OECD calls for end to state subsidies on fossil fuels

Thu, Jun 10, 2010, 01:00

PHASING OUT more than half a billion dollars a year in subsidies for fossil fuels could cut global greenhouse gas emissions by as much as 10 per cent, according to a report published yesterday by the OECD.

The latest analysis found that these subsidies for coal, oil and gas amount to $557 billion (€466 billion) worldwide – even as governments “strive to to cut budget deficits in the wake of the financial and economic crisis”.

Preferential tax treatment for oil and gas production, special loan guarantees and tax exemptions for fossil fuel use in some sectors or consumer groups are among the ways in which governments subsidise fossil fuels, the report says.

Tax exemptions for diesel fuel use in agriculture and fisheries are common in many countries. In OECD countries alone, the value of these incentives amount to €6.7 billion for farmers and a further €962 million for the fishing industry every year.

“Many governments are giving subsidies to fossil fuel production and consumption that encourage ... emissions at the same time as they are spending on projects to promote clean energy,” said OECD secretary general Angel Gurría.

To deal with this “wasteful use of scarce budget resources”, as he termed it, G20 leaders agreed in Pittsburgh last September to “rationalise and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption” .

They requested the OECD, along with the International Energy Agency (IEA), the Organisation of Petroleum Exporting Countries (Opec) and the World Bank, to prepare a joint report on how this should be done for the forthcoming G20 summit in Toronto.

Based on data compiled by the International Energy Agency (IEA), the OECD said “careful phasing-out” of fossil fuel subsidies could be a low-cost way to help meet targets to cut global emissions, announced following the UN climate summit in Copenhagen.

According to new OECD analysis, which was based on data compiled by the IEA, ending fossil fuel subsidies could cut global greenhouse gas emissions by 10 per cent from the levels they would otherwise reach in 2050 under a “business as usual” scenario.

The report concedes that reforming fossil fuel subsidies is politically challenging, but says lessons could be learned from experiences in countries like Britain, France and Poland, which have “successfully reformed their subsidies for coal production”.

Key elements in successful reform would include announcing subsidy phase-out plans early, phasing them in gradually while raising public awareness on “who pays and who benefits” and taking measures to limit negative impacts on poorer households.

Ruth Davies, of Greenpeace UK, said the new air ticket tax in Germany could raise €1 billion a year. But this was tiny compared to an estimated $100 billion a year in subsidies for oil companies, which was “grotesque” in the context of the Gulf of Mexico oil spill.

May Boeve, an American activist with the 350.org campaign group, said the Deepwater Horizon oil rig disaster was having a major impact on public opinion in the US, with the most recent polls showing more people wanted action on cleaner energy and the climate.

“It’s on the front pages every day, 27,000 jobs in the fishing industry in Louisiana are in danger as an Olympic-size pool of oil is spilling out every three days,” she said.

“This is changing the climate on the ground in the US and could be a real game-changer.”