Barack Obama has indicated that at this week’s G20 summit in Pittsburgh his administration will urge member countries to end subsidies to fossil fuels—which receive upwards of $67 billion from governments around the world. But exactly what he means by that is not yet clear.
The administration’s plans to push the issue of subsidies leaked last week in a letter by Obama adviser on international economic affairs Michael Froman. Froman indicates that the US should call on members of the G20 to eliminate all fossil fuel and electricity subsidies, as a “logical step in combating global climate change.” From the letter:
Eliminating fossil fuel and electricity subsidies would help energy markets work better and improve our energy security. It is also a logical step in combating global climate change, as it would encourage energy conservation and facilitate new technologies. The move away from subsidies should be managed to protect those most vulnerable to price increases. The G-20 should commit to take the lead in eliminating non-needs based fossil fuel and electricity subsidies and to provide technical assistance to non-G-20 countries taking steps to reduce fossil fuel and electricity subsidies.
Obama proposed eliminating some domestic subsidies for fossil fuels in his 2010 budget, but so far any attempts to change US policy has been successfully blocked by coal and oil state representatives. And they’ve been subsidizing fossil fuels extensively. Last week, the Environmental Law Institute released a report totaling government expenditures on different energy sources, both in direct spending and in foregone revenue resulting from tax breaks. The report finds that while the government spent $72.5 billion on fossil fuels between 2002 and 2008, it spent just $29 billion on renewables. And more than half of the renewables money—$16.8 billion—went to corn ethanol, which is of questionable environmental benefit.
One of the big questions about Obama’s subsidy reform pitch will be whether it includes more than just the money fossil fuels receive through direct spending, which is far less than than the amount funneled to fossil fuels in the form of forgone government revenue through tax breaks and loopholes.
From 2002 to 2008, the US government directly spent $16.3 billion on petroleum, natural gas, and coal products—and gave the industry another $53.9 billion in the form of tax breaks. Another $2.3 billion went to carbon capture and storage (CCS) technology, nearly all of that in the form of direct government spending. And if the Senate passes a climate bill that looks anything like the House bill, it will include $60 billion for CCS research and development through 2025, as well as bonus emission permits for early movers on carbon capture and storage for every ton of CO2 they sequester.
Obama’s pitch and its reception will be among the more interesting discussions at the G20, although climate and energy issues will likely take a backseat to economic concerns.
