Tackling Fossil Fuel Subsidies and Climate Change: levelling the energy playing field
Most strategies to tackle climate change cost governments money. What if you could reduce more than 10% of GHG emissions just by cutting spending?
This was one of the questions facing climate negotiators in Bonn this month (19-23 October) as they negotiated the draft text for the 21st Conference of Parties (CoP21) of the United Nations Framework Convention on Climate Change in early December 2015.
The Global Subsidies Initiative (GSI) of the International Institute for Sustainable Development(IISD) launched research that investigated the impact on emissions by 2020 of the phased removal of consumer fossil fuel subsidies across 20 countries.
The report, entitled ‘Tackling Fossil Fuels Subsidies and Climate Change’ is the culmination of two years of research into this issue supported by the Nordic Council of Ministers.
The GSI finds an average reduction in national GHG emissions of 11% by 2020 among subsidizing countries. Governments actually save US$ 93 per tonne of CO2 removed.
Assuming the modest recycling of 30 per cent of savings to renewables and energy efficiency, countries can achieve even more ambitious outcomes: an average reduction of 18% of GHG emissions. This results in a cumulative total of 2.8 gigatonnes of CO2e saved, rising to 6.3 Gt by 2025.
Source: IISD, 2015
Broader global findings, undertaken for this programme through earlier research finds global emissions reductions of between 6-13% from the phased removal of fossil fuel subsidies by 2050.
In addition to its immediate emissions benefits, the study concludes that fossil fuel subsidy reform is a ‘foundation’ policy to enable the take-off of new energy players such as renewables, energy efficiency, public transport, innovation, and carbon pricing, all of which are required for an ambitious climate solution. This is because tackling fossil fuel subsidies enables new energy players to compete on a level energy playing field. Furthermore, reform enables countries to attain policy coherence across energy and climate policies, and lay the groundwork for the introduction of basic taxes on transport fuels such as value-added tax (VAT) or general sales tax (GST). The report includes case studies from Jordan, Morocco and the Philippines where countries have removed subsidies, and some have subsequently implemented fuel taxation and investment in renewables.
'Tackling Fossil-Fuel Subsidies: Competition on a Level Energy Playing Field'
Source: Tackling Fossil-Fuel Subsidies and Climate Change
If fossil-fuel subsidy reform is such a great idea, why isn’t everyone doing it? Governments often struggle with widespread domestic political opposition to reform, since it usually results in higher energy prices for consumers. But gradually this is changing. Consumers worldwide are increasingly aware that subsidies are costly, unfair and bad for the local and global environment. Challenges, however, remain. This makes recognition of fossil-fuel subsidy reform within the UNFCCC particularly important—it can provide channels to assist domestic governments with the technical and political challenges to reform.
And many governments are taking the initiative already. Globally, 155 countries have submitted Intended Nationally Determined Contributions (INDCs). A growing number have included economic instruments—such as fossil fuel subsidy reform or carbon taxation—as a policy tool they will use to reach their national targets. Notable inclusions of subsidy reform within INDCs include India and, most recently, the United Arab Emirates (UAE), who submitted their INDC at the Bonn session. The UAE recently slashed subsidies to fossil fuels—like many countries, taking advantage of low world oil prices in 2015 to remove subsidies without causing large domestic price increases.
Countries have also been working to promote the profile of fossil-fuel subsidy reform within the UNFCCC through an international communiqué on fossil fuel subsidy reform. The communiqué is organised by the Friends of Fossil Fuel Subsidy Reform, a group of countries including the Nordics, New Zealand, Ethiopia, Costa Rica and Switzerland. Mexico joined the efforts of other countries by standing behind the communiqué during the week of Bonn negotiations, Colombia joined shortly afterwards. Other countries have launched government-to-government peer reviews of fossil-fuel subsidy inventories.
The latest draft text, to be discussed in Paris, includes reference to carbon pricing, as well support to governments to develop domestic revenues and cost effective measures that reduce emissions—but no explicit reference to fossil-fuel subsidy reform. Given the benefits and the ongoing momentum for change, this is one policy tool that governments can no longer afford to ignore.
Photos by IISD/ENB. Anna Lindstedt, Ambassador for Climate Change, Sweden and Laura Merrill, Lead Author and Senior Researcher, Global Subsidies Initiative, share the findings in Bonn.
Press release, and infographic available. Report available from the Nordic Council of Ministers website: ‘Tackling Fossil Fuel Subsidies and Climate Change’.
Selected press coverage:
http://econews.com.au/48464/report-remove-fossil-fuel-subsidies-slash-emissions/
http://www.rinnovabili.it/green-economy/tagliare-sussidi-alle-fossili-co2-666/
http://cleantechnica.com/2015/10/26/culling-fossil-fuel-subsidies-reduce-emissions-11/