What Does the G7 Pledge to Phase Out Fossil Fuel Subsidies Mean for the UK?

R2uAVsWy_400x400
on

How do you successfully phase out fossil fuel subsidies in less than 10 years? The first step would be identifying what a subsidy actuallyย is.

And if youโ€™re the British Government, you might be patting yourself on the back for a job well done because according to the Department of Energy and Climate Change (DECC) โ€œthe UK has no fossil fuelย subsidies.โ€

So it seems that when the G7 nations committed to the โ€œelimination of inefficient fossil fuel subsidiesโ€ by 2025 at the summit in Japan last week, the UK had already achieved thisย goal.

Youโ€™d be forgiven for scratching your head and asking how this is possible with a government constantly giving tax breaks to the oil and gas industry. And youโ€™d be right, itโ€™sย not.

But because the G7 commitment does not define what a subsidy is, the UK is free for the time-being to use its very specific definition forย fossil fuelย subsidies.

โ€œTo be honest, the UK definition is nonsense,โ€ said Shelagh Whitley, research fellow at the Overseas Development Institute. Whitley is responsible for producing an annual report on fossil fuel subsidies.

โ€œNot only is it extremely narrow in contrast with other definitions that it has signed on to through the World Trade Organization and other places, but it is also not the same as the definition that it uses for renewableย subsidies.โ€

Letโ€™s break thisย down.

According to an August 2015 response by DECC to a freedom of information request: โ€œThe UK defines fossil fuel subsidies as government action that lowers the pretax price to consumers to below international market levels. The UK has no fossil fuelย subsidies.โ€

The emphasis here is on the cost to the consumer as opposed to the production of fossilย fuels.

If we applied this same definition to renewable energy, UK solar and wind power would not technically be subsidised because these are supported through levies onย consumers.

โ€œMost renewable subsidies in the UK actually increase cost to the consumer,โ€ explainedย Whitley, โ€œand the government loves to talk about how big those are [when defending renewable subsidy cuts]. So itโ€™s hypocritical even in its own energy subsidyย definitions.โ€

Internationalย Definitions

Focusing back on fossil fuels, up until recently G20 and G7 had a similar consumer-focusedย approachย toย subsidies, withย a caveat limiting targetsย to subsidies that lead to wasteful consumption. This caveat however is no longer included in the G7 statement put out last week, opening it up to both consumption and production targetedย subsidies.

Using this broader focus, research by ODI made headlines last November when it found that the UK Government gave ยฃ6 billion a year in subsidies to the fossil fuel industry โ€“ almost twice the financial support provided to the renewable energyย industry.

Not only that, but the UK was the only G7 country to actually increase its fossil fuel subsidies between 2014 andย 2015.


The UK Government continues to give tax breaks to boost North Sea oil and gas drilling. Photo via Enrico Strocchi /ย Flickr

Most of this came in the form of tax breaks to help boost North Sea oil and gas production. And if youโ€™ll remember, in March the Treasury announced a further ยฃ1bn in tax breaks for companies operating in the Northย Sea.

Fracking companies can also expect some pretty generous tax breaks as Energydesk revealed lastย week.

But according to the governmentโ€™s definition above, tax breaks for fossil fuels arenโ€™t subsidies (they donโ€™t target theย consumer).

So how did ODI calculate its whopping ยฃ6bn figure? It used the World Trade Organizationโ€™s (WTO) definition of a subsidy, which includes โ€œany financial contribution by a government โ€ฆ that confers a benefit on its recipientโ€ such as spending by government, tax breaks, and governmentย guarantees.

Some other international definitions come from the OECD and the International Energy Agency (IEA).

The OECD includes the impact of โ€œall forms of market price support involving transfers between consumers and producers created as a result of policy such as government interventions on tariffsโ€, which would include applying lower than normal taxย rates.

Meanwhile the IEAโ€™s definition includes โ€œany government action that concerns primarily the energy sector that lowers the cost of energy production, raises the price received by energy producers or lowers the price paid by energyย consumersโ€.

As you can see, things get pretty โ€œwonkyโ€ย pretty fast, asย Whitley putย it.

UK Fossil Fuelย Support

โ€œI think the way that we would cut through all of that,โ€ she said, โ€œis that we need to keep now, probably three quarters of the fossil fuel reserves in the ground. Thatโ€™s agreed. Itโ€™s the principle under which the Paris Agreement was signed, and that the UK has signed on to, and that means we have to stop producing fossilย fuels.

โ€œThat means governments should not be supporting the production. Whether that support is defined as a subsidy or not doesnโ€™t matter. This is UK taxpayer money and UK government resources that are being used to support fossilย fuels.โ€

She continued: โ€œWhichever number you choose to look at [whether itโ€™s the WTO, the OECD, IEA or IMFโ€™s calculations for UK subsidies], itโ€™s notย zero.โ€

This issue hasnโ€™t gone unnoticed though. A few years ago the UKโ€™s Environmental Audit Committee called the government out for denying that it subsidises the fossil fuelย industry.

In the committeeโ€™s November 2013 report into energy subsidies, it concluded: โ€œThere is no single internationally agreed definition of what constitutes energy subsidy, which has provided a way for the Government to rejectโ€” erroneously, in our viewโ€”the proposition in some areas that it provides energyย subsidies.โ€

The report hit out against government support for the North Sea and fracking, both of which it says constitutes a subsidy โ€œdespite the Governmentโ€™s assertionย otherwiseโ€.

As it goes on to explain, the various definitions โ€œalso allows it [government] to claim that it has no โ€˜harmfulโ€™ or โ€˜inefficientโ€™ subsidiesโ€”those in the firing-line of the UN Rio+20 Summit and the G20โ€” despite fossil fuel consumption contributing to our greenhouse gasย emissions.โ€

Finally, we canโ€™t forget the UKโ€™s overseas support for fossilย fuels.

Between 2014 and 2015 UK foreign support for fossil fuels totalled ยฃ6.3bn according to ODI‘s research.

As the Environmental Audit Committee argued: โ€œWith overseas aid often globally directed at countries which also have fossil fuel subsidies, and export support going to fossil fuel projects, DfID [Department for International Development] and UK Export Finance should assess how UK support in these areas correlates with fossil fuel subsidies in support-recipient countries and set out why continued support in each case overrides the need for eliminating fossil fuelย subsidies.โ€

Basically, โ€œit has to stop,โ€ Whitley argued.ย โ€œUK domestic support has to stop and the money the UK is sending overseas has to stopย too.โ€

โ€œ[The UK Government] has to start cleaning up its own activities. If it doesnโ€™t set an example for the rest of the world, weโ€™re in deepย trouble.โ€

Photo: Numberย 10 viaย Flickr

R2uAVsWy_400x400
Kyla is a freelance writer and editor with work appearing in the New York Times, National Geographic, HuffPost, Mother Jones, and Outside. She is also a member of the Society for Environmental Journalists.

Related Posts

on

DeSmog estimates raise questions over climate benefits as EU officials consider whether the technology should qualify for billions of euros in subsidies.

DeSmog estimates raise questions over climate benefits as EU officials consider whether the technology should qualify for billions of euros in subsidies.
Analysis
on

Experts accuse Farageโ€™s party of a โ€˜deliberate campaign of misinformation about climate changeโ€™ in the House of Commons.

Experts accuse Farageโ€™s party of a โ€˜deliberate campaign of misinformation about climate changeโ€™ in the House of Commons.
on

A Conservative peer and former UK trade advisor were among those who spoke at the summit.

A Conservative peer and former UK trade advisor were among those who spoke at the summit.
on

All Conservative appointees to the Board of Trade have been binned by the new Labour government.

All Conservative appointees to the Board of Trade have been binned by the new Labour government.