Canada pushes big economies to end fossil-fuel subsidies as promised

NEW YORK — Canada is pushing the United States and other major economies to follow through on pledges to phase out “inefficient” fossil fuel subsidies, which have soared despite the growing threat of climate change.

Such subsidies hit records last year, according to several watchdog groups, including one that estimated that major world economies — members of the G-20 cooperation forum — surpassed $1 trillion in subsidies for the first time in 2022. That’s a fourfold increase over subsidy levels in 2010, the year after G-20 nations agreed to phase out support for fossil fuels.

As world leaders meet in New York this week for the U.N. General Assembly, some countries and activists are prodding G-20 nations to make good. The Alliance of Small Island States, a group of 44 islands and low-lying coastal states around the world that act as a bloc at international climate talks, said action to end these subsidies was one of their top priorities. Organizers of big street protests there said oil subsidies fly in the face of U.S. climate commitments.

Canada, the world’s fourth largest oil producer, is trying to become the first G-20 country to follow through on its promise, aiming to beat a deadline for 2025 set by the Group of Seven richest economies, according to Steven Guilbeault, Canada’s minister of environment and climate change.

“If we can do it, pretty much everyone in the G-20 can do it,” said Guilbeault, adding that he’s confident “other countries follow suit.”

In July, Canada’s Liberal government approved new guidelines for federal agencies to start judging what constitutes “inefficient” subsidies, as the G-20 pledge specifies, and should be eliminated.

Since announcing the plan, several counterparts in other G-20 countries have reached out to say they’re interested in learning from Canada’s plan, Guilbeault said.

But many are skeptical. Because Russia is such a large exporter of oil and gas, its war in Ukraine has caused chaos for international markets and prices. Soaring energy costs have led to civil unrest, which has made political leaders wary. World governments spent $500 billion last year to help consumers pay their energy bills, according to the International Energy Agency, a Paris-based watchdog.

In the United States, President Biden has called for an end to fossil fuel subsidies.

But several proposals failed to make last year’s giant climate-spending bill that Congress approved. They have not received major attention since then, in part because of Republicans taking control of the House.

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GOP lawmakers have blasted such proposals and used them to blame Biden for increases in pump prices and inflation. High gasoline cost have often coincided with dipping poll numbers for the president, spooking his aides over potential political fallout. Gasoline prices are rising again after a period of decline. Wednesday, Republican presidential contender Florida Gov. Ron DeSantis went to Texas oil fields to promise voters $2-per-gallon gasoline with a plan to loosen rules to boost domestic fossil fuel production.

Unlike many direct-to-consumer subsidies in other countries, the biggest U.S. subsidies are often tax breaks to companies. They grant energy producers credits and deductions on their expenses to lower production costs. It is an intricate system that Biden administration officials are still working to unravel, U.S. special climate envoy John F. Kerry said.

“We have to do it, too,” he added. “The commitment is there. And I think the president very much wants to get at that.”

While energy subsidies evoke a negative connotation, they are difficult to roll back, in part because of impacts on consumers and inflation. Even on climate change, U.S. lawmakers have balked at taxing consumption or emissions, and instead have adopted a strategy of subsidies to lower the cost of cleaner alternatives to fossil fuel.

In 2022 India spent $820 million paying for propane for its poorest residents, the IEA said. France froze some electricity and gas retail prices. Germany covered some heating bills for its poor and the United Kingdom cut its fuel duty.

Before last year, these subsidies were gradually falling, according to some tallies, hitting a low point during the pandemic when people traveled less while staying home more. Since a prior peak in 2013, G-20 subsidies had fallen by more than half to less than $200 billion in 2021, according to data compiled by the International Institute for Sustainable Development.

Last month it estimated G-20 nations alone spent a record $1 trillion in 2022. The vast majority of that — and the sharp increase in 2022 — went to consumers. Subsidies that go to producers have been relatively stable, at about $50 billion to $70 billion a year. But the group points out that many G-20 countries also directly own fossil-fuel producers or invest in fossil-fuel infrastructure abroad, source for another $350 billion in government money annually to boost fossil fuels since 2019.

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The rationale for what counts as a subsidy and how to tally them all varies among the organizations, leading to differing estimates. Economists at the International Monetary Fund said last month the global tally surpassed $7 trillion for the first time last year. That included what the analysis called “implicit subsidies,” essentially the environmental costs of air pollution and climate damage from fossil fuels that producers and consumers aren’t required to pay.

Large economies have squandered trust by spending so much on fossil fuels, rather than helping other countries or expediting their own shift to cleaner energy, said Michai Robertson, senior adviser on finance at the Alliance of Small Island States.

“There was an impetus to have a massive green revolution. Instead there was regression,” he said. “It was very hypocritical that countries that had more means, that could literally print money, did not seek that opportunity.”

The IEA warned that making it cheaper to burn fossil fuels reduces the incentive people have to be efficient or switch to cleaner energy. And many subsidies never make it to the poorest consumers, instead getting spread around haphazardly or gobbled up by the biggest — often richest — energy consumers, the agency added.

Globally, Europe and other advanced economies were by far the biggest contributor to last year’s resurgent subsidies, the IEA said.

Many of those nations are G-20 member states. And that group alone is responsible for 78 percent of the world’s planet-warming emissions, according to research released this month by the British charity Oxfam.

Patricia Espinosa, the chief executive of the business consultancy onepoint5 and a former top diplomat for Mexico and U.N. Climate Change, said the lack of progress has been shameful for G-20 countries. She blamed the gridlock on powerful political pushback from citizens and lobbying from oil interests.

“The commitment should be really honored,” she said. “We are so far away from where we should be.”

An official at the American Petroleum Institute, the industry’s largest U.S. trade group, noted the tax code has always included these provisions for the entire manufacturing sector, not just oil and gas.

“These common tax mechanisms … allow companies to invest and deliver the energy that working families rely on every day,” Dustin Meyer, the group’s senior vice president of policy, economics and regulatory affairs, said in an email.

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Kerry said he was meeting with oil and gas executives this week to tell them to be more proactive, in advance of the upcoming U.N. climate summit in Dubai. He declined to say which companies or detail what he asked of them, except to say they should be reducing their emissions and doing more to contain leaks of methane, an especially potent greenhouse gas.

The subsidies issue could be a lightning rod at that Dubai summit, known as COP28, an annual event notorious for fractious negotiations. Canada has been among a group of countries that have pushed for a global deal on phasing out fossil fuel consumption, but have been thwarted by other G-20 members, especially India, China and Saudi Arabia.

Canada, the United States and other allies will need to convince the small states they’re doing enough, but also convince other major oil producers and developing countries that their proposals are fair. COP28’s host, the United Arab Emirates, is a major oil producer and member of the Organization of the Petroleum Exporting Countries that appointed the chief executive of its state-owned as the president of the event.

Adnan Amin, chief executive of COP28, and previously of the International Renewable Energy Agency, noted that Canada’s oil has long been considered some of the most carbon intense. Many countries will want to make distinctions between subsidies that benefit consumers and those that benefit producers, he said. And he suggested the nations in the Group of Seven have a credibility gap.

“There’s been a lot of talk about eliminating fossil fuel subsidies and, in effect, what is happening? They’ve increased,” he said.

Canada’s plan has already received criticism. Oil and mining account for about 8 percent of the country’s gross domestic product, and analysts are forecasting Canada’s oil output could grow for years to come.

The Trudeau government is telling the industry it must do more to reduce emissions, but critics object to wide-ranging exemptions in the government’s phaseout of subsidies. Those are for emergencies, to support businesses that are trapping or eliminating emissions, and Indigenous communities and a few dozen others that are remote and have little access to energy supplies.

“We don’t have solutions to enable these communities be totally off fossil fuels,” Guilbeault said.

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