Phase-Out of Fossil Fuel Subsidies, Commit to Low-Carbon Energy
The report reinforces the push to phase-out inefficient fossil fuel subsidies, speed up the deployment of renewable energy, and accelerate energy efficiency efforts. When world leaders meet several times this year – culminating at the Earth Summit 2012 in Rio – they must finally follow through on the commitment to phase-down these subsidies and help unleash even greater low-carbon energy action.
The high-level report was the result of the U.N. Secretary General’s High-Level Panel on Global Sustainability. The recommendations carry significant weight as they come from leading policymakers including current and former presidents and prime ministers, a leader from the business community, foreign ministers, and environment ministers. They outlined 56 recommendations including calls to phase-out fossil fuel subsidies and speed up low-carbon energy action. As they note, the time is ripe for this action:
“The production and use of energy, however, comes with significant costs, ranging from climate change to energy security and environmental degradation. There are multiple options for addressing these, the most significant of which include the development and widespread penetration of renewable sources and improvements in energy efficiency…
…With Governments everywhere under increased pressure to reduce public expenditure, an unprecedented political opportunity exists to reduce or eliminate perverse subsidies that fail to reflect the economic value of natural and social resources.”
Phasing down fossil fuel subsidies. Fossil fuel subsidies drain public resources, drive global warming, and make it harder for clean energy to compete. In fact, fossil fuel subsidies are 500% larger than the subsidies provided for clean energy which led one commentator to point out: “The house is ablaze and we are throwing bucket after bucket at it – buckets of petrol.”
It is important that the phase-out of fossil fuel subsidies is done in a way that doesn’t hurt the poor. This means a large focus must be placed on the subsidies to produce more fossil fuels – known as “production subsidies” – and a targeted approach to subsidies that support consumption of fossil fuels (e.g., subsidized gasoline, etc) – so-called “consumption subsidies”. At least $100 billion per year goes to support production subsidies – such as tax breaks for oil companies – at a time when the fossil fuel industry doesn’t seem to be hurting financially (e.g., Exxon’s profits are expected to continue to grow by over 5%).
Reforming subsidies without harming the poor should be within reach as the International Energy Agency estimates that the vast majority of the subsidies never reach the poor. As the Guardian notes:
“…the poorest 20% of the population typically receive only around 5–10% of the benefits of the subsidies, suggesting that if the policies are designed for poverty alleviation, then they’re not working properly.”
So these high-level officials rightly called for the world to:
“Phase out fossil fuel subsidies and reduce other perverse or trade distorting subsidies by 2020. The reduction of subsidies must be accomplished in a manner that protects the poor and eases the transition for affected groups when the products or services concerned are essential.”
When leaders met in Rio this June, it is high time that they “stopped throwing more fuel on the fire” and instead help spur more efficient use of energy and greater deployment of renewable electricity.
Spurring low-carbon energy deployment. Societies across the world waste energy – there are reams of reports that show how much more efficiently we could use energy. There are literally stacks of one-hundred dollar bills lying on the ground waiting for us to pick them up. It is time for governments and companies to ensure that we are taking such actions as phasing out inefficient light-bulbs, investing in cleaner and more efficient cars, and demanding more energy sipping appliances. As my colleague likes to say: “energy efficiency is the low hanging fruit that keeps growing back”.
At the same time, renewable energy keeps on growing to the point that the headline in a recent Bloomberg news story read: “Renewable Power Trumps Fossils for First Time”. According to Bloomberg New Energy Finance new investments in “electricity from the wind, sun, waves and biomass drew $187 billion last year  compared with $157 billion for natural gas, oil and coal…”
That is why both of these aspects of the “future worth choosing” were a part of the recommendations from these high-level officials when they recommended:
“Governments should work in concert with appropriate stakeholders to…seek to double the rate of improvement in energy efficiency and the share of renewable energy in the global energy mix.”
When leaders show up in Rio they better come prepared to finally invest in the “low hanging fruit” of energy efficiency and make a concerted “vote for renewable energy”.
High-level panel agrees: time to phase out fossil fuel subsidies and race to low carbon energy. The recommendations from these high-level officials should remind leaders that when they show up in Rio this June they have to act. They need to stop throwing oil on the fire and instead they need to vote for low-carbon energy.