Didn’t President Obama and the G20 announce an end to fossil fuel subsidies?
No. The Obama Administration and the G20 nations proposed that they end “inefficient” fossil fuel subsidies. Although this process has generated some new studies and data, so far zero subsidies have actually been eliminated as a result.
What are the challenges of ending fossil fuel subsidies internationally?
The principle is simple and clear: You can’t really say you’re committed to the fight against climate change if you’re still funding oil and coal. Many global leaders including the leaders of the G-20 nations, U.N. Secretary General Ban Ki Moon, Sir Nicholas Stern, Al Gore, and Sir John Browne (the former Chief Executive of BP) have all spoken out against the ongoing practice of subsidizing fossil fuels with public funds. But care needs to be taken in how – and what kinds – of subsidies are eliminated and in what time frame.
To equitably phase out fossil fuel subsidies, it is important to consider the difference between the dominant types of subsidies in industrialized vs. developing countries, namely production subsidies vs. consumption subsidies.
In the U.S. and the rest of the industrialized world, we generally have production subsidies, which also serve as corporate welfare to the oil and coal industry that return the favor with lavish campaign contributions. So, great, let’s get rid of those subsidies.
But in the developing world, consumption subsidies, which make access to energy and fuel affordable to the poor, are far more common. As mentioned above, these subsidies may reach the hundreds of billions annually – meaning excluding the military and wars for oil, consumption subsidies are the largest subsidies. However, the intent of these subsidies is generally not to increase consumption of fossil fuels per se—rather it’s often simply to help make access to energy and transport affordable in developing countries.
Therefore, eliminating consumption subsidies is likely not the place to start leveling the playing field for clean energy. Like raising prices on U.S. consumers, it’s likely to provoke a backlash in developing countries, ensuring gridlock for years to come.
So where do we start internationally to level the playing field on clean energy?
A great place to start eliminating fossil fuel subsidies in the developing world would be to end international subsidies via institutions like the World Bank, regional development banks, and export credit agencies like the U.S. Export-Import Bank, or the Overseas Private Investment Corporation. These institutions actually use our tax dollars to build infrastructure for fossil fuel extraction and use in the developing world.
In the last three years, the World Bank and the major regional development banks gave over $40 billion in loans, grants, and equity to the fossil fuel industry. Export credit agencies gave billions more. All of this money could instead be important sources of public funds for clean energy.
For more information on international subsidies, check out our database at www.ShiftTheSubsidies.org.