Source: Energy and Climate Report: News Archive > 2018 > March > 03/21/2018 > News > Climate Policy: Fossil Fuel Subsidies Down, but Impact on Emissions in Question

Climate Policy

Fossil Fuel Subsidies Down, but Impact on Emissions in Question

By Rick Mitchell

The world's biggest economies have recently reduced financial support to consumers and producers of fossil fuels, but a recent study says those steps may have a limited impact on cutting greenhouse gas emissions. Two Paris-based organizations have been keeping tabs on countries’ steps toward reducing support for greenhouse-gas-emitting fossil fuels since the world's biggest economies in 2009 committed to gradually eliminating subsidies. And global subsidies have fallen among the world's major economies, although they still top $150 billion annually, the Organization for Economic Cooperation and Development reported last month. But another study, by the Austria-based International Institute for Applied Systems Analysis, found that eliminating subsidies would have only a small impact on reaching the international Paris Agreement goal of keeping global warming to a maximum rise of 2 degrees Celsius (3.6 degrees Fahrenheit) compared to averages from before the Industrial Revolution. “Removing subsidies in most regions would deliver smaller emission reductions than the Paris Agreement (2015) climate pledges and in some regions global subsidy removal may actually lead to an increase in emissions, owing to either coal replacing subsidized oil and natural gas or natural-gas use shifting from subsidizing, energy-exporting regions to nonsubsidizing, importing regions,” said an abstract to the report, published last month in the journal Nature. “Our results show that subsidy removal would result in the largest CO2 emission reductions in high-income oiland gas-exporting regions, where the reductions would exceed the climate pledges of these regions and where subsidy removal would affect fewer people living below the poverty line than in lower-income regions.”

Historical Context 

When leaders of the Group of 20 countries, which account for most of the world's economic output and carbon dioxide emissions, first committed to eliminating fossil fuel subsidies in 2009, the International Energy Agency and climate advocate groups said this measure was essential to cutting greenhouse gas emissions. Ahead of the Paris climate summit in 2015, the IEA—an independent affiliate of OECD—had calculated that fossil
fuel subsidy reductions could have a major impact on reducing greenhouse gas emissions. It estimated that they could contribute 10 percent of the additional cuts that would be needed—beyond those achieved through countries’ Paris climate commitments—to be able to hold global warming to 2 degrees Celsius or less, the supply division chief for the agency's flagship World Energy Outlook report, Tim Gould, told Bloomberg Environment. In its recent report, the OECD cataloged about 1,000 spending programs and tax breaks that governments used to encourage production or consumption of fossil fuels in the 35 OECD members, which include the world's advanced market economies, plus eight big non-OECD G-20 emerging economies: Argentina, Brazil, China, Colombia, India, Indonesia, Russia, and South Africa. It estimated that aggregate annual fossil fuel support for the 43 countries ranged from $151 billion to $249 billion from 2010 to 2016. Support in the OECD countries held level in the last two years of the study at about $82 billion per year, while in the emerging economies it plunged from a 2013 peak of $142 billion to $69 billion in 2016. Support for consumption of petroleum products accounted for the bulk. The IEA, based on its own data and calculations, found that “overall, the estimated value of global fossil-fuel consumption subsidies decreased by 18 percent to $260 billion in 2016, due in part to lower prices for the main fuels but also to continued efforts at reform,” Gould said. 

‘Overhang of Historical Commitments’

A report last year by Oil Change International, which advocates for an end to government programs that support fossil fuels and a transition to renewable energy, put the value of federal and state tax breaks and other measures to support, even if indirectly, fossil fuel companies at $20 billion annually in the U.S. The Washington-based American Petroleum Institute said the industry doesn't get subsidies in the U.S., and declined to comment. Fuels Europe, which represents 42 companies operating refineries in the European Union, didn't respond to a request for comment. Neither did the Vienna-based Organization of the Petroleum Exporting Countries. The OECD's database is important for understanding the “overhang of historical commitments by governments around the world to support fossil fuel use,” Jatin Nathwani, executive director at the Waterloo Institute for Sustainable Energy at the University of Waterloo in Canada, told Bloomberg Environment. 

Biggest Impact Among Oil Exporters 

Countries that signed the Paris Agreement made country-specific pledges like reducing fossil fuel use, increasing renewable energy use, and taking other actions to curb carbon dioxide emissions. But very few countries’ Paris pledges actually included fossil fuel subsidy changes, Jessica Jewell, a researcher who was the lead author on the International Institute for Applied Systems Analysis report, told Bloomberg Environment. The institute's study took OECD data on fossil fuel subsidies and calculated the global impact on energy-related
carbon dioxide emissions if they were eliminated, and then the impact by region, Jewell said. It then compared those reductions to emissions reductions if countries fulfilled their Paris climate pledges. The institute found that in oil-and-gas exporting regions—Russia, the Middle East, North Africa, and Latin America—the emission reductions either meet or exceed what countries pledged in Paris. In other regions, including the big emitters—China, the U.S., and European Union—they don't meet what countries have pledged to in Paris, Jewell said. Fossil fuel consumption subsidies, as defined by the IEA, are much less common in the world's major consuming countries, “so it is natural that their removal, where this applies at all, has less of an impact,” Gould said. 

To contact the reporter on this story: Rick Mitchell in Paris at correspondents@bloomberglaw.com 

To contact the editor on this story: Rachael Daigle at rdaigle@bloombergenvironment.com 

Reproduced with permission from Energy and Climate Report, 55 ECR (March 21, 2018). Copyright 2018 by The Bureau of National Affairs, Inc. (800-372-1033) <http://www.bna.com>