How many times can you pledge to do something before you actually feel obliged to deliver on your promises? On fossil fuel subsidies, it can be hoped that finance ministers from the world’s richest countries will decide that their meeting in Italy this week is the time not just for commitments but for action.
In 2009, the G20, which includes all the world’s major economies, called for a phase out of inefficient fossil fuel subsidies in all countries. It reaffirmed this pledge again in 2012. At COP26, COP27 and COP28, countries agreed to accelerate efforts to phase-out inefficient fossil fuel subsidies.
Yet, globally, direct fossil fuel subsidies reached a humungous $1.5 trillion in 2022, according to the OECD and IEA. Despite all the pledges, this was a near doubling on the previous year, as governments grappled with rising energy costs.
The International Monetary Fund forecasts a decline in these subsidies in the near-term “as energy price support policies are unwound and international prices fall”. However, it predicts fossil fuel subsidies will rise yet further by 2030 as fuel consumption in emerging markets continues to climb.
At the same time, to keep the global temperature rise to no more than 1.5C, as called for in the Paris Agreement, and avoid the worst impacts of climate change, emissions must halve by 2030 and reach net zero by 2050.
It’s common sense that increasing fossil fuel subsidies is incompatible with reducing the world’s reliance on coal, oil and gas, slashing emissions, and with the all-important job of moving financial flows from fossil fuels to clean technologies.
The G7 has stated its leadership here before, and in April this year the group’s energy and climate ministers reaffirmed their commitment to phasing out inefficient fossil fuel subsidies by 2025 – or sooner. Mid-way through 2024, there is clearly no more time to lose: G7 finance ministers, meeting this week on the shores of Lake Maggiore, in Italy need to step up and take the urgent action necessary. And this can be done in a way that does not disproportionately affect the poorest in society.
Finance ministers can push the world even further forward by working to ensure that financial commitments, including public investments and subsidies, are fully aligned with the ambition to transition away fossil fuels, as agreed at COP28.
Governments around the world, led by those in the G7, which are historically most responsible for greenhouse gas emissions, must set targets and timelines for the phase out of unabated fossil fuels in line with a 1.5C trajectory.
The G7 climate and energy ministers meeting in April took a step in the right direction in this regard, agreeing to end the use of coal power generation in their energy systems “during the first half of the 2030s”. Most countries were already signed up to such a pledge, but the agreement signaled a significant change of direction for Japan, which continues to generate over a quarter of its energy from coal. But this is not enough.
Ministers need to commit to reaching 100 per cent decarbonised power systems by 2035 in advanced economies and by 2040 for other countries, at the latest, and to agree support for countries in the Global South to help them diversify their economies and to develop net-zero pathways. This support should include finance and capacity-building for just transition planning to ensure that no-one is excluded in the move towards a clean tech economy and the transition is as fair as possible.
Reorienting public and private financial flows away from fossil fuels, including by setting a meaningful price on carbon and reforming and repurposing fossil fuel subsidies must be at the heart of this change. Without a conscious and managed redirection of financial flows, lofty promises to phase out fossil fuels and subsidies will not be achieved.
As Christine Shearer, a project manager with Global Energy Monitor, a non-profit, said in a recent letter to the Financial Times, the G7 deadline for the richest countries to rid their energy systems of coal is a “promising development”, but not a given.
“Nearly 60 per cent of the G7’s operating coal fleet — 230 plants — still lacks a concrete plan to be retired in line with the 2035 target,” she wrote. “The challenge will be greatest in the US, which is home to close to half the coal plants in the G7 with over 200 coal plants. Of these, 120 currently lack a planned plant-level retirement date in line with the 2035 phaseout.”
Closing these plants will lead to a profound shift in the jobs landscape. It is imperative governments and companies invest in upskilling and reskilling to bring people along on the transition to clean energy in a way that is fair and works for affected communities.
Ambitious plans need proper planning and financing. G7 finance ministers meeting this month can help steer the world onto a path where ambition and reality are better aligned.
