In the run-up to the G20 summit on 15 and 16 November, 2014 in Brisbane, Australia, the international environmental community is calling on G20 Leaders to account on fossil fuel subsidies. G20’s commitment to “phase out, over medium-term, inefficient fossil-fuel subsidies that encourage wasteful consumption” made the news in 2009, that is five years ago. 

However, since then the G20 has been struggling to implement this commitment. A report released today by the Oil Change International (OCI) and the Overseas Development Institute (ODI) finds out that “G20 governments are spending approximately US$88 billion a year on finding new oil, gas and coal reserves”. In doing so, “the governments are directing large volumes of finance into high-carbon assets that cannot be exploited without catastrophic climate effects”. According to the study, “such policies of G20 are also diverting investment from economic low-carbon alternatives such as solar, wind and hydro-power”. The authors also argue that ”lack of delivery on the G20’s own commitment undermines the prospects for an ambitious climate deal in 2015”.

The report, ‘The fossil fuel bail-out: G20 subsidies for oil, gas and coal exploration’ uses a broad definition of “exploration subsidies” and a broad definition of “subsidies” in general. This definition includes investment by state-owned enterprises (around USD$49 billion in 2013), national subsidies delivered through direct spending and tax breaks (US$23 billion in 2013) and public finance from banks and financial institutions (US$16 billion in 2013). 

Interestingly enough, and despite the difference in scope and methodology, the new study’s total US$ 88 billion for fossil-fuel exploration subsidies in G20 countries in 2013 comes close to the GSI “heroic estimate” of US$ 100 billion per year in global producer subsidies to fossil fuels made back in 2009. 

The OCI & ODI report calls the G20 governments to:

• immediately phase out exploration subsidies as a first step towards wider fossil fuel subsidy phase out and reform;
• eliminate bilateral and multilateral finance for fossil fuel exploration;
• introduce greater transparency in budget reporting so that citizens and legislative bodies are aware of real spending on fossil fuel subsidies;
• work through the OECD, UNFCCC and other bodies to identify and remove government incentives for fossil fuel production;
• transfer subsidies from exploration and other fossil fuel subsidies to support for the transition to low-carbon development and universal energy access

The urgent need to address climate change that underlies these recommendations is indisputable. In the meantime, the next questions on each recommendation are:

• How do you actually do it? 
• What have been the obstacles that have prevented the G-20 governments from delivering on the subsidy phase-out commitment before?
• How can the civil society and other stakeholders help the G-20 governments?

Answers to these questions have been largely out of scope of the OCI & ODI report. In the meantime, the GSI has examined these challenges with particular focus on Canada, Indonesia, Poland, Norway and Russia, including at individual project level. To a considerable degree, this work has led very much to the same solutions that we have been substantiating in 'A Guidebook to Fossil Fuel Subsidy Reform' with respect to consumer subsidies. Here are the key ones:

• Get right the level of taxation on fossil fuel producers by using the concept of neutrality – something that the natural resource economists have looked at for many decades. In the meantime, be realistic about the administrative capacity to implement a neutral regime in countries with weak institutions;
• Consider and manage impacts of subsidy reform at micro-, industry and macro-level. In particular, build credible alternatives to replace the role of fossil fuels not only in energy mix, but also in replenishing government budgets via industry taxes and royalties; 
• Build support for reform through working with stakeholders who may also drive companies and businesses towards more fossil fuel exploration at present – such stakeholders do include investors. Building broad coalitions to support the reform process is critical.

G-20’s mandate is to support consensus-building among the largest economies and to facilitate incremental change. It is up to leaders of individual countries that are members of the G-20 to make the maximum use of this international commitment to advance more radical transformations domestically.