Fossil fuel subsidies reach $452bn a year, study says

Offshore drilling

Drilling at the Johan Sverdrup field. [Harald Pettersen/Statoil]

The G20 group of major economies spend $452 billion per year supporting fossil fuel industries, despite their primary role in causing climate change, according to a study released on Thursday (12 November).

The report, which comes ahead of a crunch UN meeting in Paris to try to forge a global deal to avoid disastrous levels of climate change in December, accused governments of undermining their own climate change policies.

“G20 governments are handing out approximately $452 billion a year to prop up the production of fossil fuels ? despite pledges to phase out subsidies and prevent catastrophic climate change,” the study by British think tank the Overseas Development Institute and Oil Change International found.

Support for fossil fuels like oil and coal by G20 nations ? which include Australia, Brazil, the European Union and the United States ? was four times higher than the entire world’s support for renewable energy, such as solar or wind power, it found.

That included direct spending and tax breaks ($78 billion), investments in the sector by state-owned enterprises ($286 billion), and public finance such as loans from government-owned banks ($88 billion), last year and the year before.

Investment continued despite diminishing returns in coal, and new oil and gas reserves being hard to reach.

“G20 governments are paying fossil fuel producers to undermine their own policies on climate change,” said Shelagh Whitley, of the Overseas Development Institute.

“Scrapping these subsidies would rebalance energy markets and allow a level playing field for clean and efficient alternatives.”

Some 100 heads of state and government will meet in Paris to secure a deal to stave off catastrophic levels of global warming caused by greenhouse gas emissions from burning fossil fuels.

It aims to seal a global deal to limit global warming to two degrees Celsius over pre-Industrial Revolution levels, although scientists say the world currently is on track to overshoot that target.

The study noted that Britain was the only nation in the smaller G7 group of developed countries significantly increasing its support for the fossil fuel industry.

It said China was by far the biggest investor in fossil fuel production, spending $77 billion annually, while national subsidies in the US amounted to $20 billion.

The report recommended a strict timetable for ending fossil fuel production subsidies, increased transparency of subsidies, and more support for low-carbon development.

“Continuing to fund the fossil fuel industry today is like accelerating towards a wall that we can clearly see,” Stephen Kretzmann, director of Oil Change International, said in a statement.

“G20 leaders need to slow down and turn us around before we hit climate disaster.”

The Organisation for Economic Cooperation and Development (OECD) evaluates fossil fuel subsidies at between $160 billion and $200 billion a year (about €149-186bn), mostly for petroleum products. (The estimate includes the 34 mostly developed OECD nations plus China, India, Brazil, Russia, Indonesia and South Africa).

But although major nations seem to be making progress in reducing fossil fuel subsidies, they still have "ample scope" for deeper cuts, the OECD said.

>> Read: OECD: 'Ample scope' for more cuts in fossil fuel subsidies

The OECD said its data is not directly comparable with that of the International Energy Agency, which reckons fossil-fuel consumption subsidies worldwide amounted to $548 billion (€510bn) in 2013.

In its 2015 World Energy Outlook, the IEA expresses concern at the trend in hydrocarbon consumption, which continues to rise in response to increasing demand for electricity. Global demand for electricity could grow by 40% by 2040, the IEA predicted.

But despite falling oil prices, supplies of coal, oil and gas are not indefinite. Moreover, the continued use of hydrocarbons is speeding up global warming: the IEA predicts that average temperatures will rise by 3.6°C if the world does not reduce the current rate of greenhouse gas emissions.

The strain on resources will also have a knock-on effect on energy prices. Europe's plans to reduce its reliance on hydrocarbons may lead the continent's energy prices to become the highest in the world by 2040, according to the IEA.

>> Read: IEA warns against fossil fuel subsidies and the cost of nuclear power

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