Transitioning to a Low Carbon Future: Ending Fossil Fuel Subsidies

This December world leaders from 195 nations will descend upon Paris to attend the 21^st United Nations Conference on Climate Change (COP21).The issue at hand, for the first time  is not the science or whether climate change is happening, but reaching a critical agreement to limit the rise in average global temperatures to 2 degrees Celsius.

The imperatives of addressing climate change are clear. What is less clear, is whether the international community has the political will to save the planet by setting a meaningful and ambitious agenda for emissions reductions (to meet the above stated goal) and to begin transitioning the global economy to a low or no carbon state.

With COP21 on the horizon, a schism is forming between developed and developing economies concerning the manner in which emissions may be reduced.

Emerging economies like India have asserted that wealthy nations who have prospered from polluting (i.e. benefiting from fossil fuel energy) should be obliged to make more significant emissions reductions than poor countries. This reflects an adversity to an emission reduction scheme that curbs economic growth driven by cheap carbon intensive energy (e.g. coal), which is seen by less wealthy nations as integral to addressing their developmental challenges.

Balancing the perceived need for historical justice, development and environmental sustainability has presented a paradoxical question – should emerging and poor economies develop first, then ‘go green’ or leap frog into a low-carbon economic model?

Available evidence suggests that emission and temperature reduction targets are not reconcilable with the prospect of emerging and developing economies scaling-up their use of high-carbon energies.

In recognition of this conflict, and in an effort to make the transition to low or no-carbon economies viable for less wealthy nations, the Green Climate Fund was established in 2010. The fund is intended to support the transfer of renewable energy technologies from wealthy to poor nations with the goal of raising a USD 100 billion by 2020. In 2014, a Climate Fund update indicated pledges of just under USD 10 billion.

If poor nations are to join wealthier ones in making the jump to the low-carbon economy, the level of investment required will far exceed present pledges. To address this funding challenge, world leaders should seek a commitment from all countries to eliminate subsidies for the fossil fuel industry as part of any agreement.

To give some perspective, the International Energy Agency estimates the fossil fuel industry benefits from approximately $550 billion a year in subsidies.

A report by the International Monetary Fund, How Large Are Global Energy Subsidies? found that the benefit of subsidies for the fossil fuel industry is approximately $5.3 trillion a year or 6.5 percent of global GDP, when the externalized costs, typically borne by government or other firms are considered (e.g., health issues arising from air pollution or impacts of floods, droughts and storms being driven by climate change).

Humanity is at a critical juncture in its fight to mitigate the impacts of climate change; therefore, we cannot reasonably expect to address the issues of a changing climate by continuing to fund the source of the problem.

The elimination of fossil fuel subsides in the short term (i.e. five years) would contribute significantly to reducing emissions and building low-carbon economies in the following ways:

First, the freeing of private capital and reallocation of public expenditures can be directed to take advantage of the rapidly falling costs of wind and solar energy.

Second, it would foster improved market conditions (e.g., greater predictability and stability) necessary for continued growth of investments in renewable energies and related technologies (e.g., carbon capture and storage).

Declining prices combined with improved investment conditions would further expand the transference of clean energy technologies to less wealthy nations, promoting greater parity in ‘going green.’ Last year the majority of global investment in clean energy projects was spent in developing countries. More specifically, the market for clean energy projects (e.g., wind, solar) in non-OECD countries is now larger compared to markets like the United States and Europe. By reallocating capital it could be possible to harness existing investment trends to significantly advance the formation of low-carbon economies in both wealthy and less wealthy nations.

Third, it would level the playing field, if not tilt the competitive advantage in favour of renewable energy technologies. Typically, subsidies for fossil fuels have made it difficult for alternatives to compete. This has represented a significant market failure inhibiting the departure from a high-carbon economic model. Looking longer-term, as clean technologies mature their need for subsidies would theoretically decrease, again freeing capital for re-investment.

Fourth, the elimination of subsidies could reduce emissions by 20 percent.

With this in mind, the elimination of fossil subsidies would also help the international community to escape the present prisoner’s dilemma (i.e. countries not willing to reduce their emissions if others do not as well). The reason being, is that unsubsidised fossil fuels are not economically uncompetitive. Removing subsidies will provide market incentives to reward the adoption of clean technologies and continued investment.

Perhaps to address climate change, the solution starts not with the question of by how much emissions should be reduced. But how do we remove the barriers that keep our economic system tied to fossil fuels?

Having said this, the potential success of the COP21 should not be judged solely on whether an agreement is reach but rather if an agreement actually begins the transition away from fossil fuels.

Step one, eliminate fossil fuel subsidies.

Dave Larkin

No hay comentarios / 29 Nov 2015 por dlarkin
IMSD / #climatechange, #fossilfuels, sustainability

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