Fossil fuel subsidies are contributing
to fiscal instability and undermining governments’ efforts to combat serious
economic and environmental challenges, such as climate change, and the
transition to an inclusive green economy, according to experts.
“Reforming Fossil Fuel Subsidies for
an Inclusive Green Economy” is the theme of the two-day event co-organized by
UNEP, IMF, GIZ and the Global Subsidies Initiative of IISD. Sessions will focus
on how fiscal policies can address the perverse effects of fossil fuel
subsidies and strengthen government spending for sustainable development.
The Intergovernmental Panel on Climate
Change recently reported that CO2 emissions from fossil fuel combustion and
industrial processes were responsible for approximately 78 per cent of the
total increase in greenhouse gas emissions between 1970 and 2010.
Experts say reducing or eliminating
harmful fossil fuel subsidies – and properly pricing energy to account for
environmental impacts – is one of the most promising ways governments can
promote a transition to a greener economy, and even the playing field for
investments in energy efficiency and renewable energy.
Subsidies to producers often support
inefficient state-owned energy companies and stifle incentives for greater
efficiencies and innovation, while subsidies to consumers often encourage
excessive consumption, which has knock-on effects for pollution, human health
and greenhouse gas emissions.
Globally, fossil fuel subsidies are
estimated to be in the range of US$500 billion. When taking into account
implicit subsidies from the failure to charge for pollution, climate change and
other externalities, the IMF estimates the post-tax subsidy figure is closer to
$2 trillion worldwide – equivalent to about 2.9 per cent of global GDP, or 8.5
per cent of government revenues. Furthermore, it finds the removal of such subsidies
could lead to a 13 per cent decline in CO2 emissions.
In comparison, according to the
International Energy Agency, global subsidies to the renewable energy industry
were $88 billion in 2011.
“Fiscal policies are of particular
importance in a green economy transition. Confronted by a fiscally constrained
world, government reforms might appear to be a daunting challenge,” said UN
Under-Secretary-General and UNEP Executive Director Achim Steiner.
“However, it is important to note that
fossil fuel subsidies cost countries precious funds. For example, they divert
government resources from pro-poor spending in Africa, where governments spend
an estimated 3 per cent of GDP – equivalent to their total health care
allocation – on fossil fuel subsidies,” he added.
Several countries, including Ghana,
Namibia, the Philippines and Turkey, have all shown that it is possible to
reform energy subsidies and prices. UNEP is currently undertaking green economy
fiscal policy studies in several countries, including Ghana, Kenya and
Mauritius, which will inform the respective governments as they advance their
fiscal policy reforms.
Experts are calling on governments to
use government policies to leverage private investment in green sectors by
redirecting public investments to clean technologies and providing direct
public expenditure for research and development. For example, tax incentives
could make investments in clean technologies more attractive, while government
funds could reduce the risk profile of capital intensive new technologies.
In addition, experts acknowledge that,
in some cases, eliminating these subsidies could have ramifications on the poor
or weaken the competitiveness of domestic industries. Therefore, they said, social
protection measures are needed to ensure vulnerable groups are not overlooked
and receive assistance during a transition period.
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