The complete removal of subsidies on the production of fossil fuels would cut a huge amount of greenhouse gasses between now and 2050, a new study confirms.
“It’s no secret that coal, oil and gas companies are extracting fossil fuel from fields that would be uneconomical without government support – what we call ‘zombie energy’,” says Ivetta Gerasimchuk, lead author of the International Institute for Sustainable Development (IISD) report.
The Zombie Energy study says the complete removal of subsidies on the production of fossil fuels globally would reduce the world’s emissions by a lower-end estimate of 37 gigatonnes of carbon dioxide between 2017 and 2050. This is roughly the amount of carbon dioxide that would result from burning all proven oil reserves in the United States and Norway.
“We now we have a much better understanding of how these subsidies skew global energy markets, and ultimately influence the supply and consumption of fossil fuels,” said Gerasimchuk.
The International Monetary Fund (IMF) estimates that the total subsidies for fossil fuel companies amount to at least $5.3 trillion per year, but the IISD study singles out direct subsidies on the production of fossil fuels by non-state companies.
Investment in Innovation
Earlier this week (15 February), investors and insurers with more than $2.8 trillion in assets under management called on the G20 to phase out fossil fuel subsidies by 2020 to accelerate green investment and reduce climate risk.
Policymakers would have no issues finding alternative uses for fossil fuel subsidies. The world’s infrastructure alone would need an injection of $90 trillion in public and private investment over the next 15 years to comply with the Paris Agreement according to another report.
The world’s existing infrastructure – spanning sectors such as energy, public transport, buildings, water supply and sanitation – is estimated to be responsible for 60 per cent of the world’s greenhouse gas emissions.
Boosting investment in sustainable infrastructure is therefore “key to meeting the Paris Agreement,” says Felipe Calderón, former president of Mexico and chair of the Global Commission on the Economy and Climate – which published the report.
The study notes that all kinds of fossil fuel subsidies combined totaled some $550 billion in 2014, skewing investment away from infrastructure projects.
Getting Financing Right
“It all depends on whether we get financing right, only then will capital fully shift in the low-carbon direction,” Calderón said.
For cities in emerging economies, a flourishing green bond market could offer much-needed access to low-cost capital to finance sustainable infrastructure.
Mexico City, for example, hopes to issue its first green bond with support from Climate-KIC, the EU’s public-private climate innovation partnership. Climate-KIC is testing out new ways to finance sustainable infrastructure through its Low Carbon City Lab.
The IISD says the figures in its Zombie Energy study are likely a lower-end estimate because it relies on a conservative estimate of global production subsidies in G20 countries, which serves as a proxy for the world.
Researchers also assumed relatively high prices for fossil fuels, drawing on the International Energy Agency’s (IEA) current policies scenario as a baseline. Market prices lower than the IEA scenario would mean that production subsidies have an even greater impact on emissions.
“To address climate change we need all tools available, on both demand- and supply-side, and ending subsidies to fossil fuel production should be part of climate action by governments,” says Gerasimchuk.
Find out how Climate-KIC helps cities and investors discover new climate finance opportunities.