The world’s largest economies have agreed to end fossil-fuel subsidies, according to a statement made at the G-20 meeting in Pittsburgh on 25th September 2009. Leaders of the G-20 committed to phasing out the controversial subsidies ‘over the medium-term,’ blaming them for encouraging wasteful consumption and undermining efforts to combat climate change.

Citing studies by the Organization for Economic Cooperation and Development (OECD) and the International Energy Agency (IEA), the G-20 said that “eliminating fossil fuel subsidies by 2020 would reduce greenhouse gas emissions in 2050 by ten percent.”

Notably, the communiqué stressed the need to provide essential services to “populations suffering from energy poverty” via targeted cash transfers and other mechanisms. This was likely included in an attempt to address the concerns of developing countries, where subsidies are often intended to support poor consumers who cannot easily adjust to the increased cost of living caused by rising fuel prices.

Though it offered no timelines, the G-20 announcement did call on its energy and finance ministers to report on implementation strategies and a timeline by the next summit, which takes place in June 2010 in Huntsville, Ontario, Canada. At the same time, the leaders asked that “relevant institutions, such as the IEA, OPEC, OECD, and World Bank, provide an analysis of the scope of energy subsidies and suggestions for the implementation of this initiative and report back at the next summit.”

Environmental groups have welcomed the news though some have questioned whether the G-20 went far enough.

Subsidy Watch contacted Steve Herz, Climate Finance Advisor for Greenpeace who called the statement great for the economy and the environment, and something that Greenpeace and others have been advocating for a decade.

According to Mr. Herz, these subsidies distort markets in favour of the worst fossil-fuel polluters. “Alternative energy has to compete against technologies that don’t pay the full cost of their climate impacts and are being subsidized to boot,” he explained, pointing out that this in turn impedes the transition to a clean energy economy.

He acknowledged, however, that the announcement did lack details. In particular there was no information offered on how subsidies would be defined or the plan would be implemented.

This could have a big impact on which subsidies will be captured by the phase-out. A narrow definition, for example, might only include consumer subsides, but fail to take into account the more subtle producer support granted in developed countries — often a complicated network of special treatment, such as  tax breaks or foregone royalties on government land. And this distinction is also political: consumer subsidies are most widely used in developing countries, producer subsidies in developed countries. Since most of the G-20 is made up of developed countries, a broad definition would be needed for the announcement to make a big difference.

Stephen Kretzmann, Executive Director of the D.C.-based Oil Change International, which campaigns against oil subsidies, told British news provider ITN (the Independent Television News) that uncertainty remained in other areas too.

 “Unfortunately, the G-20 explicitly rejects phasing out subsidies to ‘technologies that dramatically reduce greenhouse gas emissions’, which is code for carbon capture and storage, but also potentially a whole lot of other things,”  said Mr. Kretzmann.

He stated that this could be a big problem because government support for these technologies is the only thing keeping them going and “perpetuating the false hope that they can work.”

Mr. Kretzmann was also concerned about challenges in implementation of the phase-out. “[T]here is a technical-bureaucratic challenge in the near term, followed by a larger political battle. The technical-bureaucratic phase now is all about defining subsidies in a way that is broad enough to actually capture all the fossil-fuel subsidies globally.  People argue over these definitions all the time, which is precisely why good numbers are so hard to come by.  The political phase will be about countering the fossil-fuel industries and producing nations, who can be expected to put up quite a fight.”

However, he also notes that, if properly implemented, a fossil fuel phase-out could have an even larger impact on greenhouse gases than predicted.

The OECD study cited by the G-20 provides a low estimate of greenhouse gas reduction, he argues, because it only looked at removing subsidies in 20 developing countries — and that although the bulk of fossil-fuel subsidies are found in developing countries, these countries have much lower per capita subsidies than the developed countries in the G-20. Because of this, he suggests that a 20-25% reduction in greenhouse gases could be achieved, though he cautions that more comprehensive studies are needed.

For more information on Oil Change International visit their website.

The full Pittsburgh G-20 meeting leaders’ statement is available from the G-20 website.

The Global Subsidies Initiative (GSI) has just released a Policy Brief in response to the G-20 announcement, which can be accessed here.

The GSI is also currently conducting a comprehensive program of research on fossil-fuel subsidies. It is comprised of reports on the different kinds of fossil-fuel subsidy in different countries; their economic, environmental and social effects; their political economy; and reform. These will be released over the course of the next few months here.