The Leaders' Declaration from the Asia-Pacific Economic Cooperation's (APEC) 17th Economic Leaders' Meeting, released on 15 November 2009, included a commitment to "rationalize and phase out over the medium term fossil-fuel subsidies that encourage wasteful consumption, while recognising the importance of providing those in need with essential energy services." This closely mirrors the language of the Group of Twenty Finance Ministers and Central Bank Governors (G-20), who announced their own commitment to phase out and rationalize fossil-fuel subsidies at their Pittsburgh Summit on 25 September 2009.

Since this time, relatively little information has come out about APEC's initiative, whereas much discussion has taken place about the G-20's. Why did APEC Leaders decide to make this commitment? What are they doing to turn rhetoric into action? How long is the ‘medium term'? Subsidy Watch had a chance to ask all these questions and more, when it spoke to Dr Phyllis Yoshida, Lead Shepherd of the APEC Energy Working Group (EWG) and Deputy Assistant Secretary of the U.S. Department of Energy.

Could you give our readers a quick introduction to APEC as an organisation?

Yoshida: Sure. The Asia-Pacific Economic Cooperation is a little bit different than the International Energy Agency (IEA) and some other international organisations. It was started in 1989 on the suggestion of the then-Prime Minister of Australia, mainly to look at economic and trade and investment issues and to identify how economies could help business within the Asia-Pacific area. Today, it's still very much focused on economic and trade-and-investment issues, as well as having a ‘third leg', which is really the economic-development pole. That's where APEC's working groups like the Energy Working Group (EWG) fall. The other key difference is that it's a purely consensus-driven voluntary process – unlike, say, the World Trade Organisation (WTO) where people are bound by pledges. This doesn't mean it's less useful, as sometimes we can get further on things without the binding commitments.

Can you give me some background about APEC's decision to phase-out and rationalize fossil-fuel subsidies?

Yoshida: We know that a number of APEC economies have fossil-fuel subsidies and that a number of economies have made determined efforts to reduce them in recent years. A notable example is attempts to reduce subsidies to motor fuel in the region. But we haven't done a comprehensive survey of the subsidies and APEC has never led a systematic effort to phase them out, largely because it is a voluntary association that leads by example. However, there are some APEC agreed-upon best practices for energy investment which indicate that subsidies are to be avoided, and those have been around for awhile. For example, there are best practices for liquified natural gas trade which state – and I'll quote – "economies should establish predictable and stable legal and fiscal frameworks that protect the sanctity of contracts and do not distort the market through subsidies, inequitable cost allocation, uneconomic tariffs or retroactive legislation."

We were very aware of the G-20 decision, and thought it was a good idea to extend that initiative through the APEC region too, which is why it appeared in the Leaders' Statement. APEC, after all, is an equally important economic group, accounting for roughly half of the world's GDP, trade and energy use. Although there's some overlap between APEC and G-20 members, there are a number of APEC members who aren't part of the G-20 and who could benefit from the same reforms.

[Editor's note: nine of APEC's member economies are also G-20 members: Australia, Canada, the People's Republic of China, Indonesia, Japan, Mexico, Russia, the Republic of Korea and the United States. It has twelve non-G-20 member economies: Brunei, Chile, Chinese Taipei, Hong Kong, Malaysia, New Zealand, Papua New Guinea, Peru, the Philippines, Singapore, Thailand and Vietnam.]

Given this overlap of membership, would countries who have committed to phase out their fossil-fuel subsidies be doing this primarily under the G-20 agreement, under APEC, or both?

Yoshida: I don't think you could say it's one or the other. It becomes a goal and then you take advantage of what the different groups can offer. For example, in APEC we have a lot of experts, data and studies that the G-20 doesn't really have as a group. Different fora can contribute different pieces to help.

What are APEC's objectives in agreeing to phase-out and rationalize fossil-fuel subsidies?

Yoshida: Strictly speaking, the objective is for individual economies to rationalize and phase out fossil-fuel subsidies, and the benefits are more or less obvious in terms of energy security and addressing the challenge of global climate change. With regard to energy security, the region is a net importer of oil, even though we have some oil exporters such as Brunei and Malaysia. Subsidies for petroleum-based fuels encourage greater use of oil and thus a higher level of oil dependency, and so they affect energy security. The environment has always been an issue we've looked at in the energy context. Subsidies for fossil-fuels, such as oil for transport or coal for power production, encourage the use of fuels and so increase the region's carbon emissions. We hope that by reducing subsidies we give greater economic space to the clean-energy options we're working on, be they biofuels from second-generation feedstocks, wind power, solar power, geothermal or carbon capture and storage.

Overall, the Asia-Pacific region has been affected a little less by the financial crisis than some other parts of the world, and growth is still proceeding at a high pace, but it's also true that budgetary problems have made people more aware of subsidies. Some of the smaller countries have been spending a fairly large percentage of their GDP on fossil-fuel imports. When the international oil price was very high, the gap between the subsidized prices and the market price was certainly a problem for some governments' budgets. And again, that opens up the more general issue of economic development, and perhaps being able to use subsidy spending better elsewhere.

What process does APEC need to go through in order to take its members' agreement to implementation?

Yoshida: The first thing for a major issue like this is to have the members' leaders agree and come to consensus on a position, which happened last November.

In the Energy Working Group, we also take direction from our Energy Ministers, so the declaration that was released from the meeting which just happened in Fukui, Japan, restated the APEC leaders' statement on subsidies to reinforce it. The meeting also proposed an analytic study on the phasing out of fossil-fuel subsidies, specifically considering how APEC economies can reduce waste and limit CO2 emissions, while protecting the poorest. There's a process that we're going through now in order to have the study endorsed by the senior officials of APEC and by the Energy Working Group, as well as finding people to fund it. The United States is going to take the lead and at least another two economies will need to co-sponsor the project. Some of the smaller economies may give their endorsement to make it clear that they support the direction we're taking and the issue more generally.

To illustrate what might happen next, I'll give you an example from energy efficiency, another big area that we started work in a few years ago. We conducted several projects, and then ran a number of workshops, where people could learn how energy efficiency options could apply to their own economies. Most recently, we've started doing what are called ‘peer reviews'. We send a team of experts into a country, and look at their whole energy-efficiency situation and provide recommendations. We have the ability to put together teams at the technical level to go out and provide advice, be it through workshops, looking at places where energy-efficiency measures work already, or providing analytical and modelling tools. We've completed about five so far, with another three or four ready to go. So that's similar to part of what we're trying to ramp up in the area of subsidies.

And once you've provided the information and the tools, it's up to the member economies to decide what they do next?

Yoshida: Yes. It's a voluntary process, where economies lead by the best example. That said, we do also track what's happening and officials provide updates for everyone on what they're doing in their own economies. It's not like we just throw it out and never look at it again! And again, a lot of what's really good about APEC is that we have networks that extend down into industry and down into the ministries, so it's not just the ministers we communicate with, but the people who have actually been tasked to do these types of things. We find it's extremely useful for them to talk to each other about what works, what didn't, what their concerns are and how they can be addressed. We have an institutional process in APEC to do just that, which doesn't exist in some other multilateral fora.

What are the most significant challenges that are likely to be experienced by APEC economies

Yoshida: I'm sure the same challenges that representatives from the G-20 have been discussing! Within APEC, one major issue would certainly be energy access for low-income households. That's extremely important, particularly for those that are still considered developing economies, where incomes are lower, and where there are significant challenges to simply extending electricity to everybody at the same time as maintaining growth. We feel the answer is to have programs that are specifically directed at expanding energy access and helping the poor pay their bills, rather than subsidies for everybody regardless of income. That's probably one of the biggest challenges. And of course, if economies do it right they can take the subsidy spending and redirect the money more efficiently towards helping the poor. That's a point that I think a lot of the people within the economies who aren't experts on energy recognise: that in the longer term it can save you money, and help you become competitive. Wouldn't you rather have a policy that also helps your competitiveness?

What kind of support do APEC economies need to create a welfare net, or otherwise allocate funds more efficiently than subsidies?

Yoshida: We would encourage economies to look for capacity-building aid from institutions like the Asia Development Bank, USAID or the World Bank. They can also learn from each other.

So – a tricky question now – like the G-20, APEC countries have agreed to phase out and rationalize fossil-fuel subsidies in the medium term. How long is the medium term?

Yoshida: We know that some countries will take longer than others and fossil-fuel subsidies won't disappear overnight. We know they will expect progress reports from us. Our job – that is, the job of the Energy Working Group – is to share information on the tools that economies need to move forward. The analytic study that we're doing will probably take about a year to 18 months to complete, though in the meantime we'll still be having expert discussions on it as well as working group meetings twice a year, where the subsidies commitment will be put on the agenda to discuss.

What is the major difference between APEC's agreement to phase out fossil-fuel subsidies and the G-20's?

Yoshida: APEC includes some G-20 economies, but extends that geographical reach. We also have more developing economies than the G-20 – everyone from Papua New Guinea to China to Canada in terms of levels of development. APEC is a voluntary aspirational forum. On some issues, that has allowed us to move things further than other organisations, with our work then being adopted by OECD and others. It is a very positive forum, a very collegial forum. The power of example that APEC uses shouldn't be underestimated: that's the APEC way of doing things. We provide also more hands-on support than the G-20. And we have lots of networks throughout the region, where we can work with each other and provide information, as well as opening doors for economies to work bilaterally.
 
 
Dr Phyllis Yoshida is Lead Shepherd of APEC's Energy Working Group and the Deputy Assistant Secretary for Asia, Europe and the Americas in the Office of Policy and International Affairs at the U.S. Department of Energy (DOE). She is responsible for implementing Administration policy and supports the development of international cooperation on science and technology issues and energy-policy issues. Dr. Yoshida has also served as the Director of Asia-Pacific Technology at the U.S. Department of Commerce. She has chaired multilateral and bilateral committees, including the APEC Industrial Science and Technology Working Group. She has written and edited over 40 publications related to industrial science and technology, including widely cited work on the globalization of R&D and on government-industry relations.