When it comes to phasing out subsidies to the production of polluting oil, gas and coal – something G20 leaders have committed to every year since 2009 – we’re seeing little progress.
In fact, as fossil fuel prices have fallen, some countries have even increased subsidies in response. Although there has been some progress in reforming consumer subsidies, when it comes to production, progress is much more limited.
So what are the most encouraging stories of reform to fossil fuel production subsidies – and the most frustrating? Which countries are showing leadership, and which are lagging behind?
First, the leaders:
The US and France restrict international public finance for coal
The US’ export credit agency was one of the first to significantly curtail support for coal-fired power plants, and its Overseas Private Investment Corporation (OPIC) has shifted its financing away from fossil fuels and towards renewable energy. Guidelines from the US Treasury also restrict US support for multilateral development bank funding of coal-fired power projects.
Meanwhile France’s overseas development agency and export credit agency no longer support coal-fired power stations without carbon capture and storage (CCS); although the economic viability of this technology remains in question.
Germany on track to end coal subsidies by 2018
In 2007 Germany formally committed to phasing out support to its domestic hard coal industry by 2018. To ease this transition, the government provides support for early retirement schemes for those working in coal production, and shares the costs of closures and inherited liabilities with the industry to manage the impacts of reform.
Canada phases out national subsidies, including to tar sands
Canada is phasing out several subsidies to oil, gas and mining, including ending targeted support to tar sands which are now subject to the same tax regime as other oil, mining and gas development. It is also phasing out the Atlantic Investment Tax Credit, which applies to oil, gas and mining.
At the same time, however, Canada has introduced new subsidies to fossil fuel producers, particularly new tax breaks for natural gas production.
Indonesia appears to have limited subsidies to production, and phased out $15 billion in consumption subsidies
Indonesia’s tax and royalty regime means that the government’s share of oil and gas profits is among the highest in the world. However, it has made encouraging progress on consumption subsidies, completely removing most petrol subsidies and reducing diesel subsidies, saving the public a total of just over $15 billion in 2015.
Despite some missteps in implementation, this still represents a dramatic step forward. And while it doesn’t relate to production subsidies, it does show that Indonesia’s new government is serious about implementing its G20 pledge to rationalise and phase out inefficient fossil fuel subsidies that promote wasteful consumption.
And now we turn to the laggards…
(Watch out for those countries cancelling out their progress with contradictory actions! Some countries have phased out one subsidy while simultaneously introducing another, or continue to subsidise domestic activity while cutting international public finance – or vice versa.)
Japan, Korea and China continue to finance fossil fuel production abroad
Japan and Korea remain aggressive supporters of fossil fuel production outside their borders, blocking calls for reform in forums such as the OECD. Japan provided an average of $19 billion a year in international public finance for coal, oil and gas production in 2013 and 2014, while Korea provided just over $10 billion per year.
China is also a major provider of international public finance for fossil fuel production, averaging $17 billion per year in 2013 and 2014. However, in contrast to Korea, China recently announced plans to ‘strictly control’ public investment in high-emitting projects both domestically and abroad, and Japan has reached agreement with the US to curb public financing of overseas coal projects.
UK introduces new tax breaks for oil and gas
The UK government is aiming to extract an additional three to four billion barrels of oil and gas in the next 20 years, and has introduced a new set of tax breaks in 2015 that will cost UK taxpayers $2.7 billion between 2015 and 2020.
At the same time, support for renewables and energy efficiency measures has been cut.
Russia and the US continue to provide huge national subsidies
Continued high national subsidies are particularly frustrating to see in countries that have actually made efforts to reform a sub-set of national subsidies and public finance.
Russia for example, despite recently phasing out certain tax breaks to fossil fuel producers, provides them with almost $23 billion annually in national subsidies. In the US, national subsidies were just over $20 billion in the same time period, from 2013 to 2014.
Turkey and Indonesia support coal power
In Turkey, the pipeline of coal-fired power projects adds up to 65 gigawatts of capacity, and national subsidies (including tax breaks) for new coal-fired power plant construction are enshrined in the 2012 New Investment Incentives Regime.
In May 2015, Indonesia launched a programme to build 35 gigawatts of new power capacity that will predominantly consist of new coal-fired power stations, and which will be supported through public finance, including guarantees.
G20 governments continue to encourage investment in fossil fuel production through subsidies, even though the world already has a large stockpile of unburnable carbon. These investments threaten to lock us in to a path that will see the world exceed its globally-agreed 2ºC climate change limit. It is time for G20 governments to end this support to the fossil fuel industry, once and for all.
Find out more in the new report, ‘Empty Promises: G20 subsidies to oil, gas and coal production,’ by ODI and Oil Change International, building on research by the Global Subsidies Initiative.