G20 Condemns Fossil Fuel Subsidies

On Friday, G20 leaders committed to phase out inefficient fossil fuel subsidies over the medium term and asked their finance ministers to report back at the next meeting in Canada in June next year.

The Organisation for Economic Co-operation and Development (OECD) and the International Energy Association have estimated that if fossil fuel subsidies were eliminated by 2020, the world would reduce its greenhouse gas emissions by 10 per cent by 2050 - the year in which the world has pledged to cut emissions by between 50 and 80 per cent.

The idea is to provide tax breaks and incentives for the clean-energy sector, not the fossil fuel industry.

The main target of the changes are developing nations that directly subsidize the cost of petrol as part of their social welfare and economic development policies. For example, the cost of fuel in Mexico, Indonesia and India is kept at artificially low levels because of government programs.

The Environmental Law Institute estimated that in the U.S., the biggest fossil fuel subsidies are tax breaks, the foreign tax credit and the credit for production of nonconventional fuels that added up to $72 billion over the seven year period studied, 2002 to 2008. “With climate change and energy legislation pending on Capitol Hill, our research suggests that more attention needs to be given to the existing perverse incentives for ‘dirty’ fuels in the U.S. tax code,” said John Pendergrass, a lawyer for the institute.

Canada also comes under scrutiny, with its federal government spending $1.5 billion in additional subsidies to tar sands companies. 

But what does it mean to end subsidies to the fossil-fuel industry? The ramifications could be significant--namely in the cost to the consumer. The majority of our energy still comes from this sector, environmentally hazardous as it is. To simply end the subsidies could place an increasingly heavy burden on those who pay for energy--a burden many are not capable of shouldering at this time.