting the 2C target set at the Paris climate summit then governments need to start a programme of rapid decarbonisation. The finance sector recognises the importance of moving away from fossil fuels, governments need to realise they may be the only ones left not moving.”

The statement was also signed by the Institute and Faculty of Actuaries (IFoA) and Open Energi. It comes six days after 130 investors issued a similar pre-G20 representation. In the US, the Sierra Club has launched a campaign call on the Obama administration to back the same target.

The post Insurers worth $1.2tn tell G20 to stop funding fossil fuels by 2020 appeared first on Climate Home News.

The Paris Agreement refers only tangentially to those financial flows – even a reference to “high-emission investments” was cut. And only 13 countries mentioned fossil fuel subsidy reform in their national pledges.

Yet outside of the UN climate talks, two different campaigns are shedding light on fossil fuel finance, and pushing to end it. One aims to reform fossil fuel subsidies, with a focus on the G20 countries.

The other is pushing for divestment from fossil fuels, inspired by the anti-apartheid movement of the 1980s, and building on the concept of “unburnable carbon”.

The two campaigns differ significantly in terms of their structure, audiences and effects. But together, they are a perfect “one-two punch” on fossil fuels, hitting them from the top and the bottom at once.

Risky bet: Does divestment slow or speed green growth?

In fact, while the two movements emerged separately, they are closely interlinked, and will be most successful if they recognize they are natural partners.

Fossil fuel subsidy reform gained global momentum in 2009, when the G20 countries pledged to “phase out over the medium term inefficient fossil fuel subsidies”. Since then, it has been embraced in several other contexts, including the UN Sustainable Development Goals.

Most recently, the G7 governments even introduced a deadline, committing to end fossil fuel subsidies by 2025.

Spurred on by low oil prices, many countries have sought to reform or reduce their fossil fuel subsidies, from India to Saudi Arabia.

Divestment, by contrast, has emerged as a grassroots movement, often involving students who push their universities to divest from fossil fuel companies.

Although the idea has received support from high-level figures such as World Bank president Jim Yong Kim and by Mark Carney, the Governor of the Bank of England, no major international body has so far committed to divestment.

Unlike with fossil fuel subsidies, the G20 has only asked the Financial Stability Board to “explore” the financial risks arising from climate change.

Report: G20 urged to switch fossil fuel subsidies for climate finance

The World Bank has not entirely divested from coal, though it will finance new coal projects “only in rare circumstances”.

Yet more than fossil fuel subsidy reform effort, it is the divestment movement that may be making the biggest impact in the long run, by changing the public discourse and extending the call to climate action across the wider global economy and society.

The divestment campaign has made it clear that all sorts of financial actors, including ordinary people with savings, are currently funding runaway climate change.

It has found supporters among hospitals, charities, faith groups and universities. Step by step, the divestment campaign is gradually changing social norms – persuading people that owning dirty coal or oil stocks is immoral.

But the real strength of the divestment movement is that it reaches beyond the traditional circle of environmental activists.

Seismic shift

It has prompted shareholders to ask for more disclosure by major oil companies. It has influenced investment banks and pension funds – most notably Norway’s oil fund, the world’s largest sovereign wealth fund.

It is the first divestment movement to have convinced Wall Street and London that it has a genuine business case – no trivial accomplishment.

For both campaigns to fully live up to their potential, they must acknowledge that they are closely linked.

National governments should lead the way in decarbonizing financial flows through a balanced subsidies phase-out.

They should also steer other public financing away from fossil fuels, including development aid, export credits, sovereign wealth funds, and R&D budgets.

Investors are less likely to divest if governments continue to prop up the sector with rampant subsidies, aid and investments.

Thijs Van de Graaf is an assistant professor in the Department of Political Science at Ghent University, Belgium. Mathieu Blondeel is a PhD candidate in the same department.

This post is part of a series written for “The Politics of Fossil Fuel Subsidies and Their Reform“, a workshop co-hosted by Lund University and the Stockholm Environment Institute at SEI in Stockholm on 16–17 June.

The post Time for divestment and oil subsidy campaigns to join forces? appeared first on Climate Home News.

Although such policies typically aim to benefit the economy and low-income households, a large body of evidence finds that, in aggregate, these policies are very inefficient in serving those goals. For example, they often benefit richer people more than the poor.

Reforming fuel subsidies can free up resources to better meet economic and social goals.

For example, reforms in Indonesia freed up about USD 15 billion that was reallocated to ministries, state-owned enterprises and to regions and villages, supporting infrastructure, health care, education and other goals.

Many governments recognized this and have introduced reforms in recent years.

Mapped: Fossil fuel subsidy reform through 2013-14 pic.twitter.com/ANU39V9ZdL

— Climate Home News (@ClimateHome) June 15, 2016

Yet one key question remains mostly unexplored: Do existing subsidies – and policies to reform them – affect men and women differently?

That is a critical knowledge gap, given the serious problem of gender inequality around the world.

Without a solid evidence base, how can governments tailor policies to ensure that they promote both women’s and men’s welfare, and improve gender equality, rather than undermine it?

A four-year project led by our institute’s Global Subsidies Initiative is exploring the impact of cooking and lighting fuel subsidies on women in low-income households and the likely impact of reforms under consideration.

Funded by the UK Department for International Development (DFID), the project focuses on Bangladesh, India and Nigeria, but also draws on examples from other countries.

Energy access

Our main question is how subsidies affect access to cleaner cooking and lighting fuels (LPG, kerosene and electricity) and the implications for women in low-income households.

For example, are official subsidies actually reflected in retail prices? Are there transaction costs that discourage women from accessing the subsidy? And what role does price play in determining households’ overall access to and use of different fuels?

We will also examine the implications of the subsidy–access relationship for women’s welfare, productivity and empowerment. In addition, we will look at how energy subsidies and reforms around the world have affected women, and how policies can be targeted to better address the needs of women.

Our initial research, based on past studies, suggests that significant proportions of society, especially those living in poverty and/or in rural areas, do not greatly benefit from current energy subsidy schemes.

We found that the gender-differentiated impact of energy subsidies and their reform are very context-specific, but it is clear that the approach taken can make a real difference for poor women (see table).

Understanding these dynamics better will enable governments to improve the targeting of energy subsidies, with significant implications for policy design, gender equality and access.

We hope that the outcomes of our project will enable governments to make more informed choices in future reforms.

Potential compensation options
-Women can be made recipients of transfers, such as LPG coupons or vouchers
-Build infrastructure for women’s needs: wells to save time on water collection; street lighting to reduce violence
-Make women recipients and owners of any assets (e.g. stoves, cylinders)
-Make women direct recipients of subsidies

Fuel subsidy reform represents an enormous opportunity to advance the goal of sustainable energy for all, but good policy design is crucial. Without attention to gender-differentiated impacts, energy subsidies will not benefit low-income women, and reforms may come at an enormous cost to them.

In particular, the removal of subsidies on cooking and lighting fuels can have negative impacts on women. Not only can it reduce access to clean and modern energy, but it can lead to reduced household expenditure on women’s needs, such as health care.

Governments should consider adopting a “precautionary principle” and carefully examine how women and men will be affected by subsidies and reform policies.

With the resulting knowledge, they can then design more targeted – and effective – interventions.

Shruti Sharma is coordinator of the India Program of the Global Subsidies Initiative (GSI) at the International Institute for Sustainable Development. Laura Merrill is a senior researcher for the GSI. Christopher Beaton is a research and communications officer, and Lucy Kitson is a research officer.

This post is part of a series written for “The Politics of Fossil Fuel Subsidies and Their Reform“, a workshop co-hosted by Lund University and the Stockholm Environment Institute at SEI in Stockholm on 16–17 June.

The post How women could benefit from fuel subsidy reform appeared first on Climate Home News.

The move came after nearly six months of unending fuel scarcity, long queues, high-priced black market sales, and illegal re-exports.

The government argued that liberalizing the oil sector will promote competition, align prices with global market trends and, perhaps most important, provide an opportunity for economic diversification.

Nigeria has vast oil and gas resources, and for the past five decades it has relied heavily on oil and gas production to drive economic growth, neglecting other sectors and energy sources. The oil sector accounts for 13% of GDP and 70% of government revenue.

Thus, as global oil prices plummeted, Nigeria’s budget deficits grew, to an estimated ₦2.2 trillion (US$10 billion, or 2.16% of GDP). With the economy in crisis and the International Monetary Fund (IMF) and others pushing for reforms, the government was under strong pressure to act.

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The petrol price hike is expected to save about ₦16.4 billion (US$82 million) per month in subsidies to distributors, which will be redirected towards infrastructure development. But can the reforms last, and can they drive the economic transformation that Nigeria needs?

Nigeria currently produces about 2.5 million barrels per day of oil, and it has a crude reserve of 37.1 billion barrels. Yet due to low refining capacity (as low as 20% run rates), Nigeria has to import about 80% of the petroleum products used in the country. To keep fuels affordable, the government has capped and subsidized petrol and diesel prices for many years.

In January 2012, former President Goodluck Jonathan tried to end the subsidies and liberalize the market, citing budgetary concerns. Fuel subsidies were said to account for a third of government spending at the time, about ₦1.4 trillion. Yet the effort met with strong resistance, leading to a halt in economic activities for over a week and an estimated loss of ₦320 billion.

If successful, the new round of reforms will address fraud, corruption and cronyism in the oil import sector (including non-existing oil marketers or companies receiving subsidies). They could also help reduce the oil cartels’ hold on the government and on the citizens at large.

Report: Unions threaten riots, strikes as Nigeria ditches oil subsidy

However, the new fuel regime still lacks a robust institutional structure to support and uphold the policy process. Its design and implementation have also been fraught with secrecy; hence the dissemination of information to citizens has been poorly organized. Public opinion is mixed.

By taking this approach, the government has missed the opportunity to present its green agenda as an alternative to Nigeria’s oil problems. In contrast, when Indonesia became a net oil importer in 2005, the government seized the political moment and presented its decision to shift towards the deployment of renewable energy to meet its energy needs.

Existing institutions such as the Ministry of Petroleum Resources could potentially fill the gap, but they lack credibility. The ministry is tainted by corruption scandals, has poorly communicated past fuel reform policies on fuel reforms, and cannot effectively manage policies on renewable energy, as it is largely designed to support fossil fuels.

Another institution that readily comes to mind is the Renewable Energy Division of the Nigerian National Petroleum Corporation (NNPC), a sub-division mandated to develop Nigeria’s biofuels sector. However, the NNPC has also been stifled by the political influence of fossil fuel advocates.

Report: Nigeria budget signals shift away from oil dependence

The best approach is to establish an independent, transparent institution, created through a legislative act and specifically tasked with regulatory, fiscal, civic and developmental aspects of the hybrid oil and renewables sector.

First, this institution would be involved in the adjustment of oil prices based on international market trends and education of citizens prior to price adjustments.

It could use mass and social media, and hold town-hall meetings as well as parliamentary debates (for a similar institutional example, see Ghana’s National Petroleum Authority or Indonesia’s Ministry of Energy).

Second, this institution would coordinate the creation of renewable energy mandates for oil corporations and the government. This could include drafting a new law to ensure that at least 20% of oil revenues earned by the government are invested as a capital base for renewable energy projects.

Also as part of this law, all operating oil companies (producers and refiners) within Nigeria could be mandated to create a subsidiary on biofuels and divert 20% of their assets towards biofuel activities (for a similar example, see the EU/Netherlands biofuels blending mandates for oil companies).

Diversified, sustainable

In addition, this new institution would need to oversee and ensure transparency in the use of the subsidy reinvestment funds, which would be mainly accessible to oil companies with subsidiaries in the renewable energy sector. This approach could ensure that oil corporations become less resistant or skeptical towards the development of renewables.

Finally, in order to successfully reform Nigeria’s oil sector, catalyse economic diversification, and boost demand for renewable energy, we need an institutional and policy environment that positions both fossil fuel and green advocates as winners.

Unlike the existing fossil fuel regime, the new regime also needs to be socially and politically inclusive. This means ensuring the development of communities where resources are mined, promoting low carbon sources of energy, and removing incentives for rent-seeking and corruption in the oil sector.

Several prominent Nigerians have argued that the global oil market crash could be a “blessing” for the country – a chance to move to a more diversified, more sustainable economy that benefits the entire population, not just a few.

Last month’s reforms could be the beginning of a crucial transformation needed in Nigeria’s energy sector, but only if it gets a robust institutional support.

Olufolahan Osunmuyiwa is a PhD researcher at the Institute for Environmental Studies (IVM) at Vrije Universiteit Amsterdam.

This post is part of a series written for “The Politics of Fossil Fuel Subsidies and Their Reform“, a workshop co-hosted by Lund University and the Stockholm Environment Institute at SEI in Stockholm on 16–17 June.

The post Crude politics: Reforming Nigeria’s oil sector appeared first on Climate Home News.

The country’s gross national income was just US$3,630 per person in 2014 and annual growth is just around 5% – both below the regional average.

Along with corruption, poor infrastructure is a key barrier to development. So when President Joko (“Jokowi”) Widodo took office in 2014, he set out to boost investment in infrastructure by 53%.

It was the largest year-on-year increase in Indonesia’s history, part of an effort to achieve a 7% GDP growth rate. Widodo’s agenda required capital – and the country’s wasteful fossil fuel subsidy budget was the perfect source to draw upon.

Removing fuel subsidies, pegging domestic fuel prices to the global oil market, and reallocating the budget to infrastructure investment, particularly in the energy sector, also fit with the advice of the World Bank and the Asian Development Bank.

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And it was consistent with longstanding advice to reform subsidies and remove price controls to balance current account deficits.

Subsidies on imported fuels have created historic budget deficits and made the economy vulnerable to volatility in the oil and currency exchange markets.

So starting in late 2014, Widodo began to cut fuel subsidies, particularly to petroleum, projecting that this would free up IDR195 trillion (US$15.6 billion) from the 2015 budget’s original allocation of IDR276.0 trillion (US$22.1 billion) to be used instead on mainly infrastructure investments.

The reforms were widely praised as a success, not least because, unlike past reforms that led to massive protests, they were accepted by the public.

However, Indonesia had set itself up for future fiscal troubles.

There are inconsistencies in how the reforms were presented, and what happened  in reality. The fossil fuel subsidy reforms coincided with the crash of the global oil market, which some scholars argued was the best moment to introduce reforms, since price shocks would be low.

But then the rupiah depreciated to IDR 13,271 to US$1, levels not seen since the Asian financial crisis.

In focus: What is Indonesia doing on forests, climate?

Since the removal of subsidies was passed by Parliament and signed into law in 2015, the 2016 budget did not include a budget line for gasoline subsidies, but it kept subsidies for 3 kg LPG tanks, diesel and renewable energy.

And instead of being removed completely, the cost of gasoline subsidies was transferred to Pertamina, the state-owned oil company, which now covers the difference between the subsidized price set by the government and market price of fuel.

The Indonesian government did not reimburse Pertamina for losses from price controls during 2015, which amounted to US$1 billion (IDR 15 trillion).

In March 2016, the government also cut subsidized fuel prices by IDR 500 (US$0.04) to reduce transportation fares by 3%. This casts further doubts on the “stickiness” of the recent reforms and has added to Pertamina’s deficit.

If Pertamina is not reimbursed, it will go bankrupt. The situation will only become more precarious if oil prices continue to rise. Since Pertamina is a state-owned enterprise, the government has a fiscal liability (and fiduciary responsibility) to recapitalize it.

Nobody said it was easy: Egypt’s energy reforms unwrapped

Similar situations have arisen in the UK and in France, where the financial burden of nuclear subsidies were passed to EDF, which requires bailouts from the French government.

While the Indonesian government has assured Pertamina it will cover the financial losses, the Energy Security Fund being set up in part to recapitalize Pertamina is still incomplete.

In theory, the Fund would subsidize fuel prices when global crude market trades above domestic prices, using profits made while global oil prices are below Indonesia’s retail gasoline prices. This assumes that oil prices remain low.

Energy and Mineral Resources Minister Sudirman Said says the Fund will be sourced through the government budget, grants, and loans once the “legal umbrella is complete” – but it is unclear how this will be balanced against future budgetary priorities, such as social assistance and infrastructure development or how democratic this process will be.

The government’s shift in fuel subsidy reform policy is disconcerting. The lack of transparency on these policy decisions reflects either the government’s unwillingness to admit the extent of its blunder or a shift towards a less democratic process of subsidizing fuels.

Transparency, stability

Nevertheless, the fact that a fuel subsidy reform passed without major public backlash shows attitudes have changed, and there is strong potential for removing price controls.

Completing the reforms successfully will require two key elements: increased transparency and fiscal buffers to better manage volatility in the oil and currency exchange markets.

Removal of price controls requires macroeconomic stability, which in turn requires fiscal adjustments for inflation through coordinated credit, fiscal and exchange rate policies.

Such measures, combined with increased investment and directed social assistance, such as the payments set up in Iran’s subsidy reform, soften the impact of higher fuel prices and make reforms more socially acceptable.

Indonesia still has a chance to get fossil fuel subsidy reform right – but it will require political determination, strong communication campaigns and sound macroeconomic policy-making to ensure the “stickiness” of the next attempt at reforms.

Kathryn Chelminski is a doctoral research fellow in sustainability science at the Harvard Kennedy School and a PhD candidate in international relations at the Graduate Institute, Geneva.

This post is part of a series written for “The Politics of Fossil Fuel Subsidies and Their Reform“, a workshop co-hosted by Lund University and the Stockholm Environment Institute at SEI in Stockholm on 16–17 June.

The post Lessons from Indonesia’s fuel subsidy bonfire appeared first on Climate Home News.

Following years of feet-dragging on the question of subsidy reform, the review hints at progress on the creation of a new shared governance model.

The review, countries hope, will lead to clear actions, taken on a voluntary, bottom-up basis; and to the adoption of a practical and effective model of bilateral cooperation within a multilateral framework.

In China, this is the first time the government has formed a cross-departmental, cross-sector group of experts to systematically examine the state of fossil fuel subsidies, undertaken with the aim of building a long-term domestic energy and subsidy strategy.

For both China and the US, it is also an opportunity to use the international stage to force domestic policy change.

The review

Numerous researchers have analysed the scale of fossil fuel subsidies, how to reform them, and the impact of those reforms. But those outcomes have largely been neglected.

In the aftermath of the global financial crash in 2008 the benefits of ending fossil fuel subsidies became more apparent.

In economic terms, governments could save spending. In social terms, getting rid of price supports would end a system that tends to benefit those with higher incomes; and environmentally, it would discourage unnecessary consumption of fossil fuels and, as a result, help tackle a range of environmental problems.

IMF: Fossil fuel subsidies to hit $5.3 trillion in 2015

The time was right, and at the September 2009 summit in Pittsburgh G20 leaders committed to “phase out and rationalise, over the medium term, inefficient fossil fuel subsidies”. Two months later APEC leaders made a similar promise when they met in Singapore.

But in the three years since, the G20 has failed to introduce the tangible measures needed to turn high-level political commitments into action. The only mechanism available has been a non-binding, voluntary self-reporting system.

Following Pittsburgh, finance ministers were instructed to develop a voluntary peer review process to push fossil fuel reforms forward. In 2013, a methodology was published by which G20 members could evaluate the policies and policy outcomes of other nations. The results of those evaluations would, in theory, inform future G20 decisions.

China-US cooperation

In 2013, the US made China an offer: for the two nations to complete the G20’s first round of fossil fuel subsidy peer review jointly. China quickly agreed and during US vice-president Joseph Biden’s visit to China, in late 2013, the two sides announced the peer review would go ahead.

This speed was possible due to the two countries’ existing dialogues outside the G20 framework, on the economy, energy and climate issues. The understanding and trust built up through the China-US Strategic and Economic Dialogue was particularly important.

Timeline: China and the US work on fossil fuels

July 2014 Terms of reference for the peer review are agreed upon
May 2015 Members of the peer review group are confirmed
2014 – 2015 Teams of Chinese and US experts decide on definitions, scope and methodology of the peer review process
Early 2016 The Chinese review is completed
May 2016 The US review is expected
September 2016 Outcomes to be submitted at the G20 meeting in Hangzhou

The review provides actual experience of how to use the “inventory method” to analyse fossil fuel subsidies, particularly when dealing with cross-subsidies; and of how to use non-G20 cooperative mechanisms, such as the China-US Strategic and Economic Dialogue, to further other processes.

While it is not yet possible to comment on the review’s outcome, pending its completion, G20 members can still learn something from the process.

The outcomes

Bilateral peer reviews of fossil fuel subsidies are not a G20 invention – APEC membersNew Zealand and Peru have already successfully completed the process. By looking at the outcomes of that review (submitted by Peru in November 2014 and New Zealand in September 2015) we can predict possible outcomes for the China-US review.

First, expenditure on fossil fuel subsidies is not the focus of the process; the key is the identification and reform of subsidies which are inefficient (despite the greater media attention paid to the former).

For example, Peru offers tax breaks for fossil fuel producers, and some consumer subsidies, in its Amazon region. The peer review with New Zealand assessed the scale of these subsidies but spent more time analysing the impact these have.

It found that while the aim of the subsidies is to stimulate economic development in the Amazon, 14 separate tax exemptions resulted in the loss of government income equivalent to 0.46% of GDP, while economic growth in the region is still the country’s lowest. The subsidies failed to attract investment or create jobs.

Report: G20 urged to switch fossil fuel subsidies for climate finance

In light of this, it was recommended that these subsidies be cut. However, the report also found that the monthly issuing of vouchers for natural gas to low-income groups – a consumer subsidy – was an effective policy that could be expanded nationwide.

Second, the peer review model accounts for different circumstances of each nation when considering the starting point for reform, and the definition and scope of subsidies.

In Peru, the fuel price stabilisation mechanism was identified as causing wasteful consumption; the peer review process suggested using other economic policies, such as interest rates, instead. While in New Zealand, a wider range of policies were considered, eight in total, including supply-side subsidies and the support given to fossil fuel research and development projects. Such differing scopes are permissible under the existing peer review framework.

The policy and reform suggestions resulting from the process will reflect, to a degree, the trends in ongoing fossil fuel subsidy debates. One aspect of this is that discussions must solicit the opinions of stakeholders and the reform process must be more transparent.

For example, the peer review experts praised public disclosure measures taken through New Zealand’s support for oil industry research and development, and of the natural gas subsidies for lowest-income populations in Peru.

China and the US are at different stages of development, have varying degrees of openness regarding government finances, and a sharply contrasting make-up of their energy structure.

Their reports will reflect these differences and the outcome of the peer review process may well include a “common but differentiated” programme for reform.

This article first appeared in ChinaDialogue

The post US, China to publish fossil fuel subsidy peer reviews appeared first on Climate Home News.

(Pic: arbyreed/Flickr)

By Sandrine Dixson-Declève

The G20 was one of the first international bodies to put fossil fuel subsidy reform on the global agenda. As early as 2009 they committed to “phase out and rationalise over the medium term inefficient fossil fuel subsidies”.

Despite re-affirmation of this pledge, reform has been slow. In 2014, over US$500 billion was spent on fossil fuel subsidies, four times support for renewables.

As they meet this weekend in Antalya, Turkey, G20 leaders should turn their six-year-old pledge into practical action. This would be a significant contribution to the radical emissions cuts needed to limit global warming to 2C, and would accelerate the transition to a low-carbon and climate-resilient economy.

Just three week before COP21, concrete steps by the world major economies to reform fossil fuel subsidies could be a game-changer for the crucial climate talks in Paris.

Two fiscal policy tools can drive decarbonisation and level the playing field for low-carbon energy: the adoption of carbon pricing and the elimination of fossil fuel subsidies, both integral parts of the proper costing of high-carbon externalities in economies. Paying a price for emissions while, at the same time, encouraging the activity that causes them is perverse.

Three reasons for the G20 to eliminate fossil fuels subsidies now:

1. Subsidies just don’t make business sense

Business relies on enabling policy and operates best when it has long-term certainty to direct its investment decisions. Clarity that public resources are shifting away from fossil fuels offers the certainty the private sector needs and will unleash investment in innovations that accelerate the growth of renewables, electric vehicles and low-carbon infrastructure, bringing the cost of these technologies down.

Many, including the Global Subsidies Initiative (GSI) argue that, by artificially depressing the cost of fossil fuel consumption and production, subsidies distort the comparative cost of renewable energy and energy efficiency, limiting their growth.

Already low-carbon sectors are showing healthy growth of 4% a year or more globally, offering much needed job creation and this can be expected to continue or improve depending on the direction of G20 public spending.

2. Subsidies don’t benefit development; they reinforce poverty

Governments often justify fossil fuel subsidies as supporting energy access or wealth sharing in the case of oil producing nations.

The International Monetary Fund (IMF) has shown that artificially deflating fossil fuel consumer prices encourages wasteful consumption by the rich and middle-class, who benefit by up to six times more than the poor and vulnerable from these subsidies

3. Government action creates the space for business action

At national and global levels, the power of progressive business has accelerated decarbonisation. Signalling a move away from fossil fuel subsidies will give businesses and investors the confidence that governments are truly embracing the path towards low-carbon energy.

The Prince of Wales’s Corporate Leaders Group, which brings together 23 global corporations, has endorsed The Friends of Fossil Fuel Subsidy Reform Communiqué, a cross-sector clarion call for a just, accelerated and transparent action plan to eliminate perverse fossil fuel subsidies and walk the talk towards decarbonisation. Initiated by New Zealand and other non-G20 countries, the Communiqué is supported by 25 countries (including six G20 nations), alongside stakeholders from all sectors, and will be officially presented on the opening day of COP21

The growing support for reform from governments and business demonstrates just how widespread the call for change is. With energy prices at an all-time low, now is the right time to phase out fossil fuel subsidies with a gentler impact on consumers and national economies.

A clear action plan from G20 governments will earn the trust and support of global business, as well as citizens, some of whom are mobilising this weekend in Turkey and around the world, asking world leaders to shift from words to action on fossil fuel subsidies.

Sandrine Dixson-Declève is director of The Prince of Wales’s Corporate Leaders Group, which brings together 23 global business leaders working to advocate solutions on climate change.

The post G20 must act on fossil fuel subsidy reform appeared first on Climate Home News.

(Pic: Bert Kaufmann/Flickr)

By Megan Darby

Coal is the single biggest threat to a stable future climate. Cheap and dirty, it is the go-to fuel for countries keen to industrialise.

Cheap, that is, if you don’t count the health costs of toxic air pollution or public spending on railways to transport the stuff.

Major economies are primed for a triple assault on the coal gravy train in the coming week. There is an OECD bid to phase out coal export credits, a broader G20 push against fossil fuel subsidies and a climate risk disclosure drive.

If they see it through, it could tilt the market towards cleaner energy – and a better chance of avoiding catastrophic global warming.

But these things are easier said than done, as vested interests lobby fiercely behind the scenes. What can we expect?

Coal export credits

To start with the most tangible prospect, OECD members are working towards a ban on export credits for the least efficient coal technology.

These are preferential loans or guarantees governments offer their domestic industries to encourage trade.

OECD countries doled out US$34 billion worth of such support between 2007 and 2014, Natural Resources Defense Council, Oil Change International and WWF found in a recent study.

Japan, which accounted for $20 billion of that figure, previously defended the practice. In a significant shift last month, the country got behind a phase out (see document below).

In a compromise struck with the US, it does not propose a complete ban, as some environmentalists would like.

But it wants to rule out support for the low and middling efficiency plants that make up 80% of the pipeline.

More efficient ultra-supercritical plant would be eligible, provided it fits with national climate policy.

“They [Japan] have come round to the idea because of political pressure for one, and because they think their industry is competitive selling ultra-supercritical technology,” says Steve Herz of the Sierra Club.

“This is about as strong a deal as is achievable, given the current political context.”

Emissions intensity

Ultra-supercritical coal plant     <750g CO2/kWh

Supercritical                                   750-850g CO2/kWh

Subcritical                                       >850g Co2/kWh

Modern gas-fired plant                ~360g CO2/kWh

There are holdouts. Australia and South Korea have both submitted weaker proposals.

South Korea is a major exporter of coal technology, while Australia’s mining sector supplies the raw materials.

Australia’s position is “deeply, deeply cynical,” says Herz, who has followed the discussions closely.

“They don’t even manufacture the technology that is at issue. What their position comes down to is they want other countries to continue to subsidise the export of inefficient coal technology so that they can export more coal.”

It is at odds with prime minister Malcolm Turnbull’s claims that Australian coal can reduce energy poverty without harming the climate.

Report: Australia PM Turnbull stands by coal amid moratorium calls

Despite taking climate change more seriously than predecessor Tony Abbott, who he ousted in a party rebellion, Turnbull has stood by the mining sector.

That has not gone unnoticed by Australian environmentalists.

“The Turnbull Government wants to keep coal-fired power stations unfairly propped up to please its big mining donors at the expense of the liveability of the planet and the health of people in developing nations,” says Green senator Larissa Waters.

“Australia should be leading the transition to the job-rich clean energy future, not blocking the global shift from fossil fuels.”

Herz is optimistic there will be progress on this at an OECD meeting next week, however. “We think pressure is being applied in the right places,” he says.

Fossil fuel subsidies

This is a beacon of progress in the sluggish wider fossil fuel subsidy reform agenda.

Every year since 2009, G20 countries have reiterated a promise to eliminate “inefficient” incentives for polluting sectors.

A report published by the Overseas Development Institute and Oil Change International on Thursday shows that is not translating into action.

G20 countries back coal, oil and gas production to the tune of US$452 billion a year, researchers found. By way of comparison, the International Energy Agency estimates global renewable subsidies at $121 billion.

On 15-16 November, leaders of the G20 – a group that overlaps with the OECD, counting big emerging economies like China and Brazil as well as the US and Europe – meet in Antalya, Turkey.

G20 leaders meet in Antalya, Turkey on Sunday (Pixabay)

Prince of Wales’s Corporate Leaders Group, which represents 23 EU-based companies including Unilever, GlaxoSmithKline and Jaguar Land Rover, is urging action.

Paul Polman, CEO of Unilever, says in a statement: “Fossil fuel subsidies, which we know both hinder the development of low carbon solutions and disproportionately benefit the well-off in society, need to be put in the past.”

Campaigners are also reminding delegates of their promise. Demonstrations are planned on Saturday in Washington DC, Berlin, Istanbul, Tokyo and Seoul, under the banner #stopfundingfossils.

“It is a no brainer – this is really low hanging fruit for the G20,” says Alex Doukas from Oil Change International, co-author of the subsidy report.

“It is a way to free up budget space and spend money on other priorities rather than fuelling the climate crisis.”

Report: Turkey coal push wrecks ‘inadequate’ climate pledge – analysts

The host nation is giving tax breaks to a fleet of coal plants that could nearly double its greenhouse gas emissions by 2030, however. It has shown little willingness to discuss reform.

As the researchers acknowledge, a lack of clear information, concerns about energy security and industry lobbying lead to inertia.

“Giving these handouts to companies entrenches strong corporate interests, which then exert a lot of influence,” says Doukas.

There are signs next year’s G20 president, China, could deliver what campaigners really want to see: a timetable for scrapping subsidies.

In a September agreement with the US on economic relations, it spoke of a phase out “by a date certain”.

Climate risk disclosure

Last but not least is an initiative to smooth the path to a low carbon economy by bringing investors on board.

The Financial Stability Board this week submitted a proposal to the G20 for a task force to uncover the climate-related risks facing markets.

That could include getting businesses to disclose their carbon footprints, for example.

Mark Carney, FSB chair and Bank of England governor, has warned climate change – and the response to it – threaten financial stability.

The sector is too bound up in short term thinking to tackle the issue, he said, calling for greater transparency.

A Bank of England report outlined three sources of risk: physical damage wreaked by extreme weather, lawsuits against polluters for climate damage and devaluing of carbon-intensive assets as emissions are constrained.

Research from Cambridge University underlines the scale of potential shocks to the system if sentiment suddenly shifts on climate change.

Certain types of portfolios could lose up to 45% of their value, it finds.

“Investors can ‘climate proof’ their investments to a significant extent by understanding how climate change sentiment could filter through to returns,” says Scott Kelly, one of the authors of the report.

“However, almost half the risk is “unhedgeable” in the sense that it cannot be addressed by individual investors. System-wide action is necessary to deal with this in the long-term interests of savers.”

An FSB task force would build on diverse voluntary or regulatory initiatives to highlight exposure to climate risk.

In a recent intervention, the New York attorney general forced coal giant Peabody Energy to tell shareholders how emissions curbs could hit profits.

Report: Exxon Mobil faces legal inquiry on climate misinformation

Still, Richard Denniss, chief economist at The Australia Institute, wants to see more aggressive measures.

“Information helps, but we need to go much further than disclosure; we need to go to investigation,” he says.

Exxon Mobil is being probed over revelations it internally accepted the scientific consensus on climate change decades ago, yet publicly muddied the waters.

Australia, meanwhile, claimed not to be subsidising fossil fuels after the 2009 G20 statement. That was subsequently shown to be untrue – the latest study gives a figure of $5 billion a year.

“If they want to talk about disclosure and transparency, that test should also be applied to government support for fossil fuels,” says author Doukas.

“They are on the hook at the same time as a lot of these companies are seriously distressed. Governments are investing heavily in exploring for more fossil fuels that we can’t burn. We need to be moving in the opposite direction.”

The post Are major economies putting the squeeze on coal? appeared first on Climate Home News.

(Pic: World Economic Forum/Flickr)

By Ed King

The world’s top economies are pumping money into the fossil fuel sector despite repeated calls for them to stop, the Organisation for Economic Cooperation and Development (OECD) said on Monday.

“The time is ripe for countries to demonstrate they are serious about combating climate change, and reforming harmful fossil fuel support is a good place to start,” said OECD secretary-general Angel Gurria.

Support for fossil fuels, worth an estimated $160-200 billion from 2010-2014 bordered on the “schizophrenic” Gurria told reporters.

“We are trying to reduce emissions and we subsidise the consumption of fossil fuels,” he added.

The OECD’s latest study covered 34 countries, including the major emerging economies of China, India, Indonesia, Brazil and South Africa.

It uncovered 800 spending programmes aiding the oil, gas and coal sectors, such as direct consumer subsidies or industry tax breaks.

These are nearly double the $100 billion a year most OECD countries agreed to supply by 2020 every year to allow developing countries to green their economies and adapt to a changing climate.

While some progress had been made in the past few years in cutting subsidies, it was far too little, said the report.

Oil rout

Falling oil prices offered countries a unique opportunity to slash subsidies without hurting consumers, said the study.

A recent study by the IMF estimated the true value of assistance to the fossil fuel sector topped $5 trillion when the damaging health and climate effects of emissions were accounted for.

Still – many oil and gas producers are urging governments to offer them more support as crashing prices make some drilling projects increasingly unviable.

Analysts Wood Mackenzie say $1.5 trillion of investment is “out of the money” given the cost of a barrel of oil is tottering at $50.

It said $220 billion of projects have been cut so far, with potentially more bad news for the industry to come unless leading producers reduce supply.

The post Major economies ‘schizophrenic’ on climate change blasts OECD chief appeared first on Climate Home News.

Fossil fuel companies do not pay for all the environmental damage linked to their product (Pic: BP)

By Ed King

Fossil fuel subsidies in China, Qatar and Ukraine are some of the highest in the world according to new data from the International Monetary Fund (IMF).

China spends $2,271 billion a year backing the oil, gas and coal sector, the largest supporter in dollar terms on the planet, followed by the US with $700m and Russia on $335m.

Ukraine spends 61% of its GDP on subsidies – 49% on coal and 8% on gas, while tiny gas giant Qatar tops the per capita index, spending nearly $6,000 a head each year in support of fossil fuels.

Support among the world’s G20 is worth $1,000 per person a year, despite repeated pledges by the group of the world’s top economies since 2009 to phase out fossil fuel subsidies.

The data shows the UK spends $41 billion a year on subsidies, Japan $157bn, Korea £72bn and Germany $55bn. The hosts of this year’s UN climate conference – France – spend $30bn.

Speaking to the Guardian, climate change economist Lord Stern said the bloc should “honour their commitment” and admit spending on fossil fuels was “far greater than previously understood”.

Green groups, UN officials and the World Bank have long called for governments to get a grip on subsidies, which are blamed for boosting fossil fuel-linked carbon emissions by 20%.

Further calls for action may come in December, when 195 countries meet in Paris to finalise plans for a deal to slash emissions.

A new version of the negotiating text offers an option for countries to agree on a collective goal to reduce, eliminate or phase down subsidies, a proposal backed by the IMF.

“Energy subsidy reform can also contribute to carbon emissions reduction and help countries make pledges ahead of the Paris 2015 UN climate conference,” it said.

“To achieve significant carbon emissions cuts at the global level, it would be essential for top subsidizers in dollar terms to play a leading role.”

Report: Morocco bids to axe fossil fuel subsidies in climate pledge

An earlier version of the IMF study revealed global subsidies for fossil fuels were likely to hit $5.3 trillion in 2015, nearly 6.5% of the world’s GDP.

The new figures offer a country-by-country breakdown of the level of support offered to the sector, including tax breaks, financial assistance and price cuts.

In a controversial move, the IMF has included the costs fossil fuel use imposes on the environment and human health, radically boosting a figure that was $2 billion in 2013.

“The bulk of energy subsidies in most countries are due to undercharging for domestic environmental damage,” write officials in a blog accompanying the data release.

These externalities include local air pollution from coal fired power plants, traffic congestion and accidents linked to car use.

Many governments – including the UK – do not recognise these latest calculations, maintaining they do not offer high levels of support for the fossil fuel sector.

Still, according to the IMF, eliminating the subsidies could stop 1.6 million premature deaths a year and lead to a revenue gain of $2.9 trillion.

“In emerging economies, the revenue is worth double their corporate income tax revenues or public health spending.

“In low-income countries, it is about one and half times corporate income tax revenues or public health spending.”

The post China, Qatar and Ukraine top IMF fossil fuel subsidy leagues appeared first on Climate Home News.

Heavy pollution shrouds sunset in Beijing (Pic: Theis Kofoed Hjorth/Flickr)

By Ed King

Subsidies for fossil fuels that cause climate change have soared since 2013, a new study from the International Monetary Fund has revealed.

Oil, gas and coal costs will be subsidised to the tune of US$5.3 trillion a year in 2015. The last time the IMF ran the data it calculated they were worth $1.9 trillion.

Economists say the latest figures are more accurate as they represent the “true” cost of energy, which includes the environmental, health and climate impacts of burning fossil fuels.

“Over half of the increase is explained by more refined country-level evidence on the damaging effects of energy consumption on air quality and health,” IMF officials Benedict Clements and Vitor Gaspar wrote in a blog.

The figure is larger than the health spending of all the world’s governments combined, a reckoning the pair called “shocking”.

(Pic; IMF)

Coal is the biggest recipient of polluting subsidies, the IMF found, given its combined impact on air quality and high carbon emissions.

“The most dramatic difference, compared with the pre-tax figures, is for coal which is the biggest source of post-tax subsidies, amounting to 3.0% of global GDP in 2011 and rising to 3.9% in 2015,” says the study.

The World Bank and IMF have been campaigning hard for countries to stop subsidising fossil fuels, arguing it can help stimulate stronger and more inclusive growth.

In the past three year’s leaders at the Major Economies Forum, G20 and G7 have all called for an end to harmful subsidies.

Report: European Commission drops demand to cut fossil fuel subsidies

Earlier this year US secretary of state John Kerry said coal subsidies were “simply destructive”, but the IMF research suggests high levels of funding are still common around the planet.

The largest national offender is China, which when pollution is taken into account, offered a $2.3 trillion subsidy to its one billion energy consumers this year.

It’s followed by the United States (US$699 billion), Russia (US$335 billion), European Union ($330 billion), India (US$277 billion), and Japan (US$157 billion).

UN talks

The news comes as leading economies meet in Berlin to discuss plans for a global climate treaty, due to be signed off in Paris later this year.

Slashing subsidies this year could cut carbon emissions 20% and boost government revenues $2.9 trillion says the IMF, and raise what it terms “economic welfare” by $1.8 trillion.

“Conditions are ripe to decisively engage in energy taxation and energy subsidy reform, further favored by lower international oil prices and low inflation,” said Clements and Gaspar.

“Steps at the national level could hasten progress at the global level ahead of the Paris climate change summit in December.

“By acting local, and in their own best interest, policy authorities can contribute significantly to the solution of a global challenge.”

The post Fossil fuel subsidies to hit $5.3 trillion in 2015, says IMF study appeared first on Climate Home News.

Bełchatów coal power station in Poland, one of Europe’s dirtiest plants. The country granted €7 billion in fossil fuel subsidies in 2011. (Flickr/ Kamil Porembiński)

By Alex Pashley

The European Commission removed calls to end subsides for fossil fuels in its yearly audit of 26 economies on Wednesday, raising questions over its commitment to addressing climate change.

Last year, the EU’s executive arm told Italy to “remove environmentally harmful subsidies” and ordered France and Belgium to “phase out” grants in their extracting of coal, oil and gas.

Eight countries were urged to start taxing pollution, and 17 to boost renewables, electric grids and energy efficiency.

But this year’s ‘country specific recommendations‘ omitted all mention of the polluting subsidies and the environment – save a minor call for Luxembourg to “broaden” its environmental tax base.

The IMF put fossil fuel subsidies at  €79 billion in the EU in 2011.

Retrograde step

“There was a very deliberate decision to leave climate and environment out,” said James Nix, director of Green Budget Europe, a Brussels-based policy advisory. “It’s hard to imagine a more retrograde step in the year of crunch climate talks.”

The European Union has been a standard bearer in UN talks toward a global climate pact to be finalised in Paris in December.

Making up a tenth of world greenhouse gas emissions, it’s leading the pack along with the US in reining in global warming, pledging to slash carbon by 40% from 1990 levels by 2030.

But erasure of subsidies for coal, oil and gas, which in the form of tax breaks and state contributions lead to their increased use ramping up global warming, would run counter to that.

Indeed in 2013 top EU chiefs called on the G20 to ditch them.

EU examples

German taxpayers gave €2 billion to coal producers in 2011, while Poland gifted €7 billion to its miners of the most carbon-intensive fuel from 1999-2011, according to a comprehensive report by the OECD.

In the UK national exploration subsidies for oil and gas projects often for deep water and shale gas extraction total €1.2 billion a year, largely through tax exemptions, the Overseas Development Institute said in a report.

In a statement to RTCC, a spokesperson for the EC’s Economic and Financial Affairs (ECFIN) directorate – which rose to prominence after the Eurozone economic crisis in vetting country’s budget plans – said the so-called ‘semester process’ had been “streamlined” to “increase efficiency”.

That  led to to shorter recommendations “targeting the key, macroeconomic challenges of each country … possible to implement and monitor within 12 and 18 months.”

And “most recommendations on energy” were now dealt with by Energy Union officials, the project driven by new president Jean-Claude Juncker to wean Europe off Russian gas dependency.

Reckless use of money

Nix said the EC would deal with the issue at a “hopelessly unspecified” time, throwing out old policy tools before implementing the new scheme which lacked consensus.

“By the Commission’s cowardice and inaction – or ‘streamlining’ in its jargon – President Juncker is locking Europe further into fossil fuel dependence, failing to tackle reliance on imported energy in the process,” he added.

Analysis: How the EU is building a green energy union
Study: Companies lobby groups to water down EU climate policy

The world is spending half a trillion dollars a year – a “reckless use of public money” – on incentivising production of fossil fuels, according to the ODI. Countries spent six times more on subsidies for them than renewables, according to the International Energy Agency in 2012.

In it the ODI outlined a “triple-lose scenario” for the planet.

Finance is funnelled into high-carbon assets that can’t be exploited to prevent temperatures rising above a universally-agreed 2C, depriving investments in low-carbon alternatives such as solar and hydro-power, and undermining chances of a meaningful global pact.

Crucial reform 

Scientists say between two-thirds and three-quarters of proven fossil fuel reserves are “unburnable” to prevent exceeding the maximum amount of carbon dioxide the atmosphere can withstand and avoid catastrophic global warming.

Thomas Spencer, director of the climate programme at the French think tank IDDRI said subsidy reform was “crucial” with low energy prices providing the EU with an opportunity to increase taxes on fossil fuels, without raising consumer prices.

Though the definition of a fossil fuel subsidy remains unclear.

“Member states are always unhappy when they are blamed by the Commission that they are subsidising things that they see having a social purpose,” Severin Fischer, an energy analyst at the Berlin-based SWP think tank.

News: Europe releases vision for Paris climate change deal

ECFIN’s attempts to force changes in country’s economic plans have been rarely successful, he said.

“They prefer to invent regulatory instruments than involving themselves in the budget of member states,” Fischer said.

Energy chiefs from the G7, which numbers France, Germany, the UK and EU among its members issued a communique yesterday.

While fossil fuels fuels will remain in countries’ energy mixes for some time “we remain committed to eliminating inefficient fossil fuel subsidies,” it read.

The post European Commission drops demand to cut fossil fuel subsidies appeared first on Climate Home News.

(Pic: World Bank/Flickr)

By Ed King

Finance ministers and central bankers are becoming increasingly concerned over how the world will fund an “orderly transition” to green and climate resilient growth, a senior World Bank official has told RTCC.

Rachel Kyte, vice president at the Bank and its climate change envoy, said discussions over carbon pricing, clean energy investment and the need to stop burning fossil fuels were “more and more front of mind” for governments.

“This year what you are starting to see is a mainstreaming of the debate,” she said, ahead of the annual International Monetary Fund spring meeting in in Washington DC.

Food security, the collapse in oil prices and the need to sustain economic growth will all headline this year’s event, but it will also include a strong focus on climate change, ahead of a proposed UN pact, set to be finalised in Paris later this year.

“We will have a ministerial discussion with more ministers than we have ever had before – including the G7,” Kyte said. She hopes delegates will “roll up their sleeves” and “get cracking”.

Biting impacts

Earlier this week World Bank chief Jim Kim spoke of poor and emerging economies feeling the “boot of climate change on their neck”.

A UN-backed panel of scientists say that the world could warm by up to 4C above pre industrial temperatures by 2100 if emissions continue to soar, leading to more droughts, floods and rising sea levels.

The Bank has led calls for tougher carbon pricing and an end to fossil fuel subsidies as two key policies to address rising levels of greenhouse gas emissions.

Research from the Overseas Development Institute published last year suggests that G20 countries spend US$88 billion a year subsidising exploration for oil, gas and coal.

A 2013 study by the OECD arrived at similar figures, finding that up to $90 billion a year is being directed towards fossil fuel production or subsidising its use.

Kim has called for these to be “removed right now”, pointing to data suggesting the richest 20% benefit up to six times from these funds than the poorest 20%.

Jordan, Indonesia and Malaysia all started to cut subsidies in the last 12 months, while Morocco and Egypt have received praise for their efforts to discourage wasteful energy use.

Climate aid

Kyte said the cash set aside for subsidies could be used by developed countries to meet their 2010 promise to deliver $100 billion a year of climate finance to the world’s poorest by 2020.

“You can see that if fossil fuel subsidies were removed in countries who are expected to contribute to that US$ 100 billion and if part of proceeds of subsidy reform was earmarked as climate finance then that’s a contribution,” she said.

“If some who need to contribute were to put carbon pricing in place with it being at a robust level and some proceeds were allocated as climate finance then that would [also] be a contribution.”

Progress on these fronts, linked to a $38 billion market for green bonds and the newly-launched Green Climate Fund could offer a landing ground for a strong climate finance package in Paris, said Kyte.

Without more funding for clean energy projects developing countries say they cannot commit to further carbon cuts, a point many are likely to highlight in their submissions to the UN later this year, known as Intended Nationally Determined Contributions (INDCs).

“There are signs and signals that things are changing. That’s one reason why people are keen to see the INDCs from these key countries,” said Kyte.

“We know from conversations with clients and counterparts that they are thinking through the challenges of changing trajectory.”

Responsible growth

Fast growing cities in China, India and Brazil are likely to test the green credentials of governments and investors in the next two decades.

According to the New Climate Economy report, in next 15 years energy demand will grow between 20-35%, requiring $45 trillion of investment.

By 2050 the OECD says the world will need 80% more energy due to rising population and a tripling of per capita consumption levels

Kyte said all leading development banks – including the new China-backed Asian Infrastructure Investment Bank (AIIB) and BRICs infrastructure bank – have a responsibility to ensure development finance is “climate risk proofed”.

Otherwise countries face “building things which are exacerbating or perpetuating a lack of resilience”, she said.

Analysis by the UN’s climate science panel suggests that the likely costs of just 2C of global warming could cost up to 0.5–2% of global GDP by 2050.

“What we think is important is we need to continue to build the case and strengthen the evidence for the fact that any delay in financing a cleaner growth path is going to cost more in long run,” she added.

The post Use fossil fuel subsidies for climate aid – World Bank envoy appeared first on Climate Home News.

Egypt has hiked fuel prices for motorists in an effort to cut its budget deficit
(Pic: Flickr/Tinou Bao)

By Megan Darby

Egypt, Indonesia and India are among almost 30 countries to have cut consumer fossil fuel subsidies in 2014.

Ending artificially cheap petrol and other such market interventions could cut greenhouse gas emissions an estimated 6-13% worldwide by 2050. It would also free up some US$500 billion of public money.

Countries should include fossil fuel subsidy reforms in their draft contributions to a global climate deal, the International Institute for Sustainable Development has recommended.

“The evidence is clear—subsidising the consumption of fossil fuels is hugely detrimental to the climate,” said Scott Vaughan, president and CEO of IISD.

“And they come at a large opportunity cost. The billions of dollars spent on these subsidies means less money is available for clean energy, health, education and infrastructure.”

Report: Morocco hailed as climate ‘poster child’ after oil subsidy axe 

Developing countries, which account for the bulk of such subsidies, are being encouraged to submit national climate plans to the UN this year.

It is the first time poorer parts of the world will formally shoulder some responsibility for limiting emissions, with financial and technology support.

These, alongside commitments from the developed world, will form the building blocks of a global agreement due to be struck in Paris this December.

While rich countries are still expected to make the bulk of emissions cuts, emerging economies are seeking to shift their growth onto a greener path.

“Fossil fuel subsidy reform is a feasible and cost-effective commitment that countries are implementing, or seriously considering, and which could support an agreement in Paris,” said Laura Merrill, a senior researcher at IISD’s Global Subsidies Initiative.

Report: Oil price slump boosts Egypt fuel subsidy phase-out

The IISD report comes amid mounting calls to take advantage of a low oil price – which at around US$55 a barrel, has halved since last June – to scrap subsidies.

A key obstacle to removing subsidies is resistance from consumers who do not want to pay more for their fuel.

Top officials at the International Energy Agency and the World Bank have argued now is a good time to make the shift with minimal impact on pump prices.

The move would also help to address rising social inequality, added Paul Polman, chief executive of consumer goods giant Unilever, in a Guardian article yesterday.

Fossil fuel subsidies “often disproportionately benefit the rich who use more energy”, he wrote, calling for the money to go into renewables and innovation.

The post Axe cheap petrol to cut emissions, emerging economies told appeared first on Climate Home News.

Pic: arbyreed/Flickr

By Sophie Yeo

Green groups have petitioned the G20 finance ministers to stop subsidising fossil fuel exploration as they meet in Istanbul to discuss the state of the global economy.

The G20 agreed in 2009 to phase out fossil fuel subsidies, but progress has been slow.

In a letter to Turkish prime minister Ahmet Davutoğlu, 39 organisations from across Europe, Asia, Africa, South America and the US called for the meeting to set out a strict timeline for the phase-out of subsidies.

A recent report by the Overseas Development Institute found that these 20 major economies – including the UK, US, China and Japan – are still spending around US$88 billion a year on finding new oil, coal and gas reserves.

“We know that existing fossil fuel reserves are already far beyond what our climate can withstand,” said David Turnbull, campaigns director at Oil Change International.

Scientists estimate two thirds of known fossil fuel reserves need to stay in the ground to maintain a good chance of limiting temperature rise to 2C above pre-industrial levels – the internationally agreed target of the UN’s climate body.

The green groups argued it is “highly inefficient” to be funding exploration for new reserves that cannot be safely burnt, when this money could instead be spent on climate action at home and internationally.

Rich countries have pledged to mobilise US$100 billion every year to help poor countries adapt to climate change and decarbonise their economies, as well as reduce emissions domestically. In 2014, they managed to raise less than a tenth of this.

Politics

Getting rid of the subsidies is a matter of political will, added Turnbull. “In the US, Congress is so far from taking action on this, despite President [Barack] Obama proposing subsidy elimination in his budget year after year,” he said.

EU finance ministers should take the lead in ensuring fossil fuel subsidies are phased out, said Wendel Trio, director of the Climate Action Network.

“This will allow the EU to strengthen its role in international climate negotiations and improve the odds of a successful climate agreement in Paris.”

This Paris deal is set to be signed in December this year. Diplomats are in Geneva this week to work on the draft of the text.

Politicians could also show their commitment to a phase-out by discussing it at interim climate talks in June, suggested Turnbull.

The post Green groups tell G20 ministers to stop fossil fuel subsidies appeared first on Climate Home News.

The UK government gives $1.2 billion a year to oil and gas companies to encourage drilling, says study (Pic: BP)

By Ed King

The world’s 20 leading economies are throwing billions to fund oil, gas and coal exploration despite warnings that dangerous climate change is inevitable unless most fossil fuels stay in the ground.

A new report by the Overseas Development Institute says governments are spending US$88 billion a year – twice as much as the top 20 fossil fuel companies – in the pursuit of carbon intensive fuels.

The findings are “shocking” says Shelagh Whitley from the ODI, one of the authors of the study, and threaten to undermine prospects for ambitious 2015 UN climate deal.

Governments are “propping up those activities at quite a significant scale” she tells RTCC, despite regular assurances from world leaders that they will curb support.

“It shows you the arsenal of tools governments have to support private activity, but they are just putting it in the wrong direction.”

In 2012 an estimated $775 billion of subsidies was directed towards fossil fuels, according to the ODI, compared to $101 billion for renewables in 2013.

This is driving the development of oil, gas and coal holdings which cannot be burnt if the world is to avoid warming above 2C, a key figure in the recent Intergovernmental Panel on Climate Change report, the world’s leading authority on global warming.

Oil drilling in high-risk environments like the Arctic is only possible due to state support, the report says, citing Russian backing for Gazprom worth an estimated $2-5 billion.

(Pic: ODI)

The findings could haunt G20 heads of state as they gather in Brisbane, Australia for their annual summit this week.

G20 countries account for the vast majority of greenhouse gas emissions. China, India, the US and the EU together release 55% of the world’s CO2.

Host prime minister Tony Abbott had initially declined to include climate change in the main agenda, but under pressure from the US changed his mind, meaning the issue will be discussed by delegates.

In 2009 and 2013 G20 countries pledged to stop financially bailing out oil, gas and coal companies, saying these encouraged “wasteful consumption” and reiterated their commitment to tackling climate change.

Since then it appears progress has been limited.

Governments have started work on a peer review process says Whitley, aimed at working out how much each country funds fossil fuel exploration and consumption.

The US and China are expected to share their data shortly, but it is unclear if there will be any public disclosure.

According to ODI research, US exploration subsidies were $5.1 billion in 2013, 50% higher than 2009.

Australia is providing $3.5 billion to onshore and offshore resources, Russia $2.4 billion while the UK offers a variety of tax breaks and financial assistance worth $1.2 billion.

From 2009 to 2014 the ODI says these were worth $838 million to French company Total, $407 million to Norway’s Statoil, $229 million to Centrica and $72 million to US oil giant Chevron.

State owned enterprises in emerging economies are among the biggest subsidy junkies, with China giving $9 billion a year to companies, Brazil $11bn, India up to $5bn and Saudi Arabia $17bn.

“Without government support for exploration and wider fossil fuel subsidies, large swathes of today’s fossil fuel development would be unprofitable,” says the report.

“Directing public finance and consumer spending towards a sector that is uneconomic, as well as unsustainable, represents a double folly.”

The post G20 big oil billions “undermines” climate action appeared first on Climate Home News.

(Pic: YoTuT/Flickr)

By Ed King in Pori

Morocco should be held up as a ‘poster child’ for effective green policymaking, according to the World Bank’s top climate official.

Speaking at an environmental meeting in Pori, Finland, Rachel Kyte said the Rabat government’s recent decision to cut tax breaks for petrol and gas used a template other developing nations could follow.

“What Morocco did was remove subsidies on fossil fuels, because they couldn’t afford it, not because they had a big climate goal, but because they couldn’t afford the subsidies,” she said.

“Then they started to incentivise investments in renewable energy, domestic and foreign.”

The latest subsidy-cutting programme was published in January, with support for a litre of diesel set to fall from $0.59 pre litre to $0.22 by October.

According to the IMF, by 2011 energy subsidies accounted for 5.5% of Morocco’s GDP, and 17% of its total investment budget.

More than 70% of the population were unaware that the real price of a 12-litre bottle of cooking gas was $14, as opposed to the government fixed retail price of $5.60.

Ministers launched an extensive communication and consultation strategy before choosing to implement a series of gradual reductions in support.

Kyte said these and the government’s longer term energy policies have already led to a clean energy investment leap from $300m to $1.8 billion.

This came on the back of the Arab Spring, which caused a tenfold drop in investment across the region, and lingering political instability in Morocco’s neighbours.

Report: French Foreign Minister calls for end to subsidies 

Fossil fuel subsidies are frequently cited as a major impediment to curbing global greenhouse gas emissions, leading to overconsumption and making clean energy alternatives uncompetitive.

According to a 2013 report from the Overseas Development Institute (ODI) Indonesia, Pakistan and Venezuela spend twice as much on fossil fuel subsidies as they are on public health.

The ODI also revealed some rich countries spend up to seven times more backing oil, gas and coal than they do helping poorer countries address climate change.

In 2013 they totalled US$544, but many developed and developing governments appear reluctant to attack them, fearing short term hikes in domestic energy prices.

Jordan, Indonesia and Malaysia also started to cut subsidies last year, but many leaders fear a repeat of Nigeria’s 2012 experience, where President Goodluck Jonathan first scrapped and then reinstated a government petrol subsidy, in the face of riots across the country.

Financial backing

But Kyte argued that if cuts are matched with policies to offer energy alternatives – such as efficient cookstoves, solar panels or efficiency schemes, they can work effectively – and will attract private sector support.

“There is a clear cause and response. You can act and send that clear signal – and the response from the private sector and investors is pretty quick,” she said.

“There is finance pent up looking for long term green and sustainable solutions.”

That confidence in green investment flows may surprise may long term observers of UN climate talks, used to warnings that these have long since dried up.

The UN’s nascent Green Climate Fund is the official response to this perceived cash crisis, but recent news that the green bond market raised $20bn in the past seven months suggests private interest in the sector is growing.

Last week the German development bank KfW announced a €1.5 billion (US$2 billion) green bond, while leading insurer Zurich said it planned to set aside $2bn for bonds, citing their growing appeal.

“It’s significant because you have some big bonds within that $21 billion – corporate bonds and utility bonds,” Kyte said.

“There is pent up capital that needs to invest in green…and there’s more of that being mandated – so they have to have somewhere to go.”

She added: “For Africa you see the opportunity for a clean energy mix that was never there before.

“Geothermal resources, hydro, solar, wind offer real opportunities complementing gas. You see the possibility for massive investments.”

The post Morocco hailed as climate ‘poster child’ after oil subsidy axe appeared first on Climate Home News.

By Ed King

Fossil fuel subsidies must be scrapped to avert dangerous levels of global warming, according to the French official tasked with leading UN negotiations next year in Paris.

Speaking on Saturday at an economic meeting in Aix-en-Provence, Foreign Minister Laurent Fabius said local and national governments needed to “stop fossil fuel subsidies”.

“Beyond these 2 degrees, we will undergo climate chaos and no one, no individual, no company, no nation, no town will be spared,” he said.

According to the International Energy Agency, fossil fuel subsidies totalled US$544 billion while investment in renewables was $101bn.

France will host the 21st UN climate conference in 2015, where countries are scheduled to sign off a global climate deal aimed at limiting warming to below 2C, a level deemed dangerous by scientists.

The Natural Resources Defense Council, a US NGO, says the elimination of subsidies could reduce global carbon dioxide emissions 6% by 2020.

Support for oil, gas and coal is widespread in developed and developing countries, and is blamed for creating inefficient economies where the true costs of energy are not valued.

Fabius said his own government had to confront subsidies, and called for a “clear and stable framework over time” to start their removal.

Banking role

Fabius, recently returned from India where he discussed a UN climate deal with new prime minister Narendra Modi, added that sovereign wealth funds and pension funds should consider ditching their fossil fuel investments.

Quoted by news agency RTL, he called for 10% of traditional portfolios to be dedicated to the green economy by 2020, arguing business as usual plans would “destroy more wealth than it creates.”

He added “no individual, no company, no nation, no town will be spared” if the global temperatures increase more than 2C above pre-industrial levels.

The minister also called for a massive transition in investment to support clean energy.

The coming decades needed to see the “€1,000 billion currently invested in energy, up to 80% for fossil fuels and 20% for renewables, to switch gradually” to greener forms of power, he said.

The post French Foreign Minister launches attack against fossil fuels appeared first on Climate Home News.

By Megan Darby

Scrapping fossil fuel subsidies would free up nearly enough cash for the green investment needed to avoid runaway climate change, according to an influential think-tank.

An extra US$ 800billion a year of investment is needed globally between now and 2050 to limit global temperature rise to 2C, the International Institute for Applied Systems Analysis (IIASA) found. That is on top of the US$ 400billion a year expected to result from existing policies.

In a study published on Wednesday, the researchers noted this green investment gap is in the same order of magnitude as existing worldwide fossil subsidies, estimated at US$ 500billion a year. They did not attempt to quantify the potential fuel cost savings of a shift to green energy.

David McCollum, lead author of the study, said: “Nearly all countries say that they’re on board with the 2°C target; some have even made commitments to reduce their greenhouse gas emissions. But until now, it hasn’t been very clear how to get to that point, at least from an investment point of view.

“It’s high time we think about how much capital is needed for new power plants, biofuel refineries, efficient vehicles, and other technologies—and where those dollars need to flow—so that we get the emissions reductions we want.”

Temperature Limits 

The study is part of a wider EU research project, called Limits, into the policies needed to keep global warming below the internationally agreed 2C threshold.

Altogether, the IIASA projected between US$ 30trillion and US$ 75trillion of investment in low carbon technology and energy efficiency will be needed by 2050, with a central case of US$ 45trillion. That is based on a comparison of the results of six different global economic models.

The greatest investments will be needed in emerging economies of Asia, sub-Saharan Africa and Latin America.

“Energy investment in these countries is poised to increase substantially anyway,” said Massimo Tavoni, researcher at the Fondazione Eni Enrico Mattei, a climate research center in Italy, and overall coordinator of the LIMITS project.

“But if we’re serious about addressing climate change, we must find ways to direct more investment to these key regions. Clever policy designs, including carbon pricing mechanisms, can help.”

Due to the long lifespan of energy infrastructure, commonly between 30 and 60 years, study co-author Keywan Riahi said the investment decisions of the next few years were important. “There’s a considerable amount of technological inertia in the system that could impede a rapid transformation,” he warned.

The post Extra $800bn needed per year to avert dangerous climate change appeared first on Climate Home News.

Source: Flickr/epSos.de

By Sophie Yeo

The world’s richest countries are “shooting themselves in both feet” by providing high subsidies to the fossil fuel industry, according to a report from the Overseas Development Institute.

By continuing to support the industry with vast sums of public money, the governments are creating a double-edged sword by subsidising the industries that are pushing the world towards dangerous climate change, at the same time as creating a barrier to green investment.

Governments have agreed to attempt to keep temperatures below 2C, the temperature at which catastrophic impacts of a warming climate will set in. A UN meeting in Paris in 2015 will attempt to reach a binding deal to achieve this, with meetings in Warsaw starting next week laying the groundwork.

According to the International Energy Agency, fossil fuel producers received $523 billion of subsidies in 2011. Such support undermines attempts to gradually raise the price on carbon emissions through schemes such the European emissions trading scheme and carbon taxes.

Speaking to the UK Energy and Climate Change Committee on Tuesday, leading climate change economist Lord Stern said that a failure to charge people for dumping gases into the atmosphere essentially amounted to a market distortion. “People should pay for the damage they do,” he said.

The report adds that the average subsidy provided by rich governments for every tonne of carbon is $7, or roughly the same as the current cost of carbon in the EU emissions trading scheme, meaning that this carbon price may as well not exist.

This amounts to around $112 of fossil fuel subsidy for every adult across 11 of some of the world’s richest countries.

“The rules of the game are currently biased in favour of fossil fuels,” said Shelagh Whitley, who is calling for bold action from the G20 to phase out the subsidies by 2020.

“The status quo encourages energy companies to continue burning high-carbon fossil fuels and offers no incentive to change. We’re throwing money at policies that are only going to make the problem worse in the long run by locking us into dangerous climate change.”

On Tuesday, the EU Commission released non-binding guidance to Member States on how governments could improve their financial interventions in energy markets, mainly concerning subsidies for renewable energy.

Financial support for renewables should be limited to what it necessary, it said, and should be directed towards making the technology competitive. It also aimed to stimulate investment by instructing governments to avoided unannounced or retroactive scheme changes.

EU Energy Commissioner Günther Oettinger said: “The ultimate aim of the market is to deliver secure and affordable energy for our citizens and business.

“Public intervention must support these objectives. It needs to be cost-efficient and be adapted to changing circumstances.”

The post Fossil fuel subsidies equal $112 per adult in rich countries appeared first on Climate Home News.

British Chancellor George Osborne (L) isn’t keen on the climate ambition IMF chief Christine Lagarde (R) wants to see (Pic: Chatham House)

By Kieran Cooke

The multi-billion-dollar global fossil fuel industry might be getting just a little bit worried.

In recent days, some of the biggest guns in the world of finance have all had the industry in their sights, calling for a cut back on fossil fuel subsidies and the fast-tracking of carbon trading schemes, or for the wider application of taxes on carbon.

Jim Yong Kim, head of the World Bank, and Christine Lagarde, managing director of the International Monetary Fund (IMF), held a joint news conference in which they stressed that climate change must be the main priority of both institutions.

“It is important that our two institutions always have climate change, environmental issues and price setting at the forefront of our agenda,” Lagarde said. “We have got to think about it every day.”

Establishing a proper price for carbon and removing energy subsidies were the IMF’s priorities, Lagarde said.  “If you do it the right way, you can put subsidies where they are needed.”

Jim Yong Kim said the priorities for the World Bank were to invest in sustainable energy for all, well-designed cities, and what he called smart agriculture. He said cutting fossil fuel subsidies was often “politically difficult”, but there were encouraging signs around the world from the implementation of carbon taxes.

Angel Gurria, the head of the Organisation for Economic Co-operation and Development (OECD), joined in the chorus, saying governments must take immediate action aimed at pricing carbon and abolishing fossil fuel subsidies.

“According to the latest International Energy Agency [IEA] estimates, subsidies to fossil fuel consumers in developing and emerging economies totalled US$ 523bn in 2011,” Gurria said.

OECD chief: carbon price vital to address climate change

“In many countries, these subsidies are used as a substitute for poverty relief. That is understandable, since energy is one of the fundamental basic human necessities.

“But such subsidies are generally poorly targeted, and instead end up being captured overwhelmingly by better-off households who can afford larger cars and houses that consume more energy. These subsidies are bad for the economy, bad for the environment, and also bad in terms of social justice.”

Meanwhile, a report by a group of academics at Oxford University has warned the fossil fuel industry that it could not afford to ignore a growing high-profile campaign urging investors to withdraw their cash from companies involved with fossil fuels.

Others point out that if meaningful action is to be taken on climate change, the bulk of fossil fuel company assets have to stay in the ground. This means that industry conglomerates are grossly overvalued and a carbon bubble is likely to burst in the near future.

The World Bank and a number of other financial institutions announced earlier this year that they were scaling back or stopping altogether funding for new coal-fired power projects. The US administration also said it would stop investing in coal projects overseas.

But it’s unlikely that the fossil fuel industry will be heading for the bunkers any time soon.

The World Bank still provides multi-million-dollar funding for fossil fuel projects. The US might have stopped funding coal projects overseas, but its coal exports are booming like never before.

And in Britain there were calls this week for the abolition of subsidies – not for fossil fuels but for the renewable energy industry.

This article was produced by the Climate News Network

The post Analysis: world’s finance chiefs are taking aim at fossil fuels appeared first on Climate Home News.

Barroso has been a strong supporter of an EU transition to a green economy during his tenure as Commission chief (Pic: EU)

The European Union’s top two officials say cutting fossil subsidies should be a priority for the forthcoming G20 summit, which takes place in St Petersburg in September.

In a joint letter to EU heads of state, European Commission President Juan Manuel Barroso and European Council chief Herman Van Rompuy also call for progress on climate finance commitments.

“On energy matters, it is important to make progress on phasing out fossil fuel subsidies, incorporating green growth policies in structural reform agendas, generating climate finance, improving the transparency of commodity markets, and promoting investment in energy infrastructure,” they write.

Based on GDP, the EU is the G20’s largest member. The UK, Germany and France also take part independently.

Barroso and Van Rompuy add: “We call on all G20 members to also step up their efforts and further deepen our cooperation in order to ensure strong, sustainable and balanced growth.”

The IMF estimates global fossil fuel subsidies amount to US$1.9 trillion a year. These come in the form of tax breaks, reduced prices and state contributions to oil and gas firm investments.

Recent UN climate finance talks in Manila ended with proposals that US$600 billion could be raised by targeting monies paid to coal, oil and gas.

Signs of change

Last week the World Bank became the latest leading financial institution to announce it would no longer offer finance to coal power plants under normal circumstances, a policy that was mirrored today by the European Investment Bank.

Campaigners say that reducing subsidies would have a significant effect on global greenhouse gas emissions.

In May, EU Climate Commissioner Connie Hedegaard and Poland Environment Minister Marcin Korolec, who will also chair UN climate talks in November, said reducing energy subsidies and setting a target to cut oil imports should be a priority for European policymakers.

“Instead of offering unsustainable and environmentally damaging subsidies for fossil fuels, public finance should encourage the development of new industries and businesses that are emerging in the course of the low-carbon transition,” Hedegaard said.

“The industries of the future, which will create jobs that last, are those that will use scarce resources efficiently, and that can pay the real environmental and health costs of the resources that they use.”

Russia provides some of the largest subsidies for fossil fuels in the world.

In 2009 the International Energy Agency (IEA) estimated that Russian subsidies for the consumption of fossil fuels totalled almost US$34 billion.

The G20 agenda calls on parties to offer “recommendations on the voluntary peer review process for fossil-fuel subsidies”.

Last month Russian Federation President Vladimir Putin was presented with proposals to encourage “Strong, Sustainable, Balanced and Inclusive Growth” by civil society, although it is unclear how these were received.

The post EU chiefs call for G20 decision on fossil fuel subsidies appeared first on Climate Home News.

Fossil fuel subsidies cost governments $523bn a year, but despite a growing consensus that they should be reformed, they linger on.

Earlier this month Egypt walked away from negotiations on a $4.8bn lifeline loan from the International Monetary Fund (IMF), despite its parlous financial situation.

The loan would have helped leverage $15bn in foreign investment, sending a signal that the country was a good place to invest again after two years of political upheaval that has drained the country’s coffers.

Talks are expected to resume, but one of the main stumbling blocks was a condition that fossil fuel subsidies would be cut.

Given the choice of the timely loan or maintaining the status quo with its subsidy regime, Mohamed Morsi’s government chose the latter given their was no political consensus possible around cuts.

Removing the world’s fossil fuel subsidies has become a high profile issue for NGO’s as well as the EU, G20, the World Bank and the IMF. Campaigners say subsidies line the pockets of big oil companies, supporters claim they are vital to give the world’s poorest access to energy.

Tahir Square in Cairo during the uprising, which observers say was fuelled by “economic grievances” (Source: Flickr/James_P)

Governments largely accept there are economic and climate benefits of bringing fossil fuel prices back up to market value. So why the hesitation to cut such costly policies even when a desperately needed cash injection is at stake?

The Overseas Development Institute (ODI) says Egypt pays out $19bn in fossil fuel subsidies every year, just less than 10% of its GDP.

The main reticence in Egypt is the effect the cut would have on the country’s poorest. This concern is justified.

Subsidies make kerosene and diesel affordable to the world’s poorest people where lamps and generators fill the void left by the absence of an electricity grid and motorbikes take the place of public transport.

“The uprising of 2011 was partly fuelled by economic grievances. Bearing in mind today’s economic and political turmoil, slashing subsidies overnight would be a risky endeavour to say the least,” Hoda Baraka, from Greenpeace’s Arab World Project told RTCC.

“The poverty rate in Egypt climbed from 21% in 2009 to 25% in 2011. Another 20% of the population lives near the poverty line. Looking at these numbers it becomes clear how integral subsidies are for Egypt’s poorest.”

Riots

An overnight cut in subsidies in Nigeria sparked riots in 2012, an event often cited as a reason that subsides must remain in developing countries.

Not every analyst agrees: “The time to reform subsidies is never now, it’s always a case of next year is better for whatever reason. Politics, elections, the economy, there’s always a reason not to do it now,” says Peter Wooders, a senior economist with the International Institute for Sustainable Development’s (IISD) Global Subsidies Initiative (GSI).

“A price rise on its own, without a package to deal with adverse impacts means the chances of it being successful, and sticking, are much lower. If you look at a country like Egypt or at Tunisia, the amount of money they are spending on subsidies is fiscally unsustainable.

“Politically though, it’s an awful time for them to sell prices reforms that would increase prices for people that are poor and vulnerable. People who already see their economic opportunities going down. Holding fossil fuel prices low for the entire population is an incredibly inefficient way to get subsidies to poor people.”

He says a more targeted approach is required. For example, gasoline and diesel are more likely to be used by the middle classes than kerosene. So starting reforms for gasoline first can help protect the poor.

On the other side of the Gulf in Iran, the ODI’s Shelagh Whitley points to a more radical approach that was taken, protecting citizens from price hikes and incentivising lower fossil fuel use.

“Prices increased by 200% but they redirected the saved money to 80% of the population. They literally set up bank accounts for those people and transferred the money directly to them,” she says.

“They can use that money to pay for the higher cost of gas, or they can pocket the money and take the bus. You need to redirect the back to the population but you can do that in ways that send the right signals on energy use as well.”

A major difference between the Iranian and Nigerian approaches was information. The Iranian government informed citizens of the price increases and explained how and when the money would be returned. Nigeria’s did not.

(Source: ODI)

Opposition

If it is possible for governments to cut emissions and costs, why don’t more governments follow this track, especially given the encouragement from the G20, World Bank and other groups representing around 53 governments?

Wooders warns that while this international support is welcome, subsidies are very much an issue for national governments: “In any country in the world you can bet that finance ministries are worried about fossil fuel subsidies,” he says.

“The scale is one issue. If the market price goes the wrong way then those subsides get much bigger very quickly. There are some concerns about short term shocks to the economy and inflation, but every study show the mid to long term reform is good for the country.

“If you change energy pricing, you are effectively changing the distribution of wealth within that country. There’s winners and losers. If those losers include the poorest, or specific industries such as fishing, agriculture, freight, then there could be groups with political power that can block reforms. The classic example is truck drivers in India.”

Protests by drivers in India in 2008 over fuel prices have been repeated in Bolivia, Nepal and Jordan, a potent reason why governments might be prepared to foot the bill rather than risk losing support.

This has been cited as one reason why weak and nervous governments raised consumer fossil subsidies in part of the Middle East in response to the Arab Spring.

Wooders says there are also corrupt elements to contend with – they take subsidised fuel out of the supply chain and sell it on at inflated prices.

Climate

The benefits of subsidy reform are not just economic. They can help incentivise emissions reductions and also free up cash for renewable energy projects and help buffer countries from price spikes. A surge in oil prices can mean a surge in the cost of those subsidies.

Baraka says the Egyptian government has taken this on board, and recently set a 20% renewable energy target by 2020 in response.

“There have been suggestions for the establishment of a renewable-energy fund, which could be a good start. Its implementation and the way in which it will be funded, however, would need to be clarified. A strong strategic vision, backed by empowered institutions, legislation and incentives would be needed,” she says.

With huge solar and wind potential largely untapped, Egypt has perhaps has a more obvious path away from fossil fuels than others. The challenge for the government, like many others around the world, is to find a way that doesn’t alienate the poorest, disadvantage industry or send residents back into fuel poverty.

“Difficult but possible”, says Wooders.

Consumer versus producer subsidies

Consumer subsidies reduce the cost of fossil fuel energy below the going market rate and make up the bulk of the global total. They occur largely in developing nations, particularly those with plentiful supplies of fossil fuels. Consumer subsidies in developed countries typically target specific groups such as farmers and fisherman.

Producer subsidies are given to big oil companies to encourage exploration and operations. They frequently come in the form of tax breaks. The technical definition of a  subsidy is not a cash handout however  just any preferential treatment. Industry says the figures involved are dwarfed by what they contribute in taxes, however, with profits often making the making subsidies look small, the case for their continuation can be hard to prove.

The post Fossil fuel subsidies: the addiction Egypt just can’t kick appeared first on Climate Home News.

Environmentally harmful subsidies and tax-breaks must be slashed within the European Union if it is serious about developing a resource-efficient and climate-resilient economy by 2020.

That’s the recommendation of an EU ‘resource efficiency’ panel including the environment ministers of Germany, Italy, Denmark and Latvia, the head of the UN Environment Programme and the chief executives of Unilever, Kingfisher UK and Veolia Water.

The 33-strong panel released its manifesto for a Resource Efficient Europe yesterday. In addition to subsidies, it focuses on private investment, smart regulation, and better market conditions for durable and recyclable products.

A report released by UK think tank Chatham House last week warned that the EU’s five biggest economies, Germany France, Spain, UK and Italy are among the biggest resource importers in the world, and increasingly vulnerable to price fluctuations of fossil fuels, metals and food.

OECD statistics reveal Germany provided €7.4bn of fossil fuel subsidies in 2010, followed by the UK with €4.5bn, Spain and France with €2.6bn and Italy with €1.5bn. Campaigners argue these give oil and gas producers an unfair advantage over renewable energy and do not reward efficiency.

Panel member Professor Paul Ekins from University College London Energy Institute told RTCC that it was becoming an ‘economic imperative’ for the EU to become a more resource efficient region.

“It’s not something you can develop overnight. It requires sustained policy over a number of years, so if we wait until we’re actually the recipients of high, rising and volatile prices in a big way then we’ll have missed a trick,” he said.

“The idea should be to move towards resource security before you actually find yourself on the receiving end of unpleasant economic shocks so that you’re more resilient to them.”

The panel will issue a set of short term policy recommendations in June 2013.

Manifesto in full:

• Encouraging innovation and accelerating public and private investment in resource-efficient technologies, systems and skills, also in SMEs, through a dynamic and predictable political, economic and regulatory framework, a supportive financial system and sustainable growth enhancing resource-efficient priorities in public expenditure and procurement.

• Implementing, using and adopting smart regulation, standards and codes of conduct that a) create a level playing-field, b) reward front-runners and c) accelerate the transition, and d) take into account the social and international implications of our actions.

• Abolishing environmentally harmful subsidies and tax-breaks that waste public money on obsolete practices, taking care to address affordability for people whose incomes are hardest-pressed. Shifting the tax burden away from jobs to encourage resource-efficiency, and using taxes and charges to stimulate innovation and development of a job-rich, socially cohesive, resource-efficient and climate-resilient economy.

• Creating better market conditions for products and services that have lower impacts across their life-cycles, and that are durable, repairable and recyclable, progressively taking the worst performing products off the market; inspiring sustainable life-styles by informing and incentivising consumers, using the latest insights into behavioural economics and information technology, and encouraging sustainable sourcing, new business models and the use of waste as raw materials.

• Integrating current and future resource scarcities and vulnerabilities more coherently into wider policy areas, at national, European and global level, such as in the fields of transport, food, water and construction.

• Providing clear signals to all economic actors by adopting policy goals to achieve a resource-efficient economy and society by 2020, setting targets that give a clear direction and indicators to measure progress relating to the use of land, material, water and greenhouse gas emissions, as well as biodiversity. Such indicators must go beyond conventional measures of economic activity, help guide the decisions of all actors, and assist public authorities in timely action. All organisations above a meaningful size and impact must be held accountable to measure and report key non-financial progress indicators on a comparable basis.

RTCC VIDEO: David Turnbull from Oil Change International explains how subsidies distort global energy markets and encourage wasteful consumption.

The post EU panel calls for fossil fuel subsidies cut by 2020 appeared first on Climate Home News.

Speaking to RTCC’s Daniel Schweimler, David Turnbull from Oil Change International explains that subsidies distort global energy markets and encourage wasteful consumption.

This comes on the back of a recent report from the International Energy Agency, which said that Global fossil fuel subsidies grew by 30% in 2011 to $523bn, despite calls to reduce them. Renewable energy subsidies during the same period totalled $88bn.

Reassigning some of this money has been suggested as one source of climate finance for the Green Climate Fund, which has a target to raise $100bn a year by 2020.

David Turnbull, Oil Change International from Responding to Climate Change on Vimeo.

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Latest news – Wednesday 25 July

1700 Military veterans and former lawmakers in the US have urged Congress to continue funding the Pentagon’s biofuel programme, saying US dependence on foreign oil has been a key factor in wars over the past two decades.

1640 A US governmental panel has criticised oil firm BP’s approach to safety prior to the Deepwater Horizon disaster in 2012 saying they focused too much on the little details of personal worker safety and not on big systemic hazards.

1550 New report to be released by the UK Department for Environment, Food and Rural Affairs is expected to warn that companies are worrying so much about the possible negative impacts of climate change that they are not realising the possible opportunities.

1420 Worldwatch Institute warns that global waste could double by 2050 unless materials are incorporated into a circular economy approach – where materials are reclaimed, recovered and reused.

1300 A new report from the National Center for Atmospheric Research (NCAR) – looking at how Beijing was able to slash the cities air pollution and carbon output – offers London 2012 organisers one simple solution to do the same – stop the traffic.

1145 In the UK Energy and Climate Change Secretary Ed Davey has been doing his best to maintain it’s him who is in charge of UK energy policy – and not the Chancellor George Osborne:

Ed Davey gains partial victory – for now – in row over renewables. But the #cleanenergy struggle isn’t over yet. guardian.co.uk/environment/20…

— Fiona Harvey (@fionaharvey) July 25, 2012

1130 Nepal is on the front line of climate change – we’ve got a special report from a youth group who are busy trying to educate their fellow citizens about how they can do their bit to respect the environment.

1115 The European Commission has today taken action to shore-up the EU’s Emission Trading System (ETS) by  proposing to delay the auctioning of carbon allowances. There is currently a massive over-supply of credits – some estimate it to be 1.4 Billion allowances.

Experts believe that delaying new allowances is needed to prevent further falls in the carbon price, which is already low. The move must now be agreed by Member States and the European Parliament. EU Climate Commissioner Connie Hedegaard has been busy tweeting:

#EUETS Is it wise to continue to flood an already oversupplied market? Clearly not. That’s why propose to change the auction time profile

— Connie Hedegaard (@CHedegaardEU) July 25, 2012

1100 France, Germany, Italy, Denmark, Finland, Jordan and the UK have joined the US-led Climate and Clean Air Initiative, bringing the total number of signed-up states to 21. The ‘coalition’ have pedged to take action against emissions of black carbon – or ‘soot’, methane and hydroflurocarbons (HFCs).

0900 MPs have called for the UK to eliminate fossil fuel subsidies at the next round of UNFCCC talks in Qatar. In their report the energy and climate change committee also said the UK and Europe should show political leadership and push for EU-wide 30% emissions targets for 2020.

Also in the UK, subsidies for onshore wind energy generation are to be cut by 10%, the government have announced. The Treasury is thought to have favoured a larger cut of 25%.

Cutting soot and other air pollutants could help ‘buy time’ in the fight against climate change, a senior US official has said. Seven more nations have joined the Washington-led Climate and Clean Air Initiative aimed at reducing these short-lived emissions.

An extreme melt event in Greenland occurred in mid-July causing 97% of the ices sheet’s surface to start melting, according to NASA.

Top tweets

Some of the fall-out from the Renewables Obligation announcements in the UK…

CCC: >10% unabated gas in 2030 “would neither be economically sensible nor compatible with our legislated carbon budgets”. DECC: total fudge

— Keith Allott (@KeithAllott) July 25, 2012

“Gas” section of @DECCgovuk press is clearly ridiculous. Please explain how we “meet carbon budgets” whilst “not restricting gas to backup”?

— Jenny Banks (@BanksJenny) July 25, 2012

So here we go… Renewables Obligation: DECC secures 10% wind cut but backs gas. Is this to appease Mr Osborne?: bit.ly/QBKjvU

— James Kershaw (@JamesKershawE2B) July 25, 2012

Stat of the day

The largest wind turbine in the world is 20 storeys tall and has blades the length of a soccer pitch.

Picture of the day

The NASA images showing a unusually high thawing of the Greenland ice sheet.

Credit: Nicolo E. DiGirolamo, SSAI/NASA GSFC, and Jesse Allen, NASA Earth Observatory

The post Climate Live: MPs call on UK to eliminate fossil fuel subsidies, EU takes action against emission trading surplus & NASA reports ‘extreme melt’ in Greenland appeared first on Climate Home News.

A panel of MPs says the UK government should push for an end to fossil fuel subsidies at the next round of UNFCCC talks in Qatar.

Global fossil fuel consumption subsidies in 2010 amounted to over $400 billion. Critics say they under-price the true cost of oil and gas while putting renewable technologies at an acute disadvantage.

The Energy and Climate Change Committee do acknowledge the role subsidies play in developing countries – especially India – and call on the Government to support ‘pro-poor interventions’ to raise standards of living while cutting subsidies, especially in the developed world.

According to the International Energy Agency the elimination of subsidies could potentially save 750m tonnes of CO₂ a year by 2015.

India pumped $23 billion into subsidizing fossil fuels in 2007 - the fifth largest contribution in the world

The #endfossilfuelsubsidies campaign that ran during the Rio+20 conference enjoyed high-profile support – but failed to deliver any policy commitments.

Paragraph 225 in the final text invited “others to consider rationalizing inefficient fossil fuel subsidies by removing market distortions, including restructuring taxation and phasing out harmful subsidies”.

International ambition

MPs also urge the UK and Europe to adopt more ambitious decarbonisation policies ahead of COP18 to ensure they can negotiate from a position of strength.

They call on the UK government and Europe to show ‘political leadership’ push for an EU-wide 30% emissions reduction target on 1990 levels by 2020.

The COP18 climate talks in Doha at the end of this year are expected to lay the foundations for a new binding international agreement in 2015, which would replace the Kyoto Protocol in 2020.

Despite the current economic crisis afflicting Europe, Energy and Climate Change Committee chairman Tim Yeo said it’s vital the bloc demonstrates unity and purpose ahead of Doha.

“Europe can be proud of the leadership it has showed on climate change: introducing the world’s first emissions trading scheme and keeping the Kyoto Protocol alive when it could have collapsed,” he said.

“It must now show leadership again by setting a more ambitious goal to bolster the chances of a new agreement being reached in 2015.

“The EU’s current 20% carbon reduction target by 2020 is no longer sufficiently ambitious or challenging and will be easily reached because of the recession.”

“2015 needs to be the year in which an agreement is reached to give the world a fighting chance of keeping temperature rises below dangerous levels.”

Negotiations over increasing the EU’s emission reduction target to 30% are ongoing. Poland appears to be the most reluctant country to commit to such a move, given its reliance on coal for electricity production.

The next round of EU ministerial talks are expected to take place in September, when the issue will be back on the agenda.

The publication comes two days after a critical report from the same committee focusing on the draft energy bill. This accused the UK government of failing to consider climate change targets when developing a new energy strategy.

It said government objectives appeared ‘vacuous’, ignored the potential of renewables and energy efficiency measures and could encourage a new ‘dash for gas’.

Today’s report says leading politicians have not done enough to explain why it is essential the country embarks on a ‘decarbonisation’ strategy.

“The UK Government has not engaged sufficiently with the public on the details of how the UK’s emission reduction targets could be achieved,” it says.

“More could be done to convince the public that decarbonising electricity generation and electrifying transport will, in the long term, be financially beneficial.”

Other recommendations:

-Focusing diplomatic and negotiation efforts on the Durban Platform with the aim of finding a fair and equitable global agreement.

-Improving monitoring reporting and verification systems, as it is ‘more likely countries can apply pressure to others by naming and shaming rather than trying to enforce pledges’.

-Working with other forums along with the UNFCCC such as the GLOBE World Summit of Legislators.

-Resolving legislative issues that are obstructing the work of REDD+ and investigate why the disbursement of funds into REDD+ projects has been so disappointing.

The post MPs call for UK to ‘eliminate’ fossil fuel subsidies at UN climate talks in Qatar appeared first on Climate Home News.

By 2020 there should be (a bare minimum) of $100bn of climate finance flowing into projects to slash emissions in developing countries and to protect the most vulnerable nations from the effects of climate change.

That means renewable power projects on land and sea, mega-city scale energy efficiency roll-outs, biblical flood prevention systems, intelligent agriculture, solar powered desalination, restoring degraded lands and protecting biodiversity; our natural toolkit.

For the first three days of this week, 140 diplomats, business leaders and civil society representatives met in Bonn to take the next necessary steps towards achieving this idealistic vision of widespread, practical action.

The next tangible progress will come at the next round of the UN climate change negotiations in Doha in November.

The next UN climate change talks in Doha will settle many outstanding issues regarding climate finance. (Source: Flickr/Larry Johnson)

So what clues did the Bonn workshop provide about what might be achieved in Doha?

Let’s deal with the last question first.

The simple answer is that the no single source of finance, public or private, can deliver the speed and scale of change required to restrict warming to 2°C and stop climate impacts taking the wind out the sails of development in the world’s poorest nations.

The second less obvious reason is that the delicate process of agreeing cuts to greenhouse gas emissions (GHGs) for all nations (the Durban Platform), hinges on developing nations having the confidence that sufficient support for their efforts in this regard will be in place. Without it they simply won’t sign any legally binding agreement to cut emissions.

All eyes are now turned to Doha where more work will be done to kick-start the Green Climate Fund (GCF), the mechanism that, once finished, will process the billions of dollars needed.

Doha

“We want to see $10-15 billion pledged to the GCF in Doha to see it through 2013-2015,” says Steve Herz, senior attorney with the Sierra Club and a co-chair of the Climate Action Network’s (CAN) finance group. Herz suggests a 50:50 split between money allocated for mitigating and adapting to climate change. This might not be so straightforward.

“The developed countries are talking a lot about leveraging the private sector. Partly because they say it will have greater impact, but also because once you talk about leveraging the private sector you can reduce the commitment from public money,” says Herz.

Increasing the proportion of private sector money could have a direct effect on the mitigation/adaptation split.

“The private sector will be more interested in investing in emerging markets and middle income countries than in the least developed countries. On the mitigation side that’s not such a problem because that’s where the GHG emissions are [in the emerging markets]. The bigger problem is on the adaptation side, where the poorest countries are in the worst position to respond to climate impacts.”

Getting the private sector involved at a larger scale is a challenge in itself.

Erik Jan Stork, Senior Sustainability Specialist at APG Asset Management who is also on the steering committee of the Institutional Investors Group on Climate Change (IIGCC) says things are improving in the renewable energy sector but plenty of work remains.

“While technology risk is improving rapidly there is still significant policy risk to investing in renewable energy projects so investors require guarantee mechanisms to reach the levels of private investment required to meet long term climate goals.”

APG looks after more than $300bn of assets and is already making serious sustainable investments.

At the workshop Stork reiterated the importance of a strong and sustained price on carbon in order for finance to flow to the Clean Development Mechanism (CDM), the system for industrialised countries to establish projects overseas to offset emissions at home. A low carbon price means lower returns and less incentive for businesses to take part.

Money talks

Money may talk, but it appears that not enough talking goes on between different parties involved in climate financing.

Anecdotes of miscommunication, idling donations and a lack of attribution were abundant in Bonn. Solving this problem will be a key issue in Doha. Tracking, verifying and monitoring the movement and utilisation of funds is a complex issue. Finding a trusted, independent and universal way to do this, that is also simple and paperwork-light, is no easy task.

The UNFCCC could well have already begun preparing to provide such a role. It’s portal for fast start finance, the funding system for 2010-2012, tracks the donations pledged and those received.

Better communication could stop money filling between the cracks, speed up implementation and remove opportunities for corruption.

Are new sources of cash dead in the water at Doha?

Support for a Robin Hood Tax is widespread, whether it can be part of the UNFCCC process however, is doubtful. (Source: Flickr/RobinHoodTax)

The campaign to end fossil fuel subsidies has near unanimous support from civil society but turning these subsidies off like a tap could have negative consequences for some, as was pointed out in Bonn.

However, Herz points out that when they were first discussed by the G20 in Pittsburgh in 2009, this was well understood and targeting the rich was part of the theory.

“If you were mindless about it there could be some negative social consequences but the way fossil fuel subsidies work generally, is that they benefit the rich most. They use the most fossil fuels, so the idea would be that subsidies would be narrowly tailored to benefit the poor,” says Herz pointing out that ending subsidies on Kerosene, which millions of people still rely on for lighting and cooking, would be unwise.

The financial transaction tax (FTT) or the Robin Hood tax as it commonly referred to, would see a small percentage tax placed on financial trades. Nine of the EU’s 27 members have agreed to apply one. Getting 195 parties to sign-up to one is “impossible” as one delegate said during the work shop.

Herz thinks there could be a way to get all parties to agree.

“There are credible ideas for rebates to protect developing countries from a FTT so that only developed country contributions would be left. Some developing countries are not persuaded by that politically but it’s feasible,” he says.

The added benefit of fossil fuel subsidies and charging a levy on emissions from shipping and aviation however, is that both of these would also ultimately lead to cuts in emissions. A FTT cannot claim to do the same.

Home sweet home

The proposed building in Bonn to host the Green Climate Fund. Germany, Namibia, Poland, South Korea, Mexico and Switzerland are vying to host the new institution. (Copyright: GCF Bonn)

One issue surrounding the GCF that is almost certain to be decided in Doha, is the location of the headquarters for the new organisation. Six countries including South Korea and Germany (which Herz describes as both very keen) are in the running.

However, Herz’ outside bet is Poland.

“Poland is a huge roadblock within the EU, maybe there is scope for a trade-off?”

Wherever the fund ends up, there are more complicated, and more pressing, issues to be addressed in Doha. With the fund’s overarching structure largely settled, there will be time later for the flesh to be added to the bones.

The sentiments of most can be expressed through a Twitter hashtag that was prominent during the workshop’s duration: #fillthefund.

The post Will the billions needed for climate change finance be found in Doha? appeared first on Climate Home News.

The UN climate change talks are not supposed to be about us versus them, given that everyone wants the same end result.

However true this may be, there is one inescapable divide that was prominent during today’s final session of the UNFCCC Long Term Finance workshop: the haves and the have nots.

In UN speak they are called donors and recipients, the countries paying into climate finance funds and those receiving funding.

The current system of “fast start finance” agreed in Copenhagen is in its third and final year. The $30bn injection of funding is the pre-cursor to the Green Climate Fund (GCF), the long-term set-up that will administer flows of cash in the direction that climate impacts and mitigation opportunities dictate.

Getting projects up and running should take precedence over minute diplomatic detail delegates said. (Source: Copyright Nic Bothma)

There were some awkward moments during today’s session and delegates candidly discussed the (sometimes embarrassing) logistical challenges they faced during the fast start finance era.

Colombia’s Isobel Cavalier described how her nation was unaware that it was registered to receive funding for certain projects and the effect this had on the countries that were stumping up the cash.

“Donors are unnerved and exasperated because we don’t know that we are listed for funding. Sometimes we know nothing about it. We need a systematic way of working so we all, donors and recipients, have the same information,” she said.

Jessica Brown from the US State Department warned of the consequences that this can have on budgets.

“It’s counter productive when governments don’t acknowledge our support and makes it harder for us to go back to our own governments to get more support,” she said.

“Why aren’t countries aware of the fast start finance that we’re delivering? Maybe it’s the lag between the budget and the projects’ timetables? Maybe we need to be realistic about the level of bureaucracy that this money goes through,” she said adding that a move away from the “us versus them” mentality and toward more partnerships might improve the situation.

The miscommunication is not just across international boundaries however.

Fred Onduri from the Ugandan delegation described an exchange with an Australian Minister about funding. The Minister claimed that the country had already invested in Uganda leaving Onduri slightly baffled. When he returned to Kampala and spoke with the Finance Ministry, a fast start finance contribution from Canberra had indeed been made. His own department simply hadn’t been told.

Japanese negotiator Junya Nakano acknowledged that this was a far from ideal situation for donors either, suggesting climate change projects should be part of mainstream development plans to cut the risk of allocations going AWOL between departments.

Act now, talk later

While there are still clearly plenty of elements of the process requiring further elaboration, there were warnings that perfecting the diplomatic details could get in the way of action on the ground.

“We should try to waste less time on not very helpful elaboration. Donors can be more creative and effective and try to deliver results rather than focusing too hard on workshops and awareness building and so on,” said Marina Olshanskaya, United Nations Development Programme (UNDP).

Representatives of France and the Philippines both said there needed to be more attention on defining specific legal terms such as “new and additional” (the notion that climate finance is not simply rediverted, already allocated aid). The EC and the OECD both said it would be better to concentrate on actions and leave the finer detail to later, a sentiment echoed by India’s Rajestree Ray.

“We need to start the initial capitalisation [of the GCF] now. We don’t have to wait for the details to be finished, enough has been done to start putting money into it,” said Ray.

The workshop concluded with a tourism style promo for Cape Town, which was revealed as the destination of the next workshop on Long Term Finance. If delegates are serious about cutting some of the red tape that underpins the complex financial processes, they might just find the spare time for a little tourism of their own.

The post Paying for climate change: Visible urgency on final day of UNFCCC finance talks appeared first on Climate Home News.

The latest draft text of the outcome for the Rio+20 summit has been branded as weak and accused of pandering to outside interests by NGOs.

National delegations will provide feedback on the proposals today. (Source: UN/Maria Elisa Franco)

The Brazilian Government intervened in the stalling negotiations yesterday and issued a compromise text for nations to deliberate and sign-off before 130 heads of state arrive on Wednesday.

The 50 page document was released electronically to delegates on Saturday evening with the Brazilian Government reportedly saying that it would make “all members a little bit happy and a little bit unhappy too”.

This latest draft has not gone down well at all with attending NGOs however.

“The negotiating text is peppered throughout with words like ‘support,’ ‘encourage’ and ‘promote,’ and is very short on strong language like ‘must’ and ‘will’”, said WWF Head of Delegation Lasse Gustavsson.

“The weak words appear in the parts of the text we most need hardened up – the section on green economy launches a process which they already launched in 1992.

“The language around much needed sustainable development goals and the language around energy, which could have been written by the oil and gas industry, also fall short,” added Gustavsson.

Greenpeace echos many of these sentiments calling the forestry section an “embarrassment” and the green economy text “meaningless”.

“If broadly adopted, the latest text from the Brazilian government would condemn the world to a future of pollution, plunder and destruction. There is no action here, no commitment, no future we want,” said Daniel Mittler, Greenpeace International’s Political Director.

“One saving grace is the commitment to an Oceans Rescue Plan for the High Seas. Whether governments commit to an Oceans Rescue Plan is now a key test of whether this Summit delivers anything at all,” said Mittler.

National delegations will provide feedback on the proposals today.

The post Rio+20: WWF and Greenpeace slam new draft text on sustainable development appeared first on Climate Home News.

As his Defense Secretary joins the growing numbers highlighting the potential of climate change as a ‘threat multiplier’, is President Obama making a comeback on climate change ahead of his election campaign?

Could Obama be making a climate change comeback ahead of the US Elections? (© Whitehouse/Pete Souza)

Speaking at an event at the Environmental Defense Fund, Defense Secretary Leon E Panetta voiced his concerns over the “dramatic” impact of climate change on national security.

“Rising sea levels, severe droughts, the melting of the polar caps, the more frequent and devastating natural disasters all raise demand for humanitarian assistance and disaster relief,” he said.

In the latest Quadrennial Defense Review, released by the Department for Defense, climate change is recognised as an “accelerant of instability or conflict”.

It is not the first time Climate Change has been given this label. It is an increasingly widespread belief amongst academics and policy makers alike, that while climate change may not directly cause political unrest, social turmoil and conflict, it has the role of exacerbating existing pressures and therefore making such incidents more likely.

And while the President’s staff are talking about climate change, Obama too appears to be making a comeback on the issue, using some of his latest high profile events to reinforce his position on the issue.

He has faced some strong criticism for shying away from climate related issues – following the prominent role he played at the Copenhagen Climate Conference in 2009. He has also received mixed reviews from environmentalists throughout his presidency – drawing criticism for offshore drilling plans but praise for work on power plant pollution.

His latest moves have also received cautious praise from environmentalists as his attention is once again moved to climate change.

Out in the open

In his appearance on the Jimmy Kimmel show this month, Obama talked about unfair fossil fuel subsidies and the need for investment in clean energy.

“We need to make sure we are investing in the clean energy sources of the future; solar, wind, biofuels,” he said. “Our oil production has been higher than it has been in eight years, our oil imports are lower than they have been in 13. So we are producing a lot of oil but we are still subsidising the oil industry when they are making billions.

“And for us to take some of that money and invest in electric cars, invest in new sources of fuel, that’s good for the planet, it helps us deal with climate change, it’s good for our economy.”

In another high profile event, an interview with Rolling Stone magazine last month, the President spoke both of the work already underway to tackle climate change, and his commitment towards it as he fights for a second term.

“Frankly, I’m deeply concerned that internationally, we have not made as much progress as we need to make,” he told the magazine. “Within the constraints of this Congress, we’ve tried to do a whole range of things, administratively that are making a difference – doubling fuel-efficiency standards on cars is going to take a whole lot of carbon out of our atmosphere.”

He also voiced concerns that in a period where people’s priorities are focused on financial strains – finding a job, paying the bills and dealing with high gas prices – it has been far too easy for people to throw large amounts of money at debunking climate science.

In his own words, Obama enforced his own commitment to making climate change a prominent debate in the election race.

“I suspect that over the next six months, this is going to be a debate that will become part of the campaign, and I will be very clear in voicing my belief that we’re going to have to take further steps to deal with climate change in a serious way,” he added.

The post Will Obama run a green election campaign? appeared first on Climate Home News.