Despite promises made at the Cop26 climate summit in Glasgow to reduce fossil fuel subsidies, a report has shown that G20 nations poured a record €1.3 trillion into the fossil fuel industry in 2022.
The more than trillion dollar figure – determined by the International Institute for Sustainable Development (IISD) think-tank – casts a shadow on global leaders' commitment to phase out "inefficient" fossil fuel subsidies, coming out just ahead of a G20 meeting in September and months the key Cop28 climate conference in the United Arab Emirates in November.
According to Tara Laan, the IISD report's lead author, “It reminds us of the substantial public funds G20 governments continue to allocate to fossil fuels, despite the increasingly dire effects of climate change."
Climate specialists say burning fossil fuels releases pollutants that intensify global warming and contaminate the air with toxins, causing health problems and millions of premature deaths annually.
Despite that, governments continue to use public funds to lower fossil fuel prices for both producers and consumers.
Fossil fuels are the #1 cause of #GlobalWarming, yet 🆕research finds #G20 💰 to fossil fuel hit record highs in 2022.
— IISD (@IISD_news) August 23, 2023
With the costs of #ClimateChange expected to rise, #G20 members must urgently reform spending to fund solutions.@IISD_Energy report 👇https://t.co/oWfllu3g8s pic.twitter.com/I62QCNjBLj
Last year, G20 governments provided over €1 trillion in subsidies, €376 billion in state-owned enterprise investments, and €58 billion in public finance loans to fossil fuels, according to the IISD – more than double the amount for 2019.
The G20's failure to curb these subsidies is in stark contrast with its commitment to phase out "inefficient" fossil fuel subsidies, a pledge first issued in 2009 and reaffirmed at the Cop26 meeting in Glasgow in 2021.
However, global crises such as the Covid-19 pandemic and the Russian invasion of Ukraine have driven up living costs, leading many governments to intervene by capping energy bills and compensating for fuel expenses.
Under-pricing fossil fuels
In its recent report "Fossil Fuels Consumption Subsidies 2022," the International Energy Agency warned against the massive amount of fossil fuel subsidies in 2022, even though it admits that some of them may have been “justifiable.”
And the World Bank, in its study "Detox Development" stresses that governments, by under-pricing fossil fuels, encourage overuse and hamper adoption of cleaner technologies.
Some three-quarters of all global energy subsidies go to fossil fuels according to the World Bank.
Richard Damania, chief economist of the Bank’s sustainability group has called for “substantial reforms” in subsidy allocation, proposing repurposing wasteful subsidies by pushing for more transparency in demonstrating how public funds improve people's lives.
Carbon tax hike required
Meanwhile, the IISD recommends imposing a higher carbon tax of €30 to €88 per tonne of greenhouse gases, potentially generating an additional €1.2 trillion annually for governments.
To lessen the impact on vulnerable populations living in poverty, the institute also proposes targeted welfare payments.
But most crucially, the IISD calls for a total ban on fossil fuel subsidies in rich countries by 2025, while developing nations should follow in 2030.
"With fossil fuel companies gaining record profits amid the energy crisis last year, there is little incentive for them to change their business models in line with what's needed to limit global warming.
“But governments have the power to push them in the right direction," according to Laan.
