As world leaders gather in Buenos Aires for their annual summit, a group of nine international investors with nearly a trillion dollars in assets under management between them is urging the G20 countries to end fossil fuel subsidies by 2020.
In a signed joint statement, investors warn continued government support for fossil fuels increases the risk of creating stranded assets within the energy sector and can also decrease the competitiveness of key industries, including low-carbon businesses.
“Governments beginning to take stock of their commitment to Paris are falling at the first hurdle if they refuse to factor in fossil fuel subsidies for producers – including tax concessions and placing the burden of decommissioning the sector’s infrastructure on taxpayers,” said in a statement Steve Waygood, chief responsible investment officer at Aviva Investors.
“As corporations are being asked to disclose the potential impact of climate risk on their balance sheets, we as investors are also asking governments to disclose the impact that fossil fuel subsidies have at country balance sheet level, providing us with useful information so that we can support economies as they make this important change.”
The statement points to a new study published this week by the International Institute for Sustainable Development (IISD), the Overseas Development Institute (ODI), Oil Change International (OCI), and Fundación Ambiente y Recursos Naturales (FARN).
The report, Stories from G20 Countries: Shifting public money out of fossil fuels, shows examples of some G20 countries, including Canada, that have made progress in reforming their policies to shift support away from fossil fuels and increase taxation of fossil fuels.
However, it also warns this shift must accelerate significantly if the G20 is to meet the Paris Agreement targets and the Sustainable Development Goals by 2030.
“But fossil fuel subsidy reform is also important because you want a level playing field,” said Philip Gass, senior policy analyst with the Geneva-based IISD, who is originally from Manitoba.
“If fossil fuels are getting subsidized, that means that it’s more difficult to increase renewable energy because renewable energy technology doesn’t have that same benefit.”Listen
Spend the savings on social programs, says think-tank
IISD also feels that a lot of the money that is spent in supporting fossil fuels could have better benefit for the public if it was spent in education or health care or other areas where the entire economy, the entire country benefits rather than focussing on subsidizing fossil fuels specifically, Gass said in a phone interview from Geneva.
Gass said one of the case studies presented in the report looks at Canada’s experience in phasing out subsidies for the fossil fuel industries.
Since 2011, Canada has either completely phased out or reformed seven policies that subsidised the production of oil, gas and coal, said Gass.
“We estimate over the past several years roughly $260 million worth of reform,” Gass said. “That’s very beneficial but there are still a number of subsidies still in place.”
The report is encouraging Canada to continue to tackle the subsidies that haven’t been addressed, Gass said.
For example, one of the subsidies that the federal government needs to address further is the so-called Canadian exploration expenses (CEEs), which used to reimburse fossil fuel companies 100 per cent of their exploration expenses.
This subsidy was gradually brought down to 30 per cent, but the IISD feels that it could be reduced even further, Gass said.
Another example for policy reform is emissions credits, companies receiving free credits for their greenhouse gas emissions, instead of having to pay for their emissions, Gass said.
“Where we talk about subsidies, we don’t necessarily talk about removal, we talk about reform,” Gass said. “If we’re moving to a world where we have to shift to lower carbon, lower emissions, to renewable energy, we would prefer to see subsidies and supports for renewable energy as well as using those public funds rather than supporting individual companies, let’s focus on the workers that are undergoing transition.”
Ottawa opts for gradual change
Canada has made significant progress towards meeting its G20 commitment to phase out inefficient fossil fuel subsidies and intends to fulfill this commitment by 2025, said Jack Aubry, a spokesperson at Finance Canada.
“Actions are being taken gradually to avoid disruptive changes for the fossil fuel industry, while supporting Canada’s broader environmental objectives,” Aubry said in an emailed statement to Radio Canada International.
To ensure that Canada is on track to phase out inefficient fossil fuel subsidies, Canada and Argentina recently committed to undergo peer reviews of inefficient fossil fuel subsidies, he added.