G20 china_web

Energy markets and access
A global framework agreement has
been adopted by 196 countries
RYHOR BRUYEU/ISTOCK IMAGE SOURCE IMAGES
Wind turbines in Spain
At Pittsburgh in 2009, G20 leaders
committed to identify and eliminate
inefficient fossil fuel subsidies. Since then,
action to measure, reduce and eliminate
them has accelerated and extended beyond
G20 members. Most reforms have been in
developing countries: Argentina, Ghana,
India, the Philippines, South Africa, China,
Nepal and Vietnam, where governments
have taken some gutsy decisions.
Subsidies and enterprises
Calculating fossil fuel subsidies locked
within national budgets, opaque tax codes
and actual tax treatment is complex and
contested. Many subsidies take the form
of tax breaks. Accelerated capital cost
depreciation methods or flow-through
shares are common. Adding the total uptake
by companies of allowable tax breaks
is difficult. Surprisingly, many finance
departments do not even try.
Some finance departments also resist
efforts to include as subsidies the billions
spent annually through export credits to
support fossil fuel-based activities. Since
many export banks provide credit at
prevailing market rates, by definition prices
may not be distorted through subsidies. But
that view misses the obvious intent and
spirit of the G20 commitment.
The World Trade Organization (WTO) has
a more applicable definition of state-owned
enterprises. G20 members need to begin
G20 work
supports
convergence
on a common
definition of what
green means
$500bn
Amount spent each year on
fossil fuel subsidies
measuring how public finance through
export credits are creating, extending or
deepening fossil fuel activity that would
otherwise not exist.
Nonetheless, there is now a wide
consensus that $500 billion is spent each
year on fossil fuel subsidies. This amount
splits into consumption-related subsidies
– for example, lower prices at the pump for
diesel fuel – that comprise three-quarters
of the total and production subsidies for
one-quarter.
Arguments to protect domestic subsidies
seem endless. Consumption subsidies
support pro-poor transfer payments
such as public transport support or farm
vehicles. They are too complex to calculate
and therefore tricky to reform. Production
subsidies for oil and gas exploration and
pre-production are needed in order to
tighten global markets, especially during
commodity price dips. The list goes on.
International reform
Yet for all the reasons to avoid action,
subsidy reform is slowly winning. The Paris
Agreement in December 2015 was a turning
point from the leisurely post-Pittsburgh
approach. An ambitious universal global
framework agreement was adopted by
196 countries, which it committed to
reducing emissions through their Nationally
Determined Contributions.
The Global Subsidies Initiative of the
International Institute for Sustainable
Development (IISD) estimates that
reforming fossil fuel subsidies to consumers
across 20 countries could reduce emissions
by an average of 11 per cent.
By taking 30 per cent of subsidy savings
and investing them in renewable energy
and energy efficiency, national emissions
are reduced further to an average of 18 per
cent by 2020.
In December 2015 at Paris, 40 countries
signed the declaration of the Friends of
Fossil Fuel Subsidy, committing to support
enhanced transparency, ambitious domestic
reform and flanking policies to protect the
poor as they reform policies to eliminate
fossil fuel subsidies by 2025. At the energy
ministerial meeting in the United States,
ministers reiterated their commitment to
phase out fossil fuels by 2025.
These steps are welcome, but climate
science leaves no ambiguity about the
urgent need for immediate action. The
G20 at Hangzhou in September 2016
should take up the call by hundreds of
organisations, including IISD, to accelerate
this timetable to 2020. G20
G7G20.com September 2016 • G20 China: The Hangzhou Summit 215