Global Subsidies Initiative report calls on governments to include commitment to cut fossil fuel subsidies, for climate
A recent report by the Global Subsidies Initiative calls on governments to include commitment to cut fossil fuel subsidies in their pre-Paris climate action plans. It says that phasing out the $543 billion of consumer subsidies handed to fossil fuels globally each year could cut global greenhouse gas emissions by 6 – 13% by 2050. Leading governments, such as the UK, need to made good on their long-standing pledges to phase out these subsidies. It says this is a “feasible and cost-effective option for reducing GHG emissions and staying within a 2C target of warming”. The money spent on subsidising fossil fuel would be more effectively used on greater energy efficiency or on renewables. A study by the Overseas Development Institute in November 2014 said the G20 nations had been spending almost $90bn a year on finding more oil, gas and coal. The UK Government has implemented massive subsidies – largely through the tax regime – to promote exploration and development of risky and unconventional oil and gas in recent years, including deep-water offshore resources and shale gas. UK national exploration subsidies in the UK total up to $1.2 billion per year on average. There is also spending overseas for fossil fuel exploration, which totalled $3.3 billion from 2010 to 2013 – an annual average of $825 million.
Aviation industry worldwide, and in UK, is a large user of fossil fuels, and will continue to be so – even while other sectors cut their oil use.
Report: Axing fossil fuel subsidies could cut global emissions 13%
Study calls on governments to include commitment to cut fossil fuel subsidies in their pre-Paris climate action plans
By BusinessGreen staff
13 Feb 2015
Phasing out the $543bn of consumer subsidies handed to fossil fuels each year could cut global greenhouse gas emissions by between six and 13 per cent by 2050, according to a major new report presented to delegates at the UN’s latest climate meeting in Geneva this week.
The report from the Global Subsidies Initiative (GSI) applies a new model for predicting how emissions could be reduced if leading governments made good on their long-standing pledge to phase out fossil fuel subsidies.
The study notes that almost 30 countries, including Egypt, Indonesia and India, delivered some form of fossil-fuel subsidy reform last year, while the currently low oil price has fuelled speculation that more nations may follow suit.
It concludes that fossil fuel subsidy reform is “one feasible and cost-effective option for reducing GHG emissions and staying within a 2C target of warming”.
“Subsidies can take up a significant portion of government spending (e.g. between 5 and 30 per cent of government expenditure in a range of Southeast Asian countries) and therefore savings from such reforms can be significant,” the group said. “The GSI Integrated Fiscal model also looks at scenarios for the reallocation of savings – 20 per cent into energy efficiency and 10 per cent in renewable energy – and finds that this enables emissions from subsidy reform for particular countries to remain at a reduced level for the long-term, despite growth in GDP and population.”
The report calls on governments to include commitments to reform subsidies in their Intended Nationally Determined Contributions (INDCs), which will be submitted ahead of this year’s Paris Summit and will provide details on how countries plan to respond to climate change.
The study also noted that the emission reductions it expects to see from a full phasing out of subsidies is likely to be an underestimate, as the model does not include subsidies to producers due to lack of data.
The report came on the same day as Unilever boss Paul Polman called on world leaders to seize the opportunity presented by the crash in the oil price to cut fossil fuel subsidies.
Writing in the Guardian, Polman said world leaders needed to make it clear that they “choose an inclusive and sustainable economy over the ageing, carbon-intensive dirty economic model based on burning fossil fuels”.
He added that as such they should take advantage of low oil prices and low interest rates to stop funnelling around $600bn a year into fossil fuel subsidies. “Not only would this benefit the climate, but begin to address issues of rising social inequality,” he wrote. “This is just one example of the climate action agenda and the development agenda are so mutually reinforcing.”
Fossil fuel promises are being broken, report says
11 November 2014 (BBC)
By Roger Harrabin (BBC environment analyst)
The report by the Overseas Development Institute said G20 nations had been spending almost $90bn a year on finding more oil, gas and coal
World governments have been breaking promises to phase out subsidies for fossil fuels, a report says.
The Overseas Development Institute says G20 nations spent almost £56bn ($90bn) a year finding oil, gas and coal.
It comes despite evidence that two thirds of existing reserves must be left in the ground if the world is to avoid dangerous climate change.
A government spokesman said the North Sea oil and gas industry “creates jobs and generates investment” in the UK.
The spokesman said the tax regime for oil and gas includes a number of allowances which reduce the tax burden on specific, challenging gas or oil fields.
Allowances did not constitute a subsidy, he added.
The UK government has previously said it was helping firms find fossil fuels within the UK to increase energy security, attract royalties and help with the balance of payments.
However, the report said subsidies were irrational, a waste of public money and harmful to the environment.
With rising costs for hard-to-reach fossil fuel reserves – together with falling coal and oil prices – renewable energy was a better way to invest taxpayers’ funds, it added.
The report’s authors said the UK had introduced national subsidies for exploration valued at up to £757 million a year.
Those included tax breaks for North Sea exploration worth £528 million to Total (HQ France), £256 million to Statoil (Norway), £144 million to Centrica (UK) and £45 million to Chevron (USA) between 2009 and 2014.
The report also traced G20 governments’ funding of fossil fuel exploration overseas.
The UK has been spending £418 million annually in public finance for exploration in Siberia, Brazil, India, Indonesia, Nigeria, Guinea and Ghana, it said. The funding was through export finance guarantees.
The USA has been spending £883 million annually in public finance for overseas exploration in Colombia, Mexico, Nigeria and Russia, the report added.
A glacier in Canada
The report said subsidies were a waste of public money and harmful to the environment
Governments have supported fossil fuel companies to find new reserves because they produce revenue which increases the tax take and produces royalties in the future.
The ODI said that given the low market price of fossil fuels at the moment, the decision looked like a poor investment of public money.
“The government may argue that if it funds exploration now, it will be paid back later,” ODI director Kevin Watkins told the BBC.
“Our argument is that in today’s conditions, there is still likely to be a net loss – even when royalties and future tax revenues are taken into account – and that doesn’t even take the climate change impact into account.”
Ministers were also driven to secure as much fossil fuel energy as possible within their own borders in order to maximise security of supplies and minimise imports.
The ODI said there was a tension between the objectives of energy security and climate protection.
However, the report said renewables were a better bet. It claimed every US dollar spent on renewable energy subsidies attracted $2.5 (£1.50) in investment, while a dollar in fossil fuel subsidies drew $1.3 (82p) of investment.
The authors said the USA provided £3.2 billion in national subsidies for fossil fuel exploration in 2013 – almost double the level of 2009, while Australia was providing £2.2 billion a year and Russia £1.5 billion a year.
China and Brazil have been subsidising exploration in foreign territory too, it said.
An off shore wind farm
The report said money spent on renewable energy subsidies attracted better investment than fossil fuel subsidies
The report also highlighted £328 million by the G20 for exploration channelled through multilateral development banks.
It said phasing out exploration subsidies should be the first step for the G20 towards meeting its existing commitments to phase out all inefficient fossil fuel subsidies.
The report was developed in collaboration with the pressure group Oil Change International, whose director, Stephen Kretzmann, called on governments to end exploration subsidies.
“Five years ago, G20 governments pledged to phase out fossil fuel subsidies and take action to limit climate change. Immediately ending exploration subsidies is the clearest next step on both fronts,” he said.
The section on fossil fuel subsidies in the UK says:
Coal production in the UK has declined significantly in recent
decades and has almost halved since 2000 (U.S. EIA, 2014c).
Although conventional oil and gas reserves are also declining
and public and private oil and gas exploration expenditure
is variable, the UK Government has implemented massive
subsidies to promote exploration and development of risky
and unconventional oil and gas in recent years, including
deep-water offshore resources and shale gas.
The expansion of deep-water offshore oil and
gas drilling in the North Sea is a priority for the UK
Government, with a newly-created regulator, the Oil and
Gas Authority, tasked with supporting the extraction of
three to four billion barrels of oil and gas from the North
Sea over the next 20 years.
Subsidies are central to this plan, and in July 2014 the Government began consultations ‘on how the country’s tax regime can continue to attract
investment in the North Sea’ (Argus Media, 2014).
The UK stands out as a major industrialised economy
that, despite the G20 pledge, has expanded the scope of its
oil and gas exploration subsidies dramatically, in particular
for shale gas and offshore resources. National exploration
subsidies in the UK total up to $1.2 billion per year on
average, largely as a result of tax exemptions for oil and
gas activities in certain types of fields, including deep water
and shale gas (Blyth, 2013).
Public finance for fossil fuel exploration from the UK
is mostly targeted overseas, and totalled $3.3 billion
from 2010 to 2013 – an annual average of $825 million.
This financing comes from the Royal Bank of Scotland,
which is 80% government-owned and provided $2.0
billion for oil and gas projects over the period (IJ Global,
2014). UK Export Finance (UKEF) provided two loans to
Brazil’s national oil company in 2012 and 2013 and two
guarantees for coal mining projects in Siberia in 2011 and
2012 (UKEF, 2013; UKEF, 2012).
The UK Government also provides fossil fuel support through the CDC Group, (Commonwealth Development Corporation)
its development finance institution, but data on the share
of CDC financing for these funds are not available. The
UK also contributed an annual average of $53.7 million
to fossil fuel exploration projects from 2010 to 2013
through its shares in the World Bank Group, the European
Bank for Reconstruction and Development, the European
Investment Bank and the Asian Development Bank which
range from 2.1% to 16.1% depending on the institution.
Foreign companies play a dominant role in UK oil and
gas exploration. Maersk Oil, a Danish company, spends by
far the most of any company on exploration in the country.
In 2013, two independent American oil and gas companies,
Noble Energy and Apache, rose to the forefront with the
third and fourth largest exploration expenditures that
year, behind Shell. Because they are investing the most in
exploration, these companies are likely to be benefitting the
most from exploration subsidies (Rystad Energy, 2014).
BP and Shell are particularly active in exploration
and production in the North Sea, and made strong
public comments supporting the UK’s favourable tax
regime for deep-water offshore drilling there in light of
the referendum vote for Scottish independence. Both
companies expressed concerns that an independent
Scotland would raise taxes on North Sea oil and gas
operations, with Shell CEO Ben van Beurden highlighting
the industry’s reliance on subsidies by stating that without
the current tax breaks from the UK Government, North
Sea production could become unprofitable (Eaton, 2014).
Despite Government support, fewer companies have
invested in UK fracking, although more players are
beginning to enter the field. As of March 2013, Cuadrilla
Resources was the only major actor in the UK’s shale-gas
industry (Bowsher, 2014). At the beginning of 2014, Total
bought 40% stakes in two shale-gas exploration licenses in
partnership with several smaller companies (Griffiths, 2013).
… and a section on coal ….