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New Energy World magazine logo
New Energy World magazine logo
ISSN 2753-7757 (Online)

Call for G20 leaders to discuss introduction of fossil fuel subsidies


Graphic of red and purple dollar signs with trading figures in the background Photo: Shutterstock
Shifting fossil fuel spending could help solve key global problems, including access to energy

Photo: Shutterstock

Shifting G20 fossil fuel spending could install enough renewables to align with 1.5°C while tackling global hunger, energy access gaps and more, says the International Institute for Sustainable Development (IISD).

G20 members spent a record $1.4tn in public money to support fossil fuels in 2022 and could raise an additional $1tn/y by establishing a carbon tax floor of $25–75/tCO2e, funds that could help solve some of the most pressing global issues according to a new report from the IISD and partners.


Commenting on the $1.4tn spending – which included fossil fuel subsidies ($1tn), investments by state-owned enterprises ($322bn) and lending from public financial institutions ($50bn), and was more than double the pre-COVID-19 and pre-energy crisis levels of 2019 – Tara Laan, Senior Associate at IISD and the lead author of the study, says: ‘These figures are a stark reminder of the massive amounts of public money the G20 governments continue to pour into fossil fuels despite the increasingly devastating impacts of climate change.’


She continues: ‘The G20 has the power and the responsibility to transform our fossil-based energy systems. It is crucial for the bloc to put fossil fuel subsidies on the Delhi Leaders’ Summit agenda and take meaningful actions to eliminate all public financial flows for coal, oil, and gas.’


The forthcoming G20 summit will be held in Delhi on 9–10 September 2023.


The report suggests that G20 members could raise an additional $1tn/y by setting minimum carbon taxation levels of $25–75/tCO2e, depending on country income. Its researchers warn that taxes on fossil fuels in G20 member countries currently do not reflect their costs to society – averaging just $3.2/tCO2e across the G20 – with many members failing to impose windfall taxes on record profits that fossil fuel companies gained last year at the peak of the energy crisis.


Artificially lowering the price of fossil fuels is problematic because it increases the burning of fossil fuels, intensifying human-induced climate change and making extreme weather events – like heat waves, wildfires, torrential rains, and hailstones – more frequent and intense, says the study.


The authors recommend that G20 members set a clear deadline to eliminate fossil fuel subsidies – 2025 for developed countries and 2030 at the very latest for emerging economies – to deliver on their 2009 commitment to reform subsidies. In addition, they should drop the qualifier ‘inefficient’ from subsidies. Instead, they should name exceptional cases when subsidies could be considered justifiable – eg if essential for energy access – and improve the targeting of these subsidies to only include people who really need them.


The IISD experts highlight that ‘there are much better ways to support people during a crisis’ and that ‘fuel subsidies are, in fact, a notoriously inefficient way to help the poor’. Governments should instead provide social welfare through other mechanisms, like targeted welfare payments.


The report highlights the notable progress of some G20 members in this area, stating that, ‘as the current G20 President, India can confidently demonstrate global leadership in this area, having reduced its fossil fuel subsidies by 76% from 2014 to 2022 while significantly increasing support for clean energy’.


The report also suggests that shifting fossil fuel spending could help solve key global problems. It concludes that shifting less than a quarter of the $2.4tn generated from subsidy reform and carbon taxation could help close the wind and solar energy investment gap – $450bn/y until 2030 – to limit global temperature rise to 1.5°C, with public support leveraging additional funds from private investors.


It could also be used to help end world hunger ($40bn/y), provide universal access to electricity and clean cooking globally, in ways aligned with net zero emissions ($36bn/y), and close the climate finance gap that developed countries committed to mobilise for developing nations ($17bn/y).


Removing subsidies could also save thousands of lives by reducing fossil fuel-related air pollution, which is responsible for over 5 million deaths per year in G20 members and one in five deaths globally, states the study.


The report emphasises the active role that needs to be played by state-owned enterprises, which dominate the energy landscape in many G20 member countries, and public financial institutions, which engage in considerable lending to fossil energy projects. Governments are recommended to set a deadline for these state-owned institutions to create ambitious net-zero roadmaps that will allow them to diversify their businesses and lending portfolios and avoid the risks inherent in continued investments in fossil fuels, such as stranded assets, it says.


‘With fossil fuel companies gaining record profits amid the energy crisis last year, there is little incentive for them to change their business models in line with what’s needed to limit global warming. But governments have the power to push them in the right direction,’ concludes Laan.