Bloomberg News

Fossil-Fuel Subsidies of Rich Nations Five Times Climate Aid

December 03, 2012

The HollyFrontier Corp. refinery

The HollyFrontier Corp. refinery stands in Tulsa, Oklahoma, U.S., on Monday, Nov. 7, 2011. HollyFrontier Corp. reported a profit $523.1 million in its third-quarter earnings statement today, compared with a profit of $51.2 a year earlier. Photographer: Paul Taggart/Bloomberg

Rich countries spend five times more on fossil-fuel subsidies than on aid to help developing nations cut their emissions and protect against the effects of climate change, the Oil Change International campaign group said.

In 2011, 22 industrialized nations paid $58.7 billion in subsidies to the oil, coal and gas industries and to consumers of the fuels, compared with climate-aid flows of $11.2 billion, according to calculations by the Washington-based group.

The data underline the steps developed nations may be able to take to cut their emissions as ministers from 190 nations meet in Doha to discuss measures to curb global warming. Eliminating the subsidies would reduce incentives to pollute and help rich nations meet their pledge to provide $100 billion a year in climate aid by 2020, said Stephen Kretzmann, the founder of Oil Change International.

“Measures that encourage inefficient use of energy, such as fossil fuel subsidies, must be eliminated,” Maria van der Hoeven, executive director of the International Energy Agency, said in a statement released by her office in Paris today. “Carbon emissions must be dramatically reduced, and the energy sector must play a key role in this.

The subsidies enable consumers to fuel cars and heat their homes more cheaply. The International Energy Agency estimates they totaled $523 billion last year, mainly from support paid out in developing countries. Production subsidies make it cheaper for oil and gas companies to extract the fuels. Leaders of the Group of 20 nations agreed at a meeting in Pittsburgh in 2009 to phase out fossil-fuel subsidies in the ‘‘medium term.’’

U.S. Reaction

U.S. and European Union envoys in Doha agreed that fossil fuel subsidies should be phased out. The U.S. is pushing the issue meetings of the Group of 20 nations.

‘‘It’s an important issue,’’ said Todd Stern, the lead U.S. State Department official at the talks in Doha. ‘‘There are a lot of entrenched interests. There are different kinds of interests.’’

European Union Climate Commissioner Connie Hedegaard told reporters in Doha she didn’t mind what forum subsidies were discussed ‘‘as long as we start phasing out’’ their use.

Aid is a keystone of climate agreements, and developing nations from Barbados to China have complained in Doha about the lack of transparency surrounding $30 billion of so-called fast- start finance that industrialized nations pledged to pay for the three-year period ending in 2012. They’re also calling for a ‘‘roadmap’’ setting out how the $100 billion goal will be met.

Funding the Problem

‘‘You can’t say you’re serious about fighting climate change until you stop funding the problem,” Kretzmann said in an interview in Doha, where envoys at United Nations climate talks are entering a second week of talks. “It should be possible to phase out producer subsidies and use part of that money for climate finance to help cushion the blow of removing consumption subsidies in developing countries.”

Of the 22 nations examined, Slovenia and Finland paid out more than 50 times in subsidies what they gave in climate aid, the data show. U.S. subsides were the highest at about $13.1 billion, or five times its $2.5 billion of climate aid in 2011.

A U.S. official said by e-mail today that while the current administration has been seeking to eliminate about $4 billion in annual fossil fuel subsidies, Congress has yet to act.

U.S. Financing

While Congress has approved almost $7.5 billion in fast- start finance over the three years, at an average of about $2.5 billion, its actual contribution in 2011 was $3.2 billion, according to a document from the U.S. delegation in Doha.

Oil Change International, set up in 2005, used fast-start finance data from the World Resources Institute, taking annual averages to produce 2011 figures. It analyzed figures on fossil fuel subsidies from the Organization for Economic Cooperation and Development’s website.

Items included in the OECD data for the U.S. include tax exemptions and reductions for producers and for consumers, including farmers and low-income households. It includes federal measures, as well as some state-level programs.

OECD’s Caution

“Caution is required in interpreting the support amounts and in aggregating them,” the OECD says on its website. That’s because, among other reasons, different countries use different tax rates for fossil fuels, so the subsidy resulting from a tax exemption could appear relatively higher in a high-tax nation, Jehan Sauvage, an OECD analyst, said in an e-mail response.

Australia paid $8.4 billion in subsidies, while Germany and the U.K. paid $6.6 billion each. A U.K. government spokesman said in an e-mail that, in the absence of a common G20 definition for what constitutes a fossil-fuel subsidy, Britain doesn’t have any inefficient fossil-fuel subsidies that encourage wasteful consumption.

Japan had the best record, with aid of $5 billion exceeding fossil fuel subsidies of $439 million, according to the campaign group.

Kretzmann said progress since nations made the pledge at the G20 meeting in 2009 has been “minor.” While reporting of subsidies has improved, “everyone in the G20 gets to pick their own definition of a fossil-fuel subsidy,” he said.

“As far as we can tell, there has been no single subsidy in the G20 that’s been phased out as a result,” Kretzmann said. “Overall, we think there’s roughly $1 trillion spent on fossil fuel subsidies globally, and that’s before you get into health costs, climate-change adaptation costs and military costs for protecting oil supplies.”

To contact the reporter on this story: Alex Morales in London at amorales2@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

The HollyFrontier Corp. refinery stands in Tulsa, Oklahoma, U.S., on Monday, Nov. 7, 2011. HollyFrontier Corp. reported a profit $523.1 million in its third-quarter earnings statement today, compared with a profit of $51.2 a year earlier. Photographer: Paul Taggart/Bloomberg

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