Thirteen years ago, the G20 countries – of which South Africa is a member – committed to phasing out fossil fuel subsidies. But in 2022 members of the bloc spent a record $1.4-trillion in subsidies in support of fossil fuels, a report by the International Institute for Sustainable Development (IISD) has found. 

The report, titled “Fanning the Flames: G20 Provides Record Financial Support for Fossil Fuels”, found that subsidies from G20 countries amounted to at least $1-trillion, while state-owned utilities invested $332-billion in fossil fuels, and public financial institutions contributed $50-billion towards subsidies.

The $1.4-trillion is more than double what was spent before the Covid-19 pandemic and the energy crisis, which drove the spike in subsidies. A third of this amount – $440-billion – was used to invest in new fossil fuel production. 

The report also states that much of the financial support was to shield consumers against the blow from inflation as a result of Russia’s war on Ukraine. 

“What we found is that fossil fuel subsidies from G20 countries amount to at least $1-trillion in 2022. This was four times higher than the annual average over the previous decade. This was driven by vast consumption subsidies in response to the energy crisis,” said Tara Laan, senior associate at IISD and lead author of the report, during an online launch of the report.  

The IISD report comes less than a month before the G20 Delhi summit, yet the topic of reducing fossil fuel subsidies is missing from the agenda.

The report states that “Germany, France, and Italy alone provided $213-billion in fossil fuel crisis support in 2022. Many of these measures were temporary, but not all were targeted.”

On average per year between 2019 and 2021, Japan, Canada, China and Korea were the four biggest providers of international public finance for fossil fuels, at $10.6-billion, $8.5-billion, $6.7-billion and $7.3-billion respectively. Oil and gas were the most subsidised at 88% of the financing between 2019 and 2021.

Failed commitments

In 2009, the G20 countries committed to rationalising fossil fuel subsidies and eventually phasing them out. These sentiments were further reiterated with the signing of the Paris Agreement in 2015, which sought to limit carbon emissions through climate mitigation, adaptation and climate financing. The COP26 and 27 global climate meetings also saw the commitment to phase down fossil fuels and thus subsidies. 

The IISD report comes less than a month before the G20 Delhi summit, yet the topic of reducing fossil fuel subsidies is missing from the agenda. There does, however, seem to be high expectations of the meeting delivering on a clearer path towards just energy transitions, making climate finance easier, and what steps need to be taken to bolster climate action. 

Shifting less than a quarter of the $1.4-trillion from tax subsidy reform and carbon tax could lend a much-needed lifeline in closing the wind and solar energy investment gap of $450-billion per year until 2030; and with additional support from private investors, this could be a solution, the report said. 

Fossil fuel subsidies are an extremely inefficient way to assist the poor and provide social welfare.

The report showed that G20 countries could raise an additional $1-trillion every year if carbon tax levels are set at a minimum of $25 to $75 per tonnes of CO2 equivalent, depending on country income. The authors also warned that tax on fossil fuels did not equate to the societal costs of the impact on fossil fuels – especially with many countries in the bloc failing to impose windfall taxes (tax on unexpectedly large profits). 

Record-shattering spending on fossil fuel subsidies comes as the globe faces some of the hottest temperatures on record, while some parts of the world face devastating climate impacts; all this in the context of a signed agreement to phase down fossil fuels.

Read more in Daily Maverick: Hot, hot July 2023 set to be hottest month in recorded history — almost certainly caused by humans burning fossil fuels

Though the sharp uptick was driven by a response to the energy crisis, authors of the report highlighted that fossil fuel subsidies be redirected to welfare and those who need it most. 

“It’s understandable that during a crisis governments need to intervene to assist their citizens. But what we know is that fossil fuel subsidies are an extremely inefficient way to assist the poor and provide social welfare. This is simply because those who use the most fuel often harvest the most benefits… why should the amount of help you get from the government be directly proportional to the amount of fossil fuel you use: it makes no sense,” said Laan. 

She added: “With fossil fuel companies gaining record profits amid the energy crisis last year, there is little incentive for them to change their business models in line with what’s needed to limit global warming. But governments have the power to push them in the right direction.” DM