UK becomes only G7 country to increase fossil fuel subsidies

Damian Carrington from The Guardian


The UK is alone among G7 nations in dramatically increasing its fossil fuel subsidies, despite an earlier pledge to phase them out, a new report has found.


The revelation will embarrass ministers who want to take a leading role at a crunch UN climate change summit in Paris in December, but who have been sharply cutting support for green energy at home.


The report from the Overseas Development Institute (ODI) and Oil Change International found that as a whole, G20 nations are responsible for $452bn (£297bn) a year in subsidies for fossil fuel production. The G20, which meets on Sunday in Turkey, pledged in 2009 to phase out fossil fuel subsidies.


In the UK, production subsidies of £5.9bn have already benefited major fossil fuel companies operating in the country, most foreign-owned, while £3.7bn is used to subsidise fossil fuel production overseas in countries including Russia, Saudi Arabia and China, the new analysis found.


New tax breaks for North Sea oil and gas production announced by the chancellor, George Osborne, earlier in 2015 will cost taxpayers a further £1.7bn by 2020, according to government figures.


Shelagh Whitley, an author of the ODI report, said: “The UK has been cutting back support for solar power and energy efficiency, arguing that the burden was too high. Our figures reveal that in spite of supposed budget constraints the government is giving ever increasing handouts to oil and gas majors.”


The report, entitled Empty Promises, states: “The UK stands out as a member of the G20 that, despite its pledge to phase out fossil fuel subsidies, has dramatically increased its support to the production of fossil fuels in recent years.” Whitley said: “No other G7 country has done this.”


Earlier UK tax breaks for North Sea exploration from 2009-14 were worth £551m to the French company Total, £131m to the US-based Apache and £267m to Norway’s state-owned Statoil, the ODI said.


The International Energy Agency (IEA) revealed on Tuesday a further $490bn a year in subsidies for fossil fuel consumption, mainly cheap fuel. Subsidies for renewable energy are far smaller, with the IEA estimating them at $135bn a year.


“Fossil fuel subsidies are public enemy number one for the growth of renewable energy,” said Fatih Birol, head of the IEA, which provides the world’s most influential energy analysis. “I don’t understand some countries – they have renewable energy programmes and at the same time they have subsidies for fossil fuels. This is, in my view, myopic.”


Last December, it was revealed that George Osborne had sparked the biggest boom in UK fossil fuel investment since the North Sea industry was founded in the 1970s, with taxpayers funding seismic exploration for companies, while investment in clean energy had plummeted. On Monday, ministers were forced by the leak of a letter to admit the UK is set to miss a key renewable energy target, while on Wednesday the UK lost its top-ranked energy rating.


A spokesman for the Department of Energy and Climate Change said: “We are committed to meeting our decarbonisation targets – we’ve made record investments in renewables and are focusing on lower-carbon secure energy sources, such as nuclear and shale gas. However this will not happen overnight - oil and gas will continue to play a role so we can ensure hardworking families and businesses have access to secure, affordable energy.”


While the UK is increasing fossil fuel subsidies, the US and China have agreed to prioritise the setting of a deadline for the phase-out of fossil fuel subsidies during China’s G20 presidency in 2016. “They are moving from rhetoric to action on the phase out, which is incredibly encouraging,” said Whitney.


The new report analysed three types of production subsidy, all recognised by the World Trade Organisation, given to fossil fuels by G20 nations. It found $78bn a year in “national subsidies” (direct spending and tax breaks), $88bn of support via public finance and $286bn in support via state-owned companies.


The US provided more than $20bn a year in national subsidies alone and, in Alaska, a key production subsidy is set to pay out $442m more of taxpayers’ money than it will raise in 2015 and 2016. Australia provided $5bn in national subsidies, while Russia provided the most at $23bn a year. Japan gave the most subsidy via public finance among the G20, at $19bn per year and including $2.8bn for coal projects.


Turkey, which currently holds the G20 presidency, is giving tax breaks to support the building of more coal plants than any other Organisation for Economic Cooperation and Development (OECD) country, which could almost double its carbon emissions in the next 15 years. The OECD may heavily scale back export credit financing for coal at a meeting next week, which could make most of the 1,000 planned coal plants ineligible.


Stephen Kretzmann, director of Oil Change International, said: “Continuing to fund the fossil fuel industry today is like accelerating towards a wall that we can clearly see. G20 leaders need to slow down and turn us around before we hit climate disaster.”


India has cut its fossil fuel consumption subsidies by $15bn in 2014 and Indonesia by $10bn, according the IEA.