The Ying and the Yang of the Low Carbon Economy


Montgomery Cty DivisionThe call for a new low carbon economy is echoing through the halls of COP 21. In the opening ceremony, French President Francois Hollande, Prince Charles, and UN Secretary General Ban Ki Moon all urged the world to transition to a new low carbon economy.


Making that transition requires action on multiple fronts. First, countries must address market distorting and environmentally destructive fossil fuel subsidies. Second, countries must power their economies with renewable energy.


Two separate events today indicated that countries and industry are starting to make that transition. Friends of Fossil Fuel Subsidy Reform unveiled a communiqué calling on all countries to stop the subsidization of carbon intensive fossil fuels. Indian Prime Minister Modi and French President Hollande, launched the International Solar Alliance to help bring solar power to developing countries. Presented separately but connected by common goal, the two projects are cutting the path to a new clean energy economy.


Countries spend almost $500 billion/year on fossil fuel subsidies. They subsidize the consumption and production of fossil fuels. The subsidies unfairly tilt the market towards carbon intensive fossil by preventing clean energy technologies from competing on a level playing field. The FFFSR communiqué urged countries to take the money spent on fossil fuel subsidies and repurpose it to enhance education, health, and environmental programs. Countries have argued that subsidies are necessary to support the poor, who could not otherwise afford fuel. FFFSR research revealed that only 3 percent of subsidies are used to support the lowest income brackets.


The International Solar Alliance (ISA) is multi-country partnership to bring solar power to developing nations. The ISA is focused on increasing solar power generation in the 120 countries located between the Tropics of Cancer and Capricorn. Developing nations often have an abundance of solar potential but they lack the technology and finance to develop their resources. Germany, Italy, and Japan, the countries with the highest rates of solar penetration, are not rich in solar resources but are rich in technology and finance. The ISA will bring solar power to where it has the most economic and environmental potential.


The developing countries targeted by the ISA are areas where power usage is increasing. Adding renewable power to the grid in a developing country displaces high carbon emitting resources. For example, India is third largest consumer of coal in the world, it also has 300 million people who lack electricity. The type of electricity used to connect that group will have a huge impact on global climate change mitigation efforts. India is choosing the renewable energy pathway by setting a goal of 100 GW of installed solar power by 2020. India currently has 4 GW of installed solar power. To bridge this gap, India will need international financial and technology support.


India is investing $30 M USD in a new National Institute of Solar Technology with the goal of reducing regulatory hurdles, developing common standards to speed up production, developing innovative finance mechanisms, and supporting technology improvements. Estimates of the total investment needed to realize the solar potential of developing countries reach $1000 billion; a number that could be easily reached by re-tasking fossil fuel subsidies.


Developing nations have an untapped resource shining down on them. The ISA aims to spur transformative action in this field. Today, Prime Minister Modi started his announcement by stating that many Indians begin their day with a prayer to the sun. He ended his presentation by proclaiming that the ISA represents a “sunrise of new hope.” A sunset on fossil fuels would help the sun rise on a new low carbon economy future.

Fossil Fuel Subsidies – The (Overfed) Elephant in the Room?


Many have advocated for years to scale back or eliminate subsidies for oil, gas, and coal, including powerful international fora like the International Monetary Fund, the World Bank and the United Nations. And, multiple subsidy reform efforts have been undertaken through various avenues of international cooperation. Yet these subsidies have actually grown around the world. According to the International Energy Agency’s (IEA) 2014 World Energy Outlook, annual fossil fuels subsidies topped out at $550 billion in 2013, four times greater than those for renewable energy.

IEA FFsubsidiesGraph

In its 2013 publication Energy Subsidy Reform, the International Monetary Fund (IMF) estimated that reform through energy price adjustment that eliminates fossil fuel subsidies would translate to a 13% reduction in of 2011 CO2 emissions. That’s more than 4 Gt CO2, based on IEA figures, and represents a significant piece of an overall global energy policy the IMF projects will lead to a 3.6°C increase in the earth’s surface temperature (over pre-industrial levels) by 2100. The United Nations Environment Program’s (UNEP) 2014 Emissions Gap Report argues that subsidy reduction or elimination is a necessary policy for closing the current mitigation gap required to keep warming to within 2°C. In terms of avoided CO2 emissions, eliminating these subsidies would exceed the 2.5-3.3 Gt per year that UNEP estimates could be provided by worldwide energy efficiency improvements between 2015 and 2030.


Beyond climate change impacts, these subsidies generate additional negative economic consequences, including promoting “excessive energy consumption” and reinforcing inequality by benefiting upper-income groups far more than the poorest. The IMF found that its calculation of $480 billion in 2011 fossil fuel-based energy subsidies climbed to a stunning $1.9 trillion when energy product deferential taxation and negative externalities, such as public health and environmental impacts, were factored in. Furthermore, not only are these government subsidy dollars limiting what is available for important social needs, such as education and health reforms, the IEA concludes that they are “holding back investments in efficiency and renewables.”


So, why do these harmful fossil fuel subsidies continue, what can be done about it, and will this issue be addressed at COP20 next week?


The issue is not simple. Worries abound for the tens of thousands of workers in the hundreds of industries directly and indirectly related to fossil fuel extraction and use, and for the millions who currently have no alternative to fossil fuel energy for heating and cooking. Furthermore, the fossil fuel industry has much to lose with the conversion to renewable energy.


How can we get rid of fossil fuel subsidies in a way that protects people and the planet today and for the future? It will take political will and leadership. Some good news and hard lessons can be found in efforts several countries have been making. (See also IEA’s World Energy Outlook and the Global Subsidies Initiative Guidebook.)

Clearly, though, more needs to be done. And where better to look than to the G20, the largest international forum of industrialized and emerging economies, “representing 85 percent of global gross domestic product and over 75 percent of global trade.” Yet, this one group that can put a halt to subsidies, and actually committed to a step in that direction in 2009, has failed to follow through. In fact, according to a report by the Overseas Development Institute and the Oil Change Institute, the G20 nations that pledged in 2009 to phase out inefficient fossil fuel subsidies are now spending $88 billion per year in fossil fuel exploration alone, as opposed to $37 billion last year. It seems rather ironic, then, at the close of the G20’s Brisbane Summit, just two weeks before the start of the COP20, thaACBlog3-Photo1.G20 FFSubst the Leaders Communiqué stated, “[w]e reaffirm our commitment to rationalise and phase out inefficient fossil fuel subsidies that encourage wasteful consumption, recognizing the need to support the poor.”


What can the G20 do? Well, a key action is to push for national fossil fuel subsidy phase-out goals and timelines tied to countries’ Intended Nationally Determined Contributions (INDCs) for the UNFCCC 2015 agreement, a top recommendation offered by Alison Kirsch and Timmons Roberts.

Will fossil fuel subsidies come up at the COP20 starting this week? It might seem reasonable, given that a crucial component of the Lima event will be trying to close the pre-2020 mitigation gap. However, fossil fuel subsidies are politically sensitive; as such, they haven’t been directly addressed in any official UNFCCC document or meeting. The only recent mention (at the October ADP 2-6 session in Bonn) was by Norway and New Zealand, who called for adding fossil fuel subsidies removal as a topic for upcoming Technical Expert Meetings organized to inform action on both the 2015 agreement framework and closing the pre-2020 mitigation gap. Still, maybe Kirsch and Roberts’ suggestion to include action to address subsidies in countries’ INDCs will find its way into the dialogue. Let’s certainly hope so, because we can do better than actually paying to heat up and pollute our planet.ACBlog3-Photo5-OilSoakedDollarBill