x Abu Dhabi, UAEMonday 24 July 2017

G20 aims to end fossil fuel subsidies

The Group of 20 industrialised and emerging market countries have agreed in principle to phase out subsidies on fossil fuels.

The Group of 20 industrialised and emerging market countries have agreed in principle to phase out subsidies on fossil fuels in an effort to reduce carbon emissions by curbing demand for oil, coal and gas. "Inefficient fossil fuel subsidies encourage wasteful consumption, distort markets, impede investment in clean energy sources and undermine efforts to deal with climate change," the G20 said yesterday in a statement from its two-day summit in Pittsburgh.

"We underscore anew our resolve to take strong action to address the threat of dangerous climate change." The energy and finance ministers of the G20 nations will be asked to develop timetables and strategies for implementing the phasing-out, and that information will be reported at the group's next summit. The governments of several G20 countries, including China, Russia, India and Saudi Arabia, subsidise fuel prices to reduce the burden on consumers and foster popular support.

Others, including the US, have used tax breaks, cheap loans and other measures to subsidise the production of oil, gas, coal and electricity, often as a measure to prop up employment. But it was the US President Barack Obama who pushed at the summit to have all such subsidies gradually eliminated. Agreement on the proposal was by no means a foregone conclusion, and it is being viewed as a victory for the president, whose ability to produce results on climate change had been questioned.

The G20 also called on international energy organisations including Opec and the International Energy Agency (IEA) to analyse the scope of energy subsidies and make suggestions for their elimination. Both the IEA and the Organisation for Economic Co-operation and Development (OECD) have predicted that ending subsidies would produce a 10 per cent reduction in carbon emissions by 2050, taking the world one-fifth of the way to the 50 per cent cut deemed necessary to keep the rise in global warming below 2°C.

"Removing environmentally harmful subsidies to energy consumption and production would be an important first step," Angel Gurria, the OECD secretary general, said last week. "It would also improve economic efficiency. For instance, the budgetary saving could be used to reduce other distorting taxes or to alleviate poverty in a more targeted and efficient way." The OECD has estimated that industrialised countries spend about US$400 billion (Dh1.5 trillion) per year on fuel subsidies that become increasingly burdensome to governments as energy prices rise. Yet for some of the world's biggest polluters, previous moves to phase them out have proved problematic because of their popularity with consumers and the widely held belief that they help the poor.

The Paris-based IEA, which advises rich countries on energy issues, said that belief was wrong, as most of the subsidies went to protect medium- and high-income households that use more energy than poorer ones. The G20 announcement "is good news for importing and exporting countries", the IEA's chief economist, Dr Fatih Biro, said yesterday. "There are four benefits for those countries: improving energy efficiency and therefore energy security, lifting the burden on government budgets and reducing carbon emissions."

The nations with the highest subsidies were Iran, Russia, China, Saudi Arabia and India, he said. The UAE, which is not a G20 member, also subsidises prices of fuels such as petrol, diesel and gas, but not to as great an extent as some of its neighbours. But like other Gulf oil exporters, its revenues would be hit by reduced oil demand from countries such as China and India. Nonetheless, some Opec members, the UAE among them, have acknowledged the need for a more diverse global energy supply, including renewable sources.

India's special envoy on climate change, Shyam Saran, said yesterday his country would support the G20 leaders in withdrawing fossil fuel subsidies "over time". China, the world's biggest carbon dioxide emitter, is already moving in that direction, with several increases to state-controlled petrol prices in the past year, along with government programmes promoting better fuel efficiency. @Email:tcarlisle@thenational.ae