Fossil fuels' $500bn handouts

Fossil-fuel producers are receiving more than $500bn a year in government subsidies, dwarfing the amount spent on green levies, according to a leading think-tank.

A report by the Overseas Development Institute (ODI) says the richest countries are spending six times more on supporting coal, oil and gas than they are on helping poorer nations to fight climate change. It calls on the G20 nations to phase out such payments by 2020.

ODI research fellow Shelagh Whitley says government subsidies are creating barriers to investment in low-carbon development with incentives that encourage investment in carbon-intensive energy.

The report details a range of financial help for coal, oil and gas producers and consumers by national governments and through international development.

It accuses rich governments of “shooting themselves in both feet” by undermining attempts to put a price on carbon and by giving no incentive for companies to switch away from high-carbon fuels.

Rich countries have committed to phase out “inefficient” hydrocarbon subsidies, but the ODI figures suggest that global subsidies to fossil-fuel producers totalled $523bn a year in 2011, dwarfing subsidies that support renewables and energy efficiency.

The London think-tank argues that if governments are to keep their promises to drastically cut CO2 emissions, they need to make emissions progressively more costly through a clear and explicit price on carbon.

International finance for development is hugely focused on coal, oil and gas. According to the ODI, 75% of the energy project support from international banks in 2011 went to fossil-fuel projects in 12 of the highest-emitting developing nations.

“The rules of the game are currently biased in favour of fossil fuels. The status quo encourages energy companies to continue burning high-carbon fossil fuels and offers no incentive to change,” says Whitely.

The G20 governments accepted in 2009 that subsidies granted to fossil fuels encourage wasteful consumption, reduce energy security and undermine efforts to deal with climate change. However, the ODI claims a wide range of special interest groups have successfully lobbied ever since, and that little has changed.