Cuts to fossil fuel subsidies not enough to combat climate change

A study published in the journal Nature has found that removing subsidies for fossil fuels will have less of an impact than previously thought. Other scientists have insisted that the removal of economic support for fossil fuels is still a necessary step towards a carbon-free economy.

The paper says that the demand for energy is just too high for cutting subsidies to have a game-changing impact. It also notes that, due to the greater support for oil and gas, a removing financial aid may drive energy producers in the poorest countries back to the worst carbon emitter: coal.

The researchers are from a collection of institutions, including the International Institute for Applied Systems Analysis (IIASA) in Austria and the Fondazione Eni Enrico Mattei in Milan. The group said in a statement: "By 2030, emissions would only be one-to-five percent lower than if subsidies had been maintained."

"The reason for this small overall effect is two-fold," says Jessica Jewell, IIASA researcher and the study’s lead author. "First, these subsidies generally apply only to oil, gas, and electricity. That means that in some cases the removal of subsidies causes a switch to more emissions-intensive coal. Second, while these subsidies add up to substantial sums of money, the rate per unit of energy is not high enough to have a big effect on global energy demand, which would decrease by only 1-7% after subsidies are removed."

The ending of financial support for fossil fuels has seen support in the public and private sector. All countries in the G20 have agreed to phase out their coal subsidies in an effort to meet climate targets. G7 member states went further and set a 2025 deadline for themselves. According to researchers, the voluntary pledges made under the Paris Agreement and other anti-emissions treaties are far more effective than any alteration to subsidies.

There has also been a global movement to encourage public and private institutions to divest from companies involved in the production and use of fossil fuels to supply energy.

Some countries have seen progress in the transition to renewable sources of energy. Earlier in February, two think tanks released a report that found renewables like biomass had overtaken coal in European annual energy production in 2017, the first time green energy outperformed coal in the energy mix.

Globally, subsidies have reduced but high. The International Energy Agency estimates that global subsidies amounted to about $261 billion (€213 billion) in 2016. This is down from $309 billion (€252 billion) the year before.

The model developed for the study does show that in some energy producing countries like Russia, the US and states in the Middle East could achieve their emissions goals by removing subsidies. But countries that do not produce fossil fuels would see minimal difference, with poorer countries seeing an increase in emissions due to the use of less efficient fuels like coal.

Subsidies help the fossil fuel industry but also allow consumers to buy energy below market price. Because of this, the study looked at the impact of subsidy removal on the poor and found that they could be negatively affected.

"We're not saying: don't get rid of subsidies, we're saying that we need to be aware that it might have less of an effect than hoped, and it could have a disproportionally large effect on the poor," says Keywan Riahi, study co-author and IIASA Energy Program director. "But well-designed policies can achieve subsidy removal without affecting the poor. A scheme being trialled in India, for example, removed subsidies on cooking gas in general but continues to support the poorest households through rebates."

However, Peter Erickson, a researcher at the Stockholm Environment Institute, has criticised the study, telling the AFP that the study underestimates the impact on CO2 emissions: "The modellers did not address how fossil fuel subsidies affect decision-making in new oil or gas fields". He also said that the effect on climate change that cutting fossil fuel subsidies did had was only ‘small’ in relation to the size of the problem climate change poses.

The study is called ‘Limited emission reductions from fuel subsidy removal except in energy-exporting regions’, published in the journal Nature 8 Febraury.

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