07 Dec 2018 Story Climate change

Calling time on fossil fuel subsidies

Photo by Alfred T. Palmer/Wikimedia.

UN Environment is working with governments to collect internationally coherent data on fossil fuel subsidies that can help advance global efforts to address climate change.

Gone are the days when you could fill up your car gas tank with US$20. Yet, despite the steady increases, gas prices are still artificially low, keeping transportation and national production costs relatively contained and internationally competitive. Unfortunately, this situation is deeply unsustainable, particularly if we are to seriously curb our CO2 emissions, slow our impact on climate change and reduce air pollution.

Every year, governments spend between US$160 and US$400 billion as fossil fuel subsidies for the production and use of coal, oil and gas. Payments to consumers, companies, tax breaks or other fiscal incentives are some of the ways governments subsidize fossil fuels, moving ever farther away from meeting the goals of the Paris Climate Agreement.

“Understanding the size of existing fossil fuel subsidies is an important first step towards achieving reform,” says UN Environment fossil fuel subsidy expert Joy Kim. “You can’t manage what you can’t measure.” In contrast, the total financial support to renewable energy amounts to US$121 billion.

UN Environment is responsible for monitoring the progress of phasing out fossil fuel subsidies and has been working with numerous country partners, international organizations and non-governmental organizations to come up with a robust way to measure such subsidies.

In September of 2018, an agreement was reached by the Inter-Agency Expert Group on Sustainable Development Goal Indicators (composed of Member States including regional and international agencies as observers) on the first internationally agreed approach to measuring fossil fuel subsidies that UN Environment has developed together with the Organisation for Economic Co-operation and Development (OECD) and the Global Subsidies Initiative and proposed.

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Coal power plant in Gelsenkirchen, Germany. Photo by Reuters.

The momentum to reform fossil fuel subsidies has grown in recent years, as countries discover not only the necessities, but also the benefits of subsidy removal. For example, in June 2018, Argentina and Canada committed to peer reviews of their fossil fuel subsidies under the G20 process. China, Germany, Indonesia, Italy, Mexico and the USA had done this earlier.

Sustainable Development Goal 12 (Ensure sustainable consumption and production) also includes a target to rationalize inefficient fossil fuel subsidies that encourage wasteful consumption. The importance of monitoring fossil fuel subsidies is recognized in the framework of the Sustainable Development Goals with a dedicated indicator to assess country progress.

In the context of the Sustainable Development Goals, UN Environment is responsible for collecting national data on this indicator from 193 UN member countries. Data collection will start in 2020 and continue until 2030, feeding into the Sustainable Development Goal global database maintained by the UN Statistics Division.

“If sufficient guidance and support are provided to countries to facilitate their reporting, this process could improve transparency on fossil fuel subsidies, and provide an impetus for reform by informing decision-making, increasing awareness and building support among stakeholders,” says Kim.

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A liquified natural gas plant in Bonny, Nigeria. Photo by Akintunde Akinleye.

The damage caused by fossil fuel subsidies

The burning of fossil fuels is a significant contributor to air pollution, which kills seven million people a year and is linked to “huge” reductions in intelligence.

By artificially lowering prices, subsidies drive wasteful energy consumption which increases local air pollution and congestion, while crowding out investment in renewables and energy efficiency. They lock us into a high-carbon energy world.

Coal, oil and gas not only produce health-damaging pollutants when they burn: the extraction process also produces significant quantities of carbon dioxide and methane.

The sheer size of the subsidies is a significant drain on national budgets, diverting resources from other areas like health and education.

The International Monetary Fund estimates that removing fossil fuel subsidies and then taxing fossil fuels correctly (based on the cost borne to society through air pollution, carbon emissions and accidents) could lead to a decline in fossil-fuel related carbon emissions by over 20 per cent globally. Removing the subsidies would also reduce premature air pollution-related deaths by over 50 per cent and raise government revenue by US$2.9 trillion (3.6 per cent of global gross domestic product), it says. (IMF, 2015).

Although advocated as a measure to fight poverty, fossil fuel subsidies often do not reach the poorest households and instead tend to benefit wealthier segments of society more.

On 27 November UN Environment launched its Emissions Gap report 2018 [hyperlink to report], which underscores the need for further action by all countries to reduce emissions of greenhouse gases.

For further information, please contact Joy Aeree Kim