Leaders of the G20 group of industrialised countries agreed in 2009 to phase out subsidies to fossil fuels “in the medium term”, and repeated that promise in 2013. Yet a new report says that the UK is still giving close to £1.2 billion ($1.9bn) annually to support oil, coal and gas.
The Overseas Development Institute thinktank (ODI) and the Oil Change International (OCI) campaign group say in their joint report, “The Fossil Fuel Bailout”, that G20 governments are estimated to be spending $88bn every year subsidising exploration for fossil fuels.
“Their exploration subsidies marry bad economics with potentially disastrous consequences for climate change,” the authors say. “In effect, governments are propping up the development of oil, gas and coal reserves that cannot be exploited if the world is to avoid dangerous climate change.
Triple-lose scenario
“By providing subsidies for fossil fuel exploration, the G20 countries are creating a ‘triple-lose’ scenario.
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Scrapping fossil fuel exploration subsidies would begin to create a level playing field between renewables and fossil fuel energy
Shelagh Whitley, climate and environment research fellow, Overseas Development Institute
“They are directing large volumes of finance into high-carbon assets that cannot be exploited without catastrophic climate effects.
“They are diverting investment from economic low-carbon alternatives, such as solar, wind and hydro-power.
“And they are undermining the prospects for an ambitious climate deal in 2015.”
The report says the UK government is pouring £750m ($1.19bn) a year in national subsidies into the declining North Sea oil and gas industry – and £414m ($65m) into overseas exploration.
The report − published just before the G20 Leaders’ Summit in Brisbane, Australia, on 15 and 16 November − contains the first detailed breakdown of fossil fuel exploration subsidies by the UK and G20 countries.
The authors say that, despite the 2009 pledge, the UK “has dramatically expanded the scope of its oil and gas exploration subsidies, in particular for shale gas and offshore resources”.
Since 2009, generous tax breaks for exploring in riskier, deep-water fields in the North Sea have benefited some of the largest oil and gas firms in the world. The report estimates that the biggest beneficiary was the French oil giant, Total, which received £524m, while Norway’s Statoil was given £253m and the US’s Chevron £45m between 2009 and 2014.
The government’s expenditure of £414m annually in public finance for fossil fuel exploration outside the UK included Azerbaijan, Brazil, Ghana, Guinea, India, Indonesia, Ireland, Nigeria, Poland, Qatar, Russia, Spain, Tunisia, Uganda, and the US.
Shelagh Whitley, climate and environment research fellow at the ODI, says: “Scrapping fossil fuel exploration subsidies would begin to create a level playing field between renewables and fossil fuel energy.”
Bad economics
The report’s authors say that further exploration for new reserves is not only environmentally unsustainable but is also bad economics. With rising costs for hard-to-reach reserves, and falling coal and oil prices, public subsidies are propping up fossil fuel exploration that would otherwise be deemed uneconomic.
The top 20 private oil and gas companies invest £23bn globally in exploration − less than half the £55bn being ploughed in by G20 governments. The report says this highlights the industry’s dependency on public subsidies to find new reserves.
Yet £55bn is almost double what the International Energy Agency estimates is needed annually to provide electricity and heat for all by 2030.
The report recommends that phasing out exploration subsidies should be the first step towards meeting the G20 governments’ existing commitments to eliminate inefficient fossil fuel subsidies and to avoid harmful climate change.
