G7 nations to stop subsidising fossil fuels

Petro-Canada's Edmonton Refinery and Distribution Centre glows at dusk. The G7 are making moves to cut the subsidies on fossil fuels in an effort to remain true to COP21. (Dan Riedlhuber, Reuters)

Petro-Canada's Edmonton Refinery and Distribution Centre glows at dusk. The G7 are making moves to cut the subsidies on fossil fuels in an effort to remain true to COP21. (Dan Riedlhuber, Reuters)

The leaders of some of the world’s biggest economies have agreed to stop subsidising fossil fuels in the next decade.

The G7 – the United Kingdom, United States, Canada, Japan, Italy, France and Germany – made the pledge after a meeting in Japan last week. In a section about climate change, energy and the environment, they expressed their commitment “to the elimination of inefficient fossil fuel subsidies and encourage all countries to do so by 2025”. This is the first time the group has given a date for their goal.

While the seven economies will stop providing subsidies for coal, gas and oil, two of the biggest greenhouse gas emitters, India and China, have not signed the deal.

Energy production, from coal-fired power stations and gas plants, emits two-thirds of humanity’s greenhouse gases each year. This has been the case for the past two centuries. Those gases trap heat in the atmosphere and warm the planet: last month was more than 1°C hotter than it should have been as a result, and 2015 was the hottest year on record.

The G7’s commitment comes with a recognition that they – and 188 other countries – agreed at the United Nations Conference of the Parties (COP21) in December to keep global warming to a maximum of 2°C this century. It said: “We reaffirm not only our continuous commitment in our global efforts against climate change, but also our determination to maintain the momentum of COP21.” 

What the world pays in fossil fuel subsidies is difficult to calculate. Different countries give different subsidies, from subsidising the price of fuel at the pump (common in the Gulf) to giving oil refineries tax breaks to build facilities (common everywhere). 

Paris-based thinktank the Organisation for Economic Cooperation and Development says the world’s biggest economies, the G7 and Brics (Brazil, Russia, India, China and South Africa) spend about R3-trillion a year on these sorts of subsidies. This is twice the amount of money rich countries are required to give collectively to the Green Climate Fund each year.

That fund is one of the outcomes of climate negotiations. The R1.5-trillion a year pledged to it by world governments will finance sustainable projects. Many of the applications for funding are focused on renewable energy. The money can also be spent helping countries improve their ability to adapt to the changing climate.

The G7 statement comes at a time when renewable energy sources are starting to reach grid parity with fossil fuels, producing energy at the same price or less than producers such as coal-fired power stations. In South Africa, wind and solar power producers are selling electricity to Eskom at prices lower than those at which Medupi can produce electricity.

The International Energy Agency calculates that renewable power producers get about R2-trillion a year in subsidies. And they don’t emit greenhouse gases.

But fossil fuels do and that cost is not included in many subsidy calculations. The healthcare cost for someone with asthma who lives near a coal-fired power station is just one example of a subsidy.

In a report last year, the International Monetary Fund calculated that fossil fuels cost the world R150-million a minute. This is if those external costs – air pollution and climate change – are added to the subsidies. Over a year, this amounts to about R80-trillion, it said.

Sipho Kings

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