There is increasing agreement around the world that much of the world’s remaining fossil fuel reserves cannot be used if the world is to stop dangerous climate change. However, the ODI report Empty promises: G20 subsidies to oil, gas and coal productionpoints to a publicly financed bailout for some of the world’s largest, most carbon-intensive and polluting companies.
The report finds that the G20 countries are creating a ‘lose-lose’ scenario by providing subsidies for fossil fuel production. As well as directing large volumes of finance into high-carbon assets that cannot be exploited without catastrophic climate effects, this also diverts investment from economic low-carbon alternatives such as solar, wind and hydro-power. It also calls into question the commitment of governments to reach a realistic deal on halting climate change.
For example, according to the report, the UK dished out an average of £5.9 billion worth of subsidies per year to companies such as BP and Shell, during the course of 2013 and 2014. The ODI report finds that it was the only country among the G7 group of countries – the UK, Canada, France, the US, Germany, Italy and Japan – to have done so.
Most of this was in the form of tax breaks for declining North Sea oil reserves, the most recent of which was introduced by the British government this year, worth £1.7 billion over the next five years. This is despite British PM David Cameron calling for a fight against “the economically and environmentally perverse fossil‑fuel subsidies”, a statement that now seems to ring hollow in the wake of numerous subsidy cuts for renewable energy.
“The UK has been cutting back support for solar power and energy efficiency, arguing that the burden was too high” said report author Shelagh Whitley. “Our figures reveal that in spite of supposed budget constraints the government is giving ever increasing handouts to oil and gas majors. The UK stands out as a member of the G20 that, despite its pledge to phase out fossil fuel subsidies, has dramatically increased its support to the production of fossil fuels in recent years. No other G7 country has done this.”
Globally, fossil fuel companies have received $452bn (£273bn) of subsidy per year in 2013 and 2014 – compared to $121 billion for renewable energy. However, the British government claims that it doesn’t award any subsidies to the fossil fuel industry, defining subsidies as “government action that lowers the pre-tax price to consumers to below international-market levels.”
In December 2014, UK Chancellor George Osborne triggered the biggest investment in UK fossil fuels since the 1970’s while the government simultaneously prepared to dismantle subsidies for renewables. Just recently, the government has had to admit that the UK is likely to miss its key renewable energy target. The country has also now lost its AAA energy rating. Meanwhile, the US and China have agreed to set a deadline for the phasing out of fossil fuel subsidies in 2016.
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