“The first law of holes is that when you’re in one, stop digging. The first step towards that goal is to stop using taxpayer dollars to buy shovels”. This is a concluding quote from a new report on fossil-fuel exploration subsidies in the G7 countries. 

Despite their commitments to combat climate change and phase out inefficient fossil-fuel subsidies, the G7 governments continue subsidizing exploration of fossil fuels. Thus they increase the reserves of carbon that should not be burned in the first place if governments are serious about preventing dangerous climate change. 

The report was published by Oil Change International, a Washington-based civil society organisation, on 27 August 2014. Building largely on the OECD inventories of fossil fuel subsidies, the report estimates that together the G7 countries spend at least US$ 8 million per year on exploration of fossil fuels each within its national borders (“national subsidies”). The main subsidizers in this category are the United States (US$ 5.1 billion per year), the United Kingdom (US$ 1.2 billion per year) and Canada (US$ 0.9 billion per year).

The most novel part of the report are inventories of support that the G7 countries provide to fossil-fuel exploration abroad in both other G7 countries (Canada and the United States, in particular, receive support from other G7 countries) and nations outside the group (especially Mexico, Brazil, Australia and Russia). Together the G7 nations provide an average of more than US$ 10 billion each year in low-interest loans, guarantees, equity investments and other forms of public finance for fossil-fuel exploration projects abroad. The leaders in terms of such support to overseas fossil fuels are Japan (US$ 5.7 billion per year), the United States (US$ 2.6 billion per year) and Canada (US$ 1.4 billion per year).

The focus on support to fossil fuels outside nominal jurisdictions is very important. It is part of the “carbon leakage” policy debate whereby countries may reduce their own emissions by supporting increases in emissions in other countries. Although in many cases G7 countries provide export finance to fossil-fuel exploration and extraction just to cover their own import needs.

China, the main provider of export finance to fossil fuels, was outside the scope of this report.