OECD documents $200bn annual fossil fuel subsidies at risk through climate policy changes

“Lose-lose” support must be removed to enable energy transition.

The OECD has published a revealing new report that documents $160-200bn in 800+ annual subsidies to fossil fuel industries in 34 OECD countries and six key emerging economies (Brazil, China, India, Indonesia, Russia and South Africa) that could be seriously at risk from policy change in support of climate change abatement.
The OECD Inventory of Support Measures for Fossil Fuels 2015 says spending programmes and tax breaks by governments in support of fossil fuels are hampering global efforts to curb emissions and combat climate change.
The publication of the report suggests increasing openness by OECD member governments to reduce backing for fossil fuels in the transition to cleaner energy sources.
The documentation of the subsidies will be significant to investors with assets across the fossil fuel chain by revealing where governments may be likely to withdraw support in the near to medium term.
OECD Secretary-General Angel Gurría, said: “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.” The Paris-based organisation said tackling climate change required concerted effort to reform “lose-lose” fossil fuel subsidies that distort costs and prices and create inefficiencies in energy generation and use. The subsidies, it said, are expensive for governments – especially when many are trying to reduce debt – crowd out scarce fiscal resources for less carbon intensive energy production, and exacerbate damage to health caused by air pollution.
Estimates by the OECD and the IEA have suggested that broader global subsidies and support for fossil fuels could exceed half a trillion dollars worldwide annually.
The International Panel on Climate Change (IPCC’s) latest assessment finds that keeping average temperatureincreases below 2ºC over the 21st century would involve global greenhouse gas emission reductions of 40%-70% by 2050 compared with 2010 levels. These cuts would require the widespread replacement of fossil-fuel-based energy sources with low-carbon energy sources and the deployment of technologies for CO2 capturing and storing.
The OECD says two-thirds of fossil fuel subsidies appear to have been introduced prior to 2000 when climate change was less of a concern among policy makers. And it says that not all the fossil fuel subsidies are inefficient. But it points out that the amounts involved will have to be drastically reduced.
For example, it notes that in Indonesia, subsidies for petroleum products and electricity (largely fossil-fuel-based) accounted for almost 20% of all central-government spending in 2011, higher than spending on health and infrastructure combined. In the United States, it is estimated that tax preferences benefitting fossil-fuel producers could lead to potential revenue gains of over $4bn per annum.
Fossil fuels covered by the Inventory include primary commodities – crude oil, natural gas, coal, oil sands, coal-bed methane and peat – and secondary refined or processed products – diesel fuel, gasoline, kerosene, and coal briquettes).
Biofuels are not included in the present inventory, and only electricity exclusively derived from fossil fuels is counted.
The database is available through the OECD’s online statistics portal DotStat, where users can select information on the amounts of support provided annually by the different policies for the period 2000-14 where available.