CLIMATE CHANGE: 'Cut Fossil Fuel Subsidies But Compensate the Poor'

• by Claudia Ciobanu* - IPS/TerraViva (copenhagen)
• Monday, December 14, 2009
• Inter Press Service

That represents a fifth of the maximum global commitment of emission reductions envisaged by negotiators meeting during the 15th Conference of Parties (CoP15) to the United Nations Framework Convention on Climate Change, underway in the Danish capital. It could play an important part in keeping global warming under two degrees Celsius above preindustrial levels.

Governments around the world are currently spending an estimated 500 to 700 billion US dollars annually to subsidise fossil fuels. This represents five times the amount of money countries worldwide spend on development assistance.

The largest part of these subsidies is being allocated by governments of developing countries.

According to estimates by the Environmental Law Institute, the United States government has given over 72 billion dollars in subsidies for fossil energy between 2002 and 2008.

However, in September 2009, during a G20 summit in Pittsburgh in the U.S., the leaders of the 20 most important industrialised and developing economies in the world made a commitment to phase out subsidies for fossil energy in the medium term.

Figuring out a means to adhere to this commitment may represent a challenge 'as important as what happens next door (during the CoP15 negotiations),' said Per Callesen, deputy permanent secretary at the Danish ministry of finance, speaking on Monday at Crowne Plaza hotel, close to Bella Centre (where the CoP15 conference is taking place).

'We are pushing the pedal with fossil energy subsidies and the push of the pedal is much stronger than the brakes,’’ he added.

While, from an environmental perspective, it makes complete sense to stop subsidising fossil fuels, governments are reluctant to engage in such radical reforms because the resulting rise in fuel prices could lose them political capital.

More importantly, many are worried about the consequences that eliminating these subsidies could have for poor households around the world as well as for the employees of industries in the fossil energy sector.

Fatih Birol, chief economist at the International Energy Agency, also speaking at Crowne Plaza on Monday, argued that subsidies for fossil energy do not actually benefit the poor, but the middle classes, so there is no reason to worry about negative impacts on the poor if subsidies are scrapped.

In Birol’s view, the main beneficiaries of fossil subsidies are the middle classes; the poorest do not own cars and in some cases do not even have access to electricity.

Birol’s argument was supported by former Costa Rican president Jose Maria Figueres, who is renowned for breaking the social-democratic line of his party to implement liberal economic reforms. Figueres shared with the Copenhagen audience the political costs he had to pay for cutting down subsidies and argued that 'the problem of the 80 percent emission reductions by 2050 can be solved only through phasing out fossil energy subsidies and improving energy efficiency.'

Figueres delivered an impassioned speech against subsidies in general. But his position seemed to leave out the important question of how to address the negative social impacts that rising fuel costs can have on the poor.

Clear policies must be set out to make sure that some of this money is directly channeled to the most vulnerable in society, argued Per Callesen and William Pizer, deputy assistant for environment and energy at the U.S. treasury department.

'It is clear that the countries getting rid of fossil fuels subsidies must move to income support,' said Callesen, in response to a question from TerraViva. 'A state system capable of administering state support for the low income families must be put in place.'

Income support measures to protect the most vulnerable against the negative impact of rising fuel costs would cost governments much less that what they now spend on subsidising fossil energy, Callesen explained. 'For every dollar saved from getting rid of subsidies, only 0.2 or 0.3 would need to be spent on efficient measures of income support,' Callesen estimated.

Pizer gave examples of policies implemented by the Obama administration to help poor households adapt to the reductions in fossil fuel subsidies which the new administration is trying to implement.

Poor households, he said, are receiving financial help in order to pay for their heating bills and isolation for houses of low income families is done with state support. Pizer put the cost of such measures at five billion dollars.

'It would be better and cheaper if governments compensated only the poor, not everyone,’’ Pizer told TerraViva. And for the poor it is better to get one dollar directly rather than if it is given to fossil fuel industries.'

(*This story appears in the IPS TerraViva online daily published for the U.N. Conference on Climate Change in Copenhagen.)

© Inter Press Service (2009) — All Rights ReservedOriginal source: Inter Press Service

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