Of all the bad policies governments could be pursuing in the 21st century, subsidizing fossil fuels has got to be one of the dumbest. It rarely makes sense economically or gets good value for taxpayers’ money, and it’s disastrous environmentally. It undermines national climate commitments, and essentially rewards the fossil fuel industry for warming the climate.
Because it’s pretty self-evidently a dumb thing to do, there is broad agreement on stopping this. The G20 and the G7 have repeatedly promised to wrap up their schemes. And yet, six years on from that first agreement, the subsidies persist. According to the ODI, all 20 of the G20 are still subsidizing fossil fuels.
In their report Empty Promises, they count $23 billion in support of oil, coal and gas from the Russian government, every year. The US spends $20 billion propping up fossil fuels, the UK around $9 billion, and Brazil and Australia $5 billion each.
While everyone is failing on this, Britain gets singled out in particular: “The UK is one of the few G20 countries that is increasing its fossil fuel subsidies while cutting back on support for the renewable energy investments that are needed to support a low-carbon transition.”
That’s a particularly shameful club to belong to, and it makes the government’s rhetoric on subsidies sound very silly. In his speech to the UN climate conference last year, David Cameron declared how important it was to be “fighting against the economically and environmentally perverse fossil fuel subsidies which distort free markets and rip off taxpayers.”
How can Cameron say such things and preside over the only G7 government to be expanding fossil fuel subsidies? By denying that Britain does any such thing. In a Freedom of Information request on subsidies this summer, the Department of Energy and Climate Change stated quite bluntly that “the UK has no fossil fuel subsidies.”
That’s because the government uses its own definition of subsidies. “The UK defines fossil fuel subsidies as government action that lowers the pre-tax price to consumers to below international market levels.” That’s very specific, very narrow, and gets us off the hook. All the support for North Sea production? That’s something else.
This is a stupid definition. Only payments made to lower the price for consumers are counted, but how can payments aimed at supporting production not be fossil fuel subsidies? Or government support for exploration? It’s also hard to justify this definition internationally. The World Trade Organisation definition of a subsidy is far broader, including all forms of financial support and revenue foregone in the form of tax breaks – Britain’s preferred strategy for supporting fossil fuels. Britain is a member of the WTO, so there’s no excuse.
While there’s lots more to do on this internationally, there is some progress being made. India and Indonesia have made good progress in gradually phasing out their subsidy programmes. China and the US have clear plans for reducing theirs in 2016 and want to work together to set a deadline for the rest of the G20. So Britain is out of step here, the only country in the G7 to be actively expanding our subsidies. And step one to putting that right is to end the denial.