A report from the International Institute for Sustainable Development (IISD) has exposed that despite their pledge to reduce fossil fuel subsidies, the G20 nations allocated an all-time high of $1.4 trillion to coal, oil, and gas industries in 2022.
This contradicts the commitment made at the Cop26 climate summit two years ago to phase out “inefficient” fossil fuel subsidies. The IISD report arrives ahead of a G20 meeting in Delhi, which could shape the upcoming crucial climate conference in the United Arab Emirates in November.
Tara Laan, a senior associate at IISD and the study’s lead author, underlines the necessity of addressing fossil fuel subsidies, emphasizing the stark contradiction between massive financial support for these industries and the escalating impacts of climate change.
Fossil fuels, upon combustion, emit pollutants that contribute to global warming and intensified weather events, alongside causing air pollution detrimental to human health. The report highlights hidden societal costs and governments’ contribution to reducing fossil fuel consumer prices by aiding producers. In 2022, G20 governments allocated $1 trillion in subsidies, $322 billion in state-owned enterprise investments, and $50 billion in loans from public finance institutions to fossil fuel-related activities – more than double the 2019 support.
Despite the G20’s commitment to subsidy reduction, the report underscores the lack of progress. Factors like the Covid-19 pandemic’s economic aftermath and geopolitical events such as the Russian invasion of Ukraine have hindered efforts. Nonetheless, experts have long warned against subsidizing industries causing premature deaths and obstructing the shift to cleaner economies.
While the International Energy Agency acknowledges some justifications for subsidies due to social or political needs, the World Bank underscores that underpriced fossil fuels encourage excessive consumption, perpetuating inequality.
The report’s authors advocate reforming subsidies via increased carbon taxes and reallocating funds to tackle global challenges. They suggest targeted welfare payments for vulnerable populations and the removal of the term “inefficient” from the subsidy phase-out commitment. The IISD calls for an end to fossil fuel subsidies in wealthy nations by 2025 and other countries by 2030. Despite fossil fuel companies’ record profits during the energy crisis, the report emphasizes governments’ power to steer these companies toward sustainable practices.