Setting a minimum carbon taxation rate between $25-75 per tonne of carbon dioxide equivalent depending on the country’s economy would raise revenues for the G20 by $927 billion per year
Representative photo from iStock Russia’s invasion of Ukraine in February of last year caused an energy price crisis, which led to G20 governments cushioning the effects on the fossil fuel industry and consumers to the tune of $1.4 trillion.
The staggering amount was provided in the form of subsidies, investments by state-owned enterprises (SOEs), and lending from public financial institutions (PFIs), a recent report by the International Institute for Sustainable Development (IISD) said.
This support perpetuates the world’s reliance on fossil fuels, paving the way for yet more energy crises due to market volatility and geopolitical security risks, the report titled Fanning the Flames: G20 provides record financial support for fossil fuels warned.
“It also severely limits the possibilities of achieving climate objectives set by the Paris Agreement by incentivizing greenhouse gas (GHG) emissions while undermining the cost-competitiveness of clean energy,” the report added.
A third of the amount was catered to providing investment in new fossil fuel production, which directly contradicts the G20 countries’ commitment made in 2009. It was “to phase out and rationalize over the medium-term inefficient fossil fuel subsidies while providing targeted support for the poorest”.
Similarly, in 2015, after signing the Paris Agreement, all G20 countries pledged to make “finance flows consistent with a pathway toward low GHG emissions and climate-resilient development”.
G20 governments need to shift their financial resources away from fossil fuels to instead provide targeted, sustainable support for social protection and the scaling-up of clean energy, the IISD researchers recommended.
Fossil fuel subsidies tripled four times the amount from 2021 to 2022 as a substantial amount was targeted at consumers through subsidies with peaking fossil fuel prices, reaching $1 trillion in 2022.
The subsidies were largely implemented by governments fixing retail fossil fuel prices below the international market price. It was common in G20 emerging economies, where it created large holes in government and SOE budgets.
Developed G20 economies too provided large subsidies to reduce energy bills for transport fuels, electricity, and heating. Germany, France, and Italy alone provided $213 billion in fossil fuel crisis support in 2022.
While many measures were only temporary, not all were targeting the poor. Governments should target welfare payments, the study recommended. Ensure low-income consumers, workers, and communities are protected by alternative welfare mechanisms as fossil fuel subsidies are phased out, in line with a just transition, it said.
Drop the qualifier “inefficient” and instead name exceptional cases when subsidies could be considered justifiable (e.g., if essential for energy access), then improve the targeting of these subsidies to include only people that really need them, the researchers added.
Putting down a major chunk of payment towards fossil fuel production, state-owned-fossil fuel producers and fossil-generated electricity providers invested $322 billion in 2022 in new capital expenditure. This would potentially lead to more greenhouse gas emissions and pollution, the researchers said.
The researchers surveyed 56 annual reports by G20 countries SOEs, to quantify how much they had invested in renewable energy. Only seven had included details, and thus a trend cannot be quantified.
This was not the case for international public finance. G20 countries provided $50 billion a year between 2019 and 2021 for international public finance through aid, equity, grants, loans, support, etc.
On the contrary, fossil financing was still nearly four times greater than the $13 billion in support of clean energy averaged over 2019-2021.
Setting a minimum carbon taxation rate between $25-75 per tonne of carbon dioxide equivalent depending on its economy would raise revenues for the G20 by $927 billion per year.
Some of these funds could be channeled into $33 billion per year to end world hunger (SDG 2); $36 billion per year to achieve universal access to electricity and clean cooking in ways that align with net-zero emissions (SDG 7.1); $450 billion to fill the investment gap for renewable energy generation (SDG 7.2) and the $17 billion per year investment gap in developing country clean energy finance.
Furthermore, G20 countries announced $265 billion in subsidies for renewable power generation between 2020 and June 2023. However, the report warned that growing public subsidies for carbon capture and storage and hydrogen produced from fossil fuels are dangerous distractions from needed renewable energy solutions, and must be seen with caution.
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