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Friday, December 3, 2021

COP26: How much is spent supporting fossil fuels and green energy?


The burning of fossil fuels is one of the primary causes of global warming.

But despite pledges to phase out support, governments around the world spend more than $420bn (£313bn) each year subsidising the non-renewable energy, according to the UN Development Programme.

How do fossil fuel subsidies work and which countries are spending the most?

What are fossil fuel subsidies?

Fossil fuel subsidies are measures taken by governments that artificially lower the price of coal, oil, or natural gas.

These take two forms:

  • production subsidies – tax breaks or direct payments that reduce the cost of producing fossil fuels
  • consumption subsidies – energy price cuts for consumers, such as setting fixed prices at petrol stations

Transparency in fossil fuel funding is generally poor, but it is estimated that three-quarters of global subsidies are aimed at consumers, with the remaining quarter aimed at producers.

Consumption subsidies are common in low-income countries, primarily to alleviate poverty through measures such as lowering the cost of cooking gas or transportation.

Iran topped the list for consumption subsidies for 2019 – according to data from the International Energy Agency (IEA) – followed by China and India, all of whom subsidise petrol prices.

What action is being taken to phase them out?

A draught agreement released at the COP26 climate summit called on all countries to accelerate the phase-out of fossil fuel subsidies, but no firm dates were set.

All G7 countries have previously committed to phase out “inefficient” fossil fuel subsidies by 2025, representing the world’s largest advanced economies.

“Globally, there is progress toward phasing out subsidies, but it is slow,” says Peter Wooders, senior director at the International Institute for Sustainable Development (IISD).

“Within the G7 members, there has been some progress on subsidy reform, but it’s been quite limited – they really need to do better, and it’s obviously inconsistent with climate pledges,” he continues.

Support for fossil fuels across 81 major economies has been declining in recent years but was still more than $350bn in 2020.

What about support for clean energy?

The Energy Policy Tracker has collected data on how major countries have enacted new policies since January 2020 to help fund the energy industry.

It discovered that, since the beginning of 2020, the world’s major economies have spent more money funding fossil fuels through new or amended policies than they have on clean energy.

The definition of a subsidy is broader than that used by the International Energy Agency (IEA) and the Organization for Economic Cooperation and Development (OECD), so the overall figures are higher, but they provide insight into how countries fund clean energy in comparison to fossil fuels.

According to the data, the United States and the United Kingdom have invested in clean energy, but they have still spent significantly more on fossil fuels.

Both US President Joe Biden and British Prime Minister Boris Johnson have stated that addressing fossil fuel subsidies is a top priority.

Mr. Biden signed an order to end fossil fuel subsidies in January of this year, pledging to end government support by 2022.

The Environmental and Energy Study Institute estimates direct subsidies to the fossil fuel industry in the US amount to $20bn per year – 80% of which goes towards oil and gas.

In addition, the United States provides a number of tax breaks to the fossil fuel industry in order to encourage domestic energy production.

Mr Johnson announced in December 2020 that the UK would no longer support the fossil fuel industry on a global scale.

A BBC investigation last year found the UK was spending billions of pounds on fossil fuel projects abroad.

China and India have increased their investment in renewable energy, but they continue to be among the world’s largest public financiers of fossil fuels, spending tens of billions of dollars each year to subsidise both their production and consumption.

Because of their vast natural resources of oil and natural gas, Saudi Arabia and Russia have long-standing policies of subsidising fossil fuel consumption through low energy prices.

According to the IISD, Saudi Arabia is doing the least of the G20 countries to phase out fossil fuel funding.

It has joined other G20 nations in a pledge to phase out inefficient fossil fuel subsidies, but no target date has been set.

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