G-20 Countries Will Phase Out Fossil Fuel Subsidies
PITTSBURGH, Pennsylvania, September 25, 2009 (ENS) – G-20 government leaders today concluded the Pittsburgh Summit with a commitment to phase out fossil fuel subsidies over the medium term while providing targeted support for the poorest households. The leaders said that this unprecedented move is expected to encourage energy conservation, improve energy security, and kick-start their commitment to reduce greenhouse gas emissions.
In his closing address to the G-20 leaders, host President Barack Obama said, “We agreed to phase out subsidies for fossil fuels so that we can transition to a 21st century energy economy – an historic effort that would ultimately phase out nearly $300 billion in global subsidies.”
Fossil fuels are oil, gas and coal Burning these fuels emits greenhouse gases that raise the planetary temperature. This reform will not apply to support for clean energy, renewables or technologies that reduce greenhouse gas emissions.
“This reform will increase our energy security,” said Obama. “It will help transform our economy, so that we’re creating the clean energy jobs of the future. And it will help us combat the threat posed by climate change. As I said earlier this week in New York, all nations have a responsibility to meet this challenge, and together, we have taken a substantial step forward in meeting that responsibility.”
Obama said the United States is “accelerating its collaboration” with China, India, Mexico and other key international partners to combat climate change, coordinate clean energy research and development, and support the international climate talks.
The leaders of the G-20 nations in their family photo in Pittsburgh. (Photo courtesy Number 10 Downing St.)
The members of the G-20 are the leaders of 19 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States, as well as the European Union, represented by the rotating council presidency and the European Central Bank.
In implementing the phase-out of fossil fuel subsidies, the G-20 leaders recognized that their economies account for over 80 percent of the world’s energy use.
Eliminating fossil fuel subsidies worldwide would reduce global greenhouse gas emissions by 10 percent or more by 2050, according to estimates by the International Energy Agency and the Organization for Economic Cooperation and Development.
Removing fossil fuel subsidies helps eliminate market distortions, strengthening incentives for investments in energy efficient technologies and non-fossil energy supply.
Cutting energy subsidies is also expected to lead to reduced consumption, lower import demand and increased availability of energy for export – all helping to reduce the likelihood of a future supply crunch.
In 2008, demand grew in countries subsidizing oil by nearly one million barrels per day, despite high prices.
The G-20 leaders say eliminating the subsidies will free resources for targeted social assistance that could significantly improve the quality of life for low-income households.
Phasing out the subsidies that contribute to unsustainable use of fossil fuels in tandem with international efforts to expand access to modern energy services will make a substantial contribution to the reduction of air pollution and help save lives, they said.
President Barack Obama and Indonesian President Dr. Susilo Bambang Yudhoyono confer at the G-20 meeting in Pittsburgh. (Photo by Pete Souza courtesy The White House)
In their consideration of this move the G-20 looked to one of their number – Indonesia. After years of increasing fuel subsidies and problems implementing price hikes, Indonesia instituted a cash transfer system that enabled the government to direct cash payments to over 19 million households while reducing across-the-board subsidies. This action improved the national balance sheet while also enhancing the economic condition of the poorest 40 percent of the country’s population.
In the United States, the largest subsidies to fossil fuels are attributed to tax breaks that aid foreign oil production, according to research released September 18 by the Environmental Law Institute and the Woodrow Wilson International Center for Scholars. The study, which reviewed fossil fuel and energy subsidies for Fiscal Years 2002-2008, shows fossil fuels benefited from approximately $72 billion over the seven-year period, while subsidies for renewable fuels totaled only $29 billion.
The American Petroleum Institute was quick to point out the problems the Obama administration will face as a result of eliminating fossil fuel subsidies.
API President Jack Gerard said today, “Above all else, the president and Congress should not use this commitment as an excuse to raise energy taxes on American consumers and businesses. Does the president really think it wise to eliminate tax provisions that encourage investment in technology and exploration and development and would likely constrict future energy supplies, raise energy costs and kill jobs?”
“What America really needs,” Gerard said, “is energy from all sources – including renewables and oil and natural gas – to fuel its economy and remain competitive in global markets.”
Gerard cited U.S. government data showing that fossil fuels account for 83 percent of total domestic energy demand. He pointed to a study by Pricewaterhouse Coopers, showing that the oil and natural gas industry supports 9.2 million jobs and in 2007 supported economic activity that contributed 7.5 percent to the gross domestic product to support his point that the subsidies should remain in place.
On the other hand, environmentalists praised the move, although some said it does not go far enough towards averting climate change catastrophe.
Friends of the Earth President Erich Pica said, “We commend the G20 for its agreement to end government subsidies for fossil fuels, but feel that industrialized country leaders missed an opportunity to make real commitments to fund international climate finance. While this is an important step forward in weaning the globe off of dirty fossil fuels, the lack of financial commitments jeopardizes an international agreement on global warming.”
Natural Resources Defense Council President Frances Bernecke was more supportive, saying, “This commitment represents a strong down payment for a clean energy future.”
“It was encouraging to see that several key countries demonstrated forward momentum in climate negotiations,” Bernecke said. “President Hu Jintao signaled that China would commit to curb the growth of their emissions through 2020; Indian leaders said they would take domestic steps to reduce their emissions; Japan’s new government committed to a much deeper target than the previous government; and key world leaders strengthened their support for dealing with deforestation emissions.”
“With President Obama’s continued engagement,” she said, “the United States can enact strong clean energy legislation at home and mobilize the international community to come together around a climate agreement in Copenhagen.”
Indian Prime Minister Dr. Manmohan Singh listens to President Barack Obama during the G-20 dinner at the Phipps Conservatory. (Photo by Pete Souza courtesy The White House)
In general, the G-20 nations said their efforts to turn the global economic crisis around have worked.
When they last gathered in April in London, the leaders said in a joint statement today, “we confronted the greatest challenge to the world economy in our generation. Global output was contracting at pace not seen since the 1930s. Trade was plummeting. Jobs were disappearing rapidly. Our people worried that the world was on the edge of a depression.”
“At that time, our countries agreed to do everything necessary to ensure recovery, to repair our financial systems and to maintain the global flow of capital. It worked.”
“Our forceful response helped stop the dangerous, sharp decline in global activity and stabilize financial markets. Industrial output is now rising in nearly all our economies. International trade is starting to recover. Our financial institutions are raising needed capital, financial markets are showing a willingness to invest and lend, and confidence has improved.”
“Our national commitments to restore growth resulted in the largest and most coordinated fiscal and monetary stimulus ever undertaken,” they said. “We acted together to increase dramatically the resources necessary to stop the crisis from spreading around the world. We took steps to fix the broken regulatory system and started to implement sweeping reforms to reduce the risk that financial excesses will again destabilize the global economy.”
But, they stressed, “A sense of normalcy should not lead to complacency,” adding that the process of recovery is still “incomplete.”
“In many countries, unemployment remains unacceptably high. The conditions for a recovery of private demand are not yet fully in place,” the G-20 said. “We cannot rest until the global economy is restored to full health, and hard-working families the world over can find decent jobs.”
“We pledge today to sustain our strong policy response until a durable recovery is secured,” they said.
They called on the World Bank to play a leading role in responding to problems requiring globally coordinated action, such as climate change and food security, and agreed that the World Bank and the regional development banks should have sufficient resources to address these challenges and fulfill their mandates.
The G-20 leaders agreed to meet in Canada in June 2010 and in Korea in November 2010. They expect to meet annually thereafter and will meet in France in 2011.