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Free Ride for Oil and Coal Industry May Be Over

Stephen Leahy

BERLIN, Jun 29 2010 (IPS) - Every day, governments give away an estimated two billion dollars of taxpayer money to the fossil fuel industry. This unmatched largesse to a highly profitable sector by countries verging on bankruptcy or unable to feed large numbers of their own people is “complete madness”, according to many experts.

In Toronto Sunday, at the conclusion of G20 summit, countries agreed the madness must be constrained if not stopped.

“I was impressed. I think the commitment to phase out fossil fuel subsidies has finally arrived,” said Mark Halle, director of trade and investment at the International Institute for Sustainable Development (IISD) European office in Geneva.

“With countries committed to cutting their deficits, it is hard to ignore giving billions of real money away to the fossil fuel industry or to keep fuel prices low,” Halle said in an interview.

The two-billion-dollars-a-day public subsidy for carbon- based fuels is a very conservative estimate based on the extensive research conducted by the IISD’s Global Subsidies Initiative, said Halle. Not only do such huge subsidies undermine policies on energy efficiency, they make it impossible for alternative energy sources to compete, he said.

“We can’t make the transition to low-carbon economies nor can the energy playing field be leveled without the elimination of fossil fuels. And time for that has finally come,” he said.

Others are less optimistic given the G8 and G20 track record for broken promises.

“It (the G20 commitment) fell short of vision and courage that is expected from global leaders in the light of the disastrous oil spill” in the Gulf of Mexico, said Darek Urbaniak of Friends of the Earth Europe. Urbaniak noted that BP, the company responsible for the spill, receives British and EU public subsidies.

Countries such as Canada and Australia sought to weaken the G20 commitment by making commitments voluntary, he said, but the U.S. stepped up and pushed for a stronger agreement. However, do-nothing clauses remain part of the agreement. It says that countries agree to phase out “inefficient fossil fuel subsidies” but each country decides what those are. Some countries like Japan, Australia, Italy and others have already said they don’t have any.

“Australia wants to protect its coal mining sector …Canada wants to keep on going with its own subsidies to the tar sands – an environmental and climate disaster in the league of the BP oil spill only in slow motion,” Urbaniak told IPS.

“Our research shows that in the last two years Canada was spending as much on oil and gas subsidies as on climate programmes,” said Albert Koehl of Ecojustice, a Canadian environmental NGO.

“Taxpayers won’t be amused to find out that government spending on climate change is being nullified by spending on oil and gas subsidies,” Koehl told IPS.

He notes that Canada is now investing new billions of dollars into developing carbon capture and storage (CCS) technology for the fossil fuel sector and primarily the enormous Alberta tar sands operations. “CCS a new way of massively subsidising the oil and gas industry, especially the tar sands,” he said.

Most industrialised countries subsidise oil, coal and natural gas production to reduce the cost of finding and producing oil for oil companies. Countries in the developing world subsidise the cost of buying fuel to the public. Experts agree that both forms of subsidies encourage consumption of fossil fuels and thus increase the price of oil.

U.S. President Barack Obama put these subsidies on the chopping block at the previous G20 summit in Pittsburgh last September. The Obama administration is looking for ways to cut its ballooning deficit and thinks taking three or four billion away from fossil fuel companies is achievable, said Halle.

Many other countries are now paying attention to their subsidies, seeing it as money they could put to much better use without increasing their deficits. India, China, Malaysia and others have cut their consumption subsidies, he said. However, this has to be done carefully and over time. While the poor are used to justify keeping fuel prices low, that only applies to heating and lighting fuels. The bulk of subsidies go to transportation fuels which benefits the middle class.

“Subsidy reduction is a new area for everyone and countries have to go carefully,” Halle said.

Since subsidies are deeply entrenched and difficult to get rid of, the G20 commitment provides an excuse and leverage needed in many countries to enact reforms, said Halle. “We’ve spoken to half of the G20 countries and they hadn’t really thought the issue through. Now they are seeing some opportunities.”

In addition to the G20, six or seven non-members have formed a “Friends of Fossil Fuel Subsidy Reform” group to follow the same commitments. And the G20 did agree to have some plans for action in place for their next meeting in November this year.

There are an awful lot things that could be done with that annual expenditure of 700 to 800 billion dollars in fossil fuel subsidies and countries are really beginning to think about that, Halle said. “The momentum for change is building but it still needs to grow.”

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