Climate Change

'Fossil fuel subsidies should be deemed as negative climate finance'

Experts cite examples of many countries which have begun diverting fossil fuel subsidies towards development projects

By Aruna Kumarankandath
Published: Tuesday 08 December 2015

India has diverted subsidies on diesel to irrigation projects, said an expert (Courtesy: Meena Kadri CC BY 2.0, via Wikimedia Commons)

There is a huge source of unutilised climate finance in the form of fossil fuel subsidies which are available to be mobilised immediately, said representatives of various countries during a side event organised by International Institute for Sustainable Development (IISD), New Zealand and Finland, on December 8, at COP 21 in Paris.

"In the last year alone, there were about US $500 billion worth of subsidies awarded in various forms as fossil fuel subsidies. If we reallocate these funds, the opportunities are numerous," stated Fatih Birol, executive director of International Energy Agency (IEA). He also said that these subsidies act as an incentive for development of fossil fuel technology.

On the first day of COP 21 itself, New Zealand Prime Minister John Key had formally presented the Fossil Fuel Subsidy Reform Communiqué to the Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC) on behalf of Friends of Fossil Fuel Subsidy Reform. The communiqué invited all countries, companies and civil society organisations to support accelerated elimination of "inefficient fossil fuel subsidies". The communiqué was endorsed by 40 countries including Canada, Chile, France, Germany, Italy, Malaysia, Mexico, Morocco, Peru, the Netherlands, the Philippines, Samoa, the United Kingdom, the United States, Uganda and Uruguay.

Norwegian Minister of Foreign Affairs Børge Brende explained, "Fossil fuel subsidies are undermining the world’s efforts of renewable energy development. They should be deemed as negative climate finance."

Scott Vaughan, president, International Institute for Sustainable Development said that many countries have diverted fossil fuel subsidies to developmental projects for the economy. "India has diverted subsidies from diesel which are being used for development of irrigation facilities and micro-finance in rural India," he added. Experts also cited examples of efforts taken by countries like Indonesia, Morocco, Egypt, and Malaysia in this direction. There weren't, however, many instances from the developed world.

Felipe Calderón, former president of México and chair of the Global Commission on the Economy and Climate, New Climate Economy, added that fossil fuel subsidies are a tool for politicians to garner votes. But the reality is quite different. "International Monetary Fund’s study has reported that only 3 per cent of the fossil fuel actually reaches the poor, whom it is intended for," he said.

The fact remains that negotiations are still going on about the developed countries' commitment of contributing $100 billion every year from 2020 towards climate finance and the talk of decarbonisation of the economies of the world. By ending fossil fuel subsidies and imposing a carbon tax on consumption of fossil fuels, countries can change the entire conversation around climate finance. India has started doing that with its coal tax on every tonne of coal purchased and voluntary surrendering of subsidies on LPG. But there is still a long way to go in disincentivising investment in fossil fuels across the globe.

Doris Leuthard, federal councilor and head of Federal Department of Environment, Transport, Energy and Communications, Switzerland, echoed the sentiment. "Paris agreement would be a major step in ending the fossil fuel subsidies regime and taking the world to a path of low carbon development. In reality, that is all the world can afford at this point in time."

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