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Living in denials of global fossil fuels subsidies

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By Sonny Atumah

Last week the German Federal Ministry of Transport and Digital Infrastructure Andreas Scheuer, announced new subsidies for energy-efficient and low CO2 trucks. The country is promoting environmentally friendly vehicles and embracing natural gas as a solution to pollution. Under the scheme, the government will offer subsidies to buyers of gas; CNG-and LNG-fuelled heavy-duty trucks weighing more than 7 tons.

The global discourse on fossil fuels has continued to oscillate between production and consumption subsidies on the one hand and climate change on the other. Respective global economic powers whether in the G7, G20, OECD, EU have tacitly agreed that fossil fuels subsidies for their citizens even when their global appeal has been for abandonment in the name of global warming and climate change. The more developed countries have been more inclined to production subsidies, while the less developed countries have stock with consumption subsidies. Oil dependent nations are at the receiving end of fossil fuels subsidies because they spend their foreign exchange earnings from crude oil to import products and subsidise.   These imported petroleum products subsidies are what refiners are questioning.

Many have questioned the propriety of these countries led by EU that invest in fossil fuel infrastructure and subsidies but ask others not to participate in. Many EU members are investing in fossil fuel infrastructure abroad and create dependency on carbon-intensive energy in countries that should be embracing climate-friendly development. Europe is seen as a global leader on climate action yet it supports the fossil fuel industry with billions of euros worth of subsidies. Germany, the United Kingdom and Italy topped the list for size of subsidies to fossil fuels in the transport sector—where most of the subsidies end up.  Germany said it has only two subsidies it hopes to terminate this year (2018) under an existing EU commitment.Research published by the Overseas Development Institute and Climate Action Network (Europe) indicated Germany’s total support to fossil fuels, including fiscal support and public finance, was nearly €36 billion per annum between 2014 and 2016, with a total of 87 subsidies and support measures identified.

When President Donald Trump announced American withdrawal from the Paris Agreement, European leaders were quick to speak up for the climate and stress the strength of their commitments to cut emissions.Nearly half of discovered US oil that is not yet developed is dependent on subsidies. In the Williston Basin of North Dakota, 59 percent of oil resources are subsidy dependent. In the Permian Basin of Texas, 40 percent of oil resources are subsidy dependent. The Trump Administration has opened up large acreage of land and oceans to new drilling, with many projects heavily subsidy-dependent. Most of the G7, G20 and EU countries that say the United States fossil fuels subsidies are unnecessary are all neck deep in fossil fuels subsidies.

They use multilateral agencies that they control to  intimidate oil dependent nations that need assistance in local refining and subsidy administration. The Bretton Woods institutions have been discouraging oil dependent nations subsidising fossil fuels. In December 2017, the World Bank announced plans to mobilise public and private finance to support and accelerate common efforts to fight climate change. To align its support to countries to meet their Paris goals, it said it will no longer finance exploration and production of oil and gas after 2019. Of course, the World Bank as a multilateral institution would not apply the same rule it is using on oil dependent nations on the United States for political and technological reasons.

The conversation with countries like the United States has been that of persuasion; whereas it has been more of wielding the big stick on oil dependent nations. At the end of the G7 summit in Canada on the 9th of June 2018, the 26th item on the communiqué was that the United States should endeavour to work closely with other countries to help them access and use fossil fuels more cleanly and efficiently and help deploy renewable and other clean energy sources, given the importance of energy access and security in their Nationally Determined Contributions.  The plank of subsidies has been tied to carbon emissions. Out of the 40 largest carbon dioxide emitting countries, China, the United States, and the EU are the greatest according to the EU Edgar Database.

The largest amounts of US subsidies are for oil and gas production. The United States government has been subsidizing the oil and gas industry through tax code for almost a century. The United States government provides large subsidies to publicly owned oil and gas companies a tax rate, well below the standard corporate rate of 35 percent. ExxonMobil, ConocoPhillips and Chevron, the three largest U.S-based oil and gas companies are the super majors that enjoy generous tax subsidy. Observers believe the fossil fuel industry requires sustained investment to bring economic progress in crude oil dependent countries. The issue of fossil fuels subsidies should be that of negotiation by all with no preferences; if not it appears to be idealism elevated and subdued by experience.

 

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