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Giving With One Hand and Taking With the Other: How Fossil Fuel Subsidies Undermine “Climate Finance” Fund Donations Pledged in Run-up to Paris UN Negotiation

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Subsidies of fossil fuels by national governments – for exploration and production – are undermining pledges by developed nations to help finance climate change mitigation by developing nations. In fact, even as the rich countries have pledged – but not collected – some US $100 billion to mitigate climate change costs to the disproportionately affected poor, these same countries spend over five times that amount, on an annual basis, to promote oil and coal extraction, refinement, and delivery.

 
 

Perhaps former Mexican President Felipe Calderón said it best at a United Nations Framework Convention on Climate Change (UNFCCC) meeting this week: “The main reason for preserving fossil fuel subsidies is politics. There is a clear relationship between fossil fuel subsidies and votes for political incumbents.” Citing an International Monetary Fund report, Calderón said that very little of these fossil fuel subsidies went to supporting the poor, the claimed beneficiaries of such actions.

 
 

The IMF study makes the most ambitious projection, that total energy subsidies (including those to fossil fuels) cost US $5.3 trillion in 2015, or 6.5 percent of worldwide GDP (or over 30 percent of national budgets, Calderón pointed out, which could be much better used for education and health care). This projection is based mostly on the fact that most countries charge energy taxes way below levels needed to reflect also environmental damage from energy consumption.

 
 

More conservative estimates, such as by researchers at the International Institute for Sustainable Development (IISD) put the actual expenditure on fossil fuel subsidies alone closer to US $452 billion annually. According to that study, the industrialized G-20 countries, in particular, are creating a “lose-lose” situation by “pouring large amounts of finance into uneconomic, high carbon assets that cannot be exploited without driving the planet far beyond the internationally agreed target of limiting global temperature increases to no more than 2 °C [3.6 °F].”

 
 

Either way, this cost is much larger than the US $100 billion pledge from rich nations to poor, at the 2009 Copenhagen COP meeting, only about two thirds of which has actually been collected. Indeed, a main source of contention at the Paris negotiations this week is how those funds should be accounted and who will manage how they are spent.

 
 

The oil industry has long attacked renewable energy sources as uncompetitive as these received government research grants and corporate “infant industry” subsidies. However, with the boom in renewables and, finally, efforts to quantify the subsidies of fossil fuel, the argument seems to have reversed. Eliminating fossil fuel subsidies in the G-20 nations alone would achieve an 11 percent reduction in greenhouse gas emissions, according to the IISD report; 18 percent if the funds are reinvested in promoting renewable energy sources.

 
 

At presentations all across the Paris UN compound, realistic economic models are projecting at least a 3.0°C temperature increase above pre-industrial levels, sounding alarms that national voluntary contributions by reducing emissions have not been sufficiently ambitious. In fact, activists worldwide have insisted that most existing oil reserves must be left in the ground (called “stranded oil”), if the world is going to have a chance to stave off the worst scenarios of climate change.

 
 

While the same oil interests that perpetuate their subsidies every year in Brasilia, Canberra, Moscow, and Washington – to name a few – are unlikely to take “stranding” lightly, uncoupling oil and coal from national subsidy schemes would be a major step towards clearing the way for greener policies.

 
 

A short term transition to “cleaner” natural gas and renewables, with a longer term emphasis on reducing consumption and moving beyond fossil fuels entirely, may allow us to stay reasonably close to the mandated increase of 2.0°C, at the most, by 2100.

 
 

Let us congratulate nations like Egypt, India, Indonesia, Malaysia, and Morocco, which have ended fossil fuel subsidies, and hope the Paris agreement encourages other nations to phase in such policies, and to construct transparent and binding mechanisms of enforcing these and all Individual Nationally-Determined Commitments (INDCs).

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