Slashing fossil fuel subsidies could curb greenhouse gas emissions – UN

Challenging the widely-held view that fossil fuel subsidies benefit the poor, a new report by the United Nations Environment Programme (UNEP) calls for cutting back on such mechanisms to curb on greenhouse gas emissions and propel economic growth.

The publication argues that many of these subsidies benefit wealthier portions of society and divert national funds from policies to help the poor.

Some $300 billion – or 0.7 per cent of global GDP – is spent to support the price of energy annually, and most of these funds are used to lower the real prices of fuel, coal, gas and electricity generated by fossil fuels.

Eliminating these price support systems could slash emissions by up to 6 per cent a year while providing a 0.1 per cent GDP boost worldwide, the report contends.

While acknowledging that subsidies can at times generate social, financial and environmental benefits, it makes the case that many of these mechanisms are seldom economically sound and hardly ever tackle poverty.

“In the final analysis many fossil fuel subsidies are introduced for political reasons but are simply propping up and perpetuating inefficiencies in the global economy – they are thus part of the market failure that is climate change,” UNEP Executive Director Achim Steiner said.

The report, entitled “Reforming Energy Subsidies: Opportunities to Contribute to the Climate Change Agenda,” was launched today in Accra, Ghana, during the latest round of UN Framework Convention on Climate Change (UNFCCC) global climate change negotiations.

With talks to conclude a successor to the Kyoto Protocol – whose first commitment period ends in 2012 – expected to wrap up late next year in Copenhagen, Mr. Steiner called on governments to phase out subsidies that contribute to wasting finite resources and delaying the creation of more efficient forms of energy.

According to the report, Russian subsidies are the largest, with the country spending some $40 billion annually to reduce the price of natural gas, followed by Iran, which spends $37 billion, and then China, Saudi Arabia, India, Indonesia, Ukraine and Egypt.

UNEP also announced today that a mechanism under the Kyoto Protocol that allows industrialized countries to offset some of their own emissions by investing in cleaner energy projects in developing countries had made headway in sub-Saharan Africa.

Although the main beneficiaries of this programme have been rapidly developing economies such as China, Brazil and India, six countries – the Democratic Republic of the Congo (DRC), Madagascar, Mauritius, Mozambique, Mali and Senegal – have had new Clean Development Mechanism (CDM) initiatives over the past 18 months.

“Whereas fossil fuel subsidies are an example of a blunt policy instrument, perpetuating old and inefficient economic models, the CDM is an example of a more intelligent, market-based mechanism that is fostering the transition to a modern green economy,” Mr. Steiner noted.

The number of CDM projects in sub-Saharan Africa, while still low, is growing steadily and could rise from the current 49 programmes in 12 countries to 230 by 2012. At present there are close to 3,500 CDM initiatives worldwide.