OECD: leading countries spend $200bn a year subsidising fossil fuels

Rich western countries and the world’s leading developing nations are spending up to $200bn (£130bn) a year subsidising fossil fuels, according to a report from the Organisation for Economic Cooperation and Development.

The Paris-based thinktank said its 34 members plus six of the biggest emerging economies – China, India, Brazil, Indonesia, Russia and South Africa – were spending money supporting the consumption and production of coal, oil and gas that should be used to tackle climate change.

“The time is ripe for countries to demonstrate they are serious about combating climate change, and reforming harmful fossil fuel support is a good place to start,” said the OECD secretary general, Angel Gurría.

He added that governments were spending almost twice as much money subsidising fossil fuels as was needed to meet the climate-finance objectives set by the international community at climate change summits, which have set a target of mobilising $100bn a year by 2020.

“We must change the course,” said Gurría as he announced the launch of an inventory of almost 800 measures that support the extraction, refining or combustion of fossil fuels. “This new OECD inventory offers a roadmap to turn around harmful policies that are a relic of the past, when pollution was still seen as a tolerable side effect of economic growth.”

Although the OECD inventory indicated that fossil fuel subsidies were on a downward trend since peaking in 2011-12, the thinktank said they remained high, underlining the need for reform. The collapse in oil prices over the past year, which has reduced energy bills for business and boosted disposable incomes for consumers, presented a “unique opportunity” for cash-squeezed governments to phase out support.

The OECD said the decline in subsidies was more marked among its wealthier members than among the six developing countries it also studied. The thinktank added, however, that a similar trend could be detected in emerging nations, largely owing to India’s decision to reform subsidies that encouraged consumption of diesel.

A sizeable chunk of the decline among OECD countries resulted from the elimination of subsidies for petrol and diesel in Mexico.

Climate change campaigners have said that up to 80% of known stocks of fossil fuels need to be kept in the ground to prevent global temperature rising by more than 2 degrees centigrade above pre-industrial levels.

The OECD said despite an increased focus on climate change, many governments were still using an array of support measures dating back more than 15 years that were increasing the supply and use of fossil fuels.

It noted that about two-thirds of the measures identified in the OECD inventory were introduced before 2000, “in a very different economic and environmental context”. Governments should rethink the relevance and effectiveness of policies that used taxpayers’ money to sustain the dependence on fossil fuels.

“By distorting costs and prices, fossil-fuel subsidies create inefficiencies in the way we generate and use energy,” Gurría said. “They are also costly for governments, crowding out scarce fiscal resources that could be put to better use, such as strategic investments in the education, skills and physical infrastructure that people most value in the 21st century.

“But most importantly, fossil-fuel subsidies undermine efforts to make our economies less carbon-intensive while exacerbating the damage to human health caused by air pollution.”

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