The Planet

Why Are the World’s Most Powerful Nations Giving Oil Companies Billions of Dollars?

by Ben Jervey

November 12, 2015

Every year since 2009, leaders of the G20 nations—19 nations plus the European Union, which together make up about 85 percent of the global economy—have agreed to phase out fossil fuel subsidies. And every year since 2009, G20 nations have continued to subsidize fossil fuel production. And not just a little bit here and there. The world’s most powerful economies are underwriting the industry to the tune of hundreds of billions of dollars per year.  

That’s according to a new report, published today by the Overseas Development Institute (ODI) and Oil Change International, which revealed that annual subsidies from G20 nations added up to $452 billion for the production of not-exactly cash-poor fossil fuels like coal, oil, and natural gas. That’s almost four times as much as the whole world spends on renewable energy subsidies. And it’s more than four times the $100 billion per year that rich nations have agreed to give to support climate action through the United Nations climate talks.

"Our report represents primary research—it's the first time that fossil fuel subsidies flowing from G20 governments to fossil fuel producers have really been tallied, so it's the first time anyone is shining a light on these subsidies in a big way internationally,” Alex Doukas, Senior Campaigner for Public Finance at Oil Change International, wrote in an email. “What I find striking about the number is its sheer magnitude since that's money going from government to support industry—not people—and given the G20 pledge in 2009 (reiterated every year since) to phase out subsidies."

In Pittsburgh six years ago, members of the G20 agreed to “rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption. The so-called Pittsburgh Declaration arrived in the run-up to the United Nations climate talks in Copenhagen, and was expected to inject some life into the summit, which, ultimately, fell flat.

The unfulfilled pledge to phase out fossil fuel subsidies, or “empty promise” as ODI and Oil Change International call it, isn’t the only bit of hypocrisy here.

In effect, governments are propping up the production of oil, gas and coal, most of which can never be used if the world is to avoid dangerous climate change. It is tantamount to G20 governments allowing fossil fuel producers to undermine national climate commitments, while paying them for the privilege.

All of the G20 nations have also agreed, through the UNFCCC process, to limit global temperature increases to 2 degrees Celcius. But according to this report, these production subsidies for coal, oil, and gas will “lock in” enough carbon emissions to blow past that 2 degree limit. The experts explain:

Indiscriminate support for fossil fuel production risks ‘carbon lock-in’; that is, once certain carbon-intensive development pathways are chosen and capital-intensive investments are made, fossil fuel dependence, and the carbon emissions that come with it, can become ‘locked in’, making a transition to lower-carbon development pathways difficult, and increasing the risk of exceeding climate limits

This video sums up the whole connection between subsidies, “unburnable” carbon, and climate chanage.

Researchers calculated three different types of production subsidies, following some guidelines laid out by the World Trade Organization:

  • National domestic subsidies, which are what you probably think of when you think about a subsidy. These include tax exemptions and credits, as well as direct spending by government agencies. The most conservative form of subsidy, national domestic subsidies prop up the fossil fuel industries with a whopping $78 billion every year. The United States alone has authorized over $20 billion per year of national domestic subsidies—mostly in the form of tax exemptions—to coal, oil, and gas companies.
  • Investments by state-owned enterprises—like nationalized banks or oil companies, which we don’t really have in the United States.
  • Public finance, or loan guarantees, grants, and equity from government-owned banks.

It’s no coincidence of timing that G20 leaders are heading into a new round of meetings this weekend in Turkey, where they will once again renounce fossil fuel subsidies. ODI, Oil Change International, and other climate and clean energy advocacy groups are throwing a Stop Funding Fossils Day of Action on November 14, just before the G20 leaders meeting kicks off.

While long overdue, cutting out subsidies for fossil fuel production would be easier now than ever. Under current market conditions, prices for coal, oil, and gas have all reached multi-year lows. There’s a relative glut of coal and oil, and demand for each is falling. Half of all coal produced in 2015 was unprofitable.

“Without government support for production and wider fossil fuel subsidies, large swaths of today’s fossil fuel development would be even less profitable, particularly for coal and for new hard-to-reach oil and gas reserves,” the authors explain. “Directing public resources towards these sectors with rising emissions and falling returns represents, therefore, a double folly.”

Header and preview image of an Arctic offshore oil drilling rig by jerryclelford on Flickr. All other images via YouTube screenshot or odi.org.

Let’s make sure all the leaders heading to COP21 hear our voice. Find out how you can take part in an extraordinary movement called Earth to Paris by visiting earthtoparis.org. And start sending your message to leaders now with the hashtag #EarthToParis.

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Why Are the World’s Most Powerful Nations Giving Oil Companies Billions of Dollars?