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G20 Countries Spend $452 Billion a Year Propping Up Fossil Fuel Companies

G20 leaders promised the world in 2009 that they would put an end to the massive subsidies propping up fossil fuel companies. Surprisingly enough, six years later they are nowhere near.

by Jenna Corderoy
Nov 12 2015, 4:10pm

Photo by Tim Wimborne/Reuters

As leaders prepare for the G20 summit in the next few days, they may recall their 2009 pledge to phase out fossil fuel subsidies by 2020 in a bid to combat global warming — but new research published on Thursday suggests that governments lays waste to those apparently empty promises. 

A joint report by the UK think tank Overseas Development Institute (ODI) and the US-based research and advocacy organization Oil Change International, has examined the extent of government financial support propping up the industry, and found G20 countries still provide a massive $452 billion a year in fossil fuel production subsidies — almost four times the entire global subsidies for renewable energy.

Published ahead of the G20 Leaders' Summit — an international forum of 19 countries and the European Union — held this year in Turkey, the findings will add momentum to the demand to cut subsidies. On Saturday, people around the world are due to take to the streets in a Global Day of Action to Stop Funding Fossils before the summit starts on Sunday. A United Nations climate change summit is also within sight, to be held in Paris in December.

Speaking to VICE News, Steve Kretzmann, executive director and founder of Oil Change International, said the issue of subsidies was crucial to the future of the planet. "What we know is that in order to save the climate, we need to phase out fossil fuels," he said. "The first step in that direction needs to be to stop funding them to produce more."

The reason things were going in the wrong direction was simple, he said: money. "The idea of a production subsidy is to encourage greater production and thus greater revenue to the government," he explained.

However current market conditions actually reinforce the case for cutting subsidies, said the report, because the glut in current supplies of fossil fuels had driven prices to multi-year lows. Without government support for production and wider fossil fuel subsidies, large swathes of today's fossil fuel development would be even less profitable, particularly for coal and for new hard-to-reach oil and gas reserves," it pointed out. "Directing public resources towards these sectors with rising emissions and falling returns represents, therefore, a double folly."

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The report found that G20 countries supported fossil fuel production by $452 billion per year on average in 2013 and 2014 — the most recent years with comparable data. It breaks down government support into three: national domestic subsidies, which cover financial support such as tax exemptions, and which were estimated at almost $78 billion; investment from state-owned enterprises, which amounted to $286 billion; and public finance from government-owned banks. which was calculated as $88 billion per year on average in 2013 and 2014.

However even these are conservative estimates, and there have been difficulties obtaining data due to a lack of transparency within the energy sector. "It's good data, but it's also somewhat scandalous that governments are essentially hiding how much they're giving the fossil fuel industry," said Kretzmann. "They're not being clear about it."

The $452 billion in subsidies provided by the G20 countries is almost four times the $121 billion amount that the International Energy Agency (IEA) estimates was provided in global subsidies to renewable energy in 2013. In the past, the IEA reported in its 2010 World Energy Outlook that the removal of subsidies would be a fast way to reduce the demand of fossil fuel energy, and would also cut CO2 emissions.  

Another country which stood out was the UK, accused of "ramping up" fossil fuel subsidies while cutting renewables and energy efficiency measures. and the revelation follows recent news that the UK is predicted to miss its European Union targets to get 15 percent of its energy from renewables by 2020.

A further $5.5 billion was provided by the UK in public finance to support fossil fuel production overseas in countries including Russia, Saudi Arabia and China, said Oil Change International and ODI.

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The ODI's Shelagh Whitley, one of the authors of the report, said: "The UK has been cutting back support for solar power and energy efficiency, arguing that the burden was too high.

"Our figures reveal that in spite of supposed budget constraints the government is giving ever increasing hand-outs to oil and gas majors, most of which are not British companies. Scrapping fossil fuel subsidies would rebalance energy markets and allow a level playing field for clean and efficient alternatives."

Researchers estimated that the UK provided an annual average of $9 billion in national subsidies to fossil fuel production in 2013 and 2014, "dominated by tax relief for the decommissioning activities of oil and gas companies." According to the report, the value of national subsidies is likely to grow. This year's budget statement saw the Chancellor of the Exchequer, George Osborne, announce major changes to the tax regime ruling the North Sea, slashing tax rates on oil and gas production.

Taking a look at the other G20 countries, the report found Russia and the US gave the biggest national domestic subsidies — $23 billion and $20 billion annually on average, despite President Barack Obama calling for the elimination of fossil fuel industry tax breaks. 

Chinese state-owned enterprises invested $77 billion a year in fossil fuel production in 2013 and 2014, and Japan provided the largest annual public financing from banks fossil fuels — an average of $19 billion. The country, according to the report, heavily relies on fossil fuels for its power production, with many utility companies refusing to enter into solar power purchasing contracts.

Related: Even Saudi Arabia Seems to Understand the Need to Ditch Fossil Fuels