The Prince of Wales’s Corporate Leaders Group’s members call for an end to fossil fuel subsidies
New York. 28 September 2015: The Prince of Wales’s Corporate Leaders Group (CLG) has announced its support for the Friends of Fossil Fuel Subsidy Reform Communiqué, calling for reform, and ultimately, elimination, of harmful fossil fuel subsidies.
The International Energy Agency (IEA) estimates that fossil fuel subsidies amounted to US$510 billion in 2014. This is based on the gap between what consumers pay and the actual cost of supply, but doesn't consider the environmental and health costs. It is six times more than that allocated to renewable energy and hinders investments in efficiency and renewables.
The Friends of Fossil Fuel Subsidy Reform, together with France and the United States, launched a Communiqué calling on the international community to increase efforts to phase out subsidies to fossil fuels in light of a global effort to reach an agreement at the United Nations Framework Convention on Climate Change (UNFCCC) conference of the Parties (COP 21) in Paris in December.
Sandrine Dixson-Declève, Director of the CLG explains: “Our members, leading businesses from across the world, are being loud and clear – end perverse fossil fuel subsidies now for the benefit of sustainable and low carbon economic development.
“They recognise fossil fuel subsidy reform as an important climate-change mitigation policy with clear economic, social and environmental co-benefits. The international community should increase efforts to phase-out subsidies to fossil fuels through policy transparency, ambitious reform and targeted support for the poorest.”
At New York Climate Week, New Zealand Climate Change Ambassador Jo Tyndall welcomed the leadership of the CLG in signalling businesses' commitment to this step towards a low carbon energy future: “Momentum behind the Communiqué is building, as leaders from business and government recognise it as a way to express support for global action that will deliver a significant decrease in emissions.”
Moroccan Minister Hakima El Haite said: “Not only do fossil fuel subsidies put a strain on government coffers but they also don’t help the poorest of society.”
The Communiqué asks stakeholders to support fossil fuel subsidy reform and help economies across the globe deliver sustainable socio-economic and low carbon outcomes. The latest signatory to the Communiqué last week was the Netherlands, which announced its support signed at the CLG-run Green Growth Summit.
The Communiqué encourages the international community to advance reform through three interrelated principles: increased transparency around fossil fuel subsidies, greater ambition in the scope of reform and the provision of targeted support for the poorest.
The breakfast, co-hosted by the CLG with the Governments of New Zealand, Norway and Finland, brought together governments and business leaders to discuss joint action on reform. Tone Skogen, Norway’s Secretary of State, hailed the call for joint action and stressed: “Partnerships must play a role to catalyse the move towards sustainable energy and push more companies to step forward and act!”
The Communiqué will be presented, alongside an even longer list of supporters at COP21 in Paris, as part of discussions to reach a new global climate agreement. By endorsing the Communiqué, countries, business leaders and organisations will gain a high-profile opportunity to publicly support this issue as part of a common trajectory towards a more sustainable and low-carbon economy.
ENDS
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Further background on Fossil Fuel Subsidies
http://www.cisl.cam.ac.uk/business-action/low-carbon-transformation/eliminating-fossil-fuel-subsidies
The International Energy Agency (IEA) estimates the total fossil fuel subsidy to amount to $548 billion in 2013. This is based on the gap between what consumers pay and the actual cost of supply, but doesn't consider the environmental and health costs.
The OECD calculate that direct budgetary support and tax expenditure for fossil fuel consumption and production in OECD countries amounted to $50–90bn annually between 2005 and 2011.
A recent report by an IMF working group estimates that the total cost of subsidies for fossil fuels, including direct subsidies and the environmental and health costs their use imposes, were $4.9 trillion (6.5 per cent of global GDP) in 2013. In addition to reducing emissions, the IMF calculates that eliminating these subsidies in 2015 could raise government revenue by $2.9 trillion and cut premature air pollution deaths by more than half.
Although it is important to note that the IMF, IEA and OECD do not define subsidies in the same way and hence the estimated costs from subsidies vary between at least $548 billion to $4.9 trillion, the most important message from all three organisations and others is that the costs are high and that the elimination of subsidies would have a net positive impact on the reduction of GHG emissions and pollution.
Three reasons why reform needs to happen now
We have a window of opportunity to eliminate direct subsidies and raise energy taxes now as international energy prices are low. This means reforms are less likely to be opposed and their impact will be gentler on consumers. Quick action would:
1. Keep the two degrees goal alive
The IEA advised that accelerating the phase-out of fossil-fuel subsidies could reduce CO2 emissions by 360 Mt in 2020 and, alongside three other 'no economic cost' measures, would keep the two degrees global goal alive whilst international negotiations continue. Furthermore, including a commitment to phase out fossil fuel subsidies within a specific time frame in National INDCs will contribute to a robust and credible global climate deal in Paris at the end of 2015.
"This is the missing piece in the climate change jigsaw. More than one-third of global carbon emissions between 1980 and 2010 are estimated to have been driven by subsidies for fossil fuels. Their elimination would make a significant contribution to the goal of keeping average temperatures from rising to no more than two degrees Celsius."
Tim Groser, Minister for Climate Change Issues for the New Zealand Government
2. Unleash renewables
Fossil fuels receive six times more subsidies than renewables even before the environmental and health impacts are costed. This uneven playing ground is holding renewables back, and makes the rapid deployment and falling costs of solar and wind power all the more remarkable. Furthermore, reform can be used to increase investment in renewables whilst still reducing overall public expenditure. It is estimated that renewable energy targets until 2020 in the Middle East and North Africa could cost up to US$200 billion, less than one year's worth of fossil fuel subsidies in the region.
"Today, the most important roadblock for renewable energy implementation is the world's fossil fuel subsidies. You say you want to have a higher share of renewables then you protect and foster fossil fuels by giving substantial subsidies – it doesn't work."
Fatih Birol, chief economist of the influential International Energy Agency (IEA)
3. Put us on the path to affordable and sustainable energy for all
Fossil fuel subsidies are an immense burden on Government resources, particularly in developing countries. In South-East Asia, fossil fuel subsidies account for 5–30% of public expenditure. Many countries are spending more on them than on health care. Studies show that these subsidies are a costly approach to protecting the poor due to substantial benefit leakage to higher income groups. Phasing out subsidies and a focus on shifting support to lower carbon energy generation would be a major step towards delivering the proposed Sustainable Development Goal of access to affordable, reliable, sustainable, and modern energy for all. Climate finance from richer countries is needed to support this, and this in turn can be funded through phasing out fossil fuel subsides in these countries.
"We are subsidising fossil fuels at a rate of eight times what it would cost annually to fully implement the Millennium Development Goals."
Achim Steiner, Director-General of the United Nations Environment Programme
Key international commitments to reform
- The G20 resolved "To phase out and rationalise over the medium term inefficient fossil fuel subsidies" in 2009, which was reaffirmed in 2013 in spite of the little progress that had been made.
- The G7 stated that "we remain committed to the elimination of inefficient fossil fuel subsidies" in 2015.
- APEC agreed in 2011 to "Rationalise and phase out inefficient fossil fuel subsidies [...] and set up a voluntary reporting mechanism on progress, which we will review annually".
- The Friends of Fossil Fuel Subsidy Reform issued a Communiqué supported by 10 countries calling on Governments to join them and implement key principles around practical action covering communication and transparency, ambition in scope and timeframe for implementing reforms, and targeted support to ensure reforms are implemented in a manner that safeguards the poorest.
About The Friends of Fossil Fuel Subsidy Reform
- The Friends of Fossil Fuel Subsidy Reform is a group of non-G20 countries that support the reform of inefficient fossil fuel subsidies. They are Costa Rica, Denmark, Ethiopia, Finland, New Zealand, Norway, Switzerland, and Sweden. The work of the Friends is supported by the Global Subsidies Initiatve of IISD.
- The Communiqué is available to download and support online at http://fffsr.com/
