The G-20 Toronto Summit, hosted on 26-27 June by Canadian Prime Minister Stephen Harper, concluded without any new commitments to take forward the pledge made last year to reform fossil-fuel subsidies, despite pre-Summit hopes that Canada might show leadership by unilaterally eliminating some of its own.
As reported previously by Subsidy Watch in September 2009, the Pittsburg Summit concluded with G-20 leaders committing to "[r]ationalize and phase out over the medium term inefficient fossil-fuel subsidies that encourage wasteful consumption."
To take the commitment forward, a group of four inter-governmental organisations, consisting of the International Energy Agency (IEA), the Organisation of Petroleum Exporting Countries (OPEC), the Organisation for Economic Cooperation and Development (OECD), and the World Bank, were asked to prepare a report on fossil-fuel subsidies for a meeting of G-20 Energy Ministers in March 2010. At the country-level, Finance and Energy Ministers were tasked with preparing strategies and timeframes for reform in time for this year's Toronto Summit.
Little was reported on the process until 26 May, when news service Canwest revealed debate over the issue within the Canadian government in a leaked memorandum that urged the government to end tax incentives to oil companies, signed by the Deputy Finance Minister Michael Horgan.
"These measures [subsidies] were historically premised on factors such as exploration risk, spillover benefits of exploration to third parties (similar to R&D) large capital requirements, price volatility, and a desire to be competitive," explained the memo, dated 18 March 2010. It went on to reflect, "Today, however, it is not clear that these factors are unique to the sector or merit preferential treatment."
The memo acknowledged that rationalizing such subsidies would improve sectoral neutrality in Canada's tax system and help reduce the budget deficit, as well as reducing greenhouse-gas emissions. Despite questioning on the issue, Prime Minister Harper did not disclose the government's position.
Three weeks prior to the Toronto Summit, the IEA announced the preliminary results of a study which found that more than US$ 550 billion was spent in 2008 on subsidies to oil, natural gas and coal by 37 of the world's developing and emerging economies, and that their removal would result in significant energy savings. This was followed by an OECD statement on 9 June which stated that "fossil-fuel subsidies could cut global greenhouse gas emissions by 10% from the levels they would otherwise reach in 2050."
Just one day before the Summit, the Indian government announced reductions to its fuel subsidies, ending subsidies to gasoline entirely and slightly reducing support for diesel, kerosene and natural gas, at estimated savings for the government and state-owned oil companies of US$ 5.2 billion.
Yet the G-20 Toronto Summit came and went without any pronouncement on the issue from the Harper government and little mention of fossil-fuel subsidies in the G-20 Toronto Summit Declaration, with discussions being largely focused on the spiraling national debt caused by massive economic stimulus packages, and the majority of media reporting on the disruption caused by protestors. The Declaration included just one paragraph on last year's agreement, which states:
"We note with appreciation the report on energy subsidies from the International Energy Agency (IEA), Organization of the Petroleum Exporting Countries (OPEC), OECD and World Bank. We welcome the work of Finance and Energy Ministers in delivering implementation strategies and timeframes, based on national circumstances, for the rationalization and phase out over the medium term of inefficient fossil-fuel subsidies that encourage wasteful consumption, taking into account vulnerable groups and their development needs. We also encourage continued and full implementation of country-specific strategies and will continue to review progress towards this commitment at upcoming summits."
Critics have accused the Declaration of doing little to pursue the issue, with no more measurable, practical commitments having been agreed for the Seoul Summit in the Republic of Korea at the end this year. "The greenest thing about the G-20 is its ability to reuse and recycle earlier commitments," said Kim Carstensen, of the WWF Global Climate Initiative. "This summit could have been the beginning of real action towards a clean, efficient and resilient economy but all we got is some nice words about green economy [sic] and a recycled statement on fossil-fuel subsidies."
According to a report from Canwest, however, sources familiar with the negotiations have stated that the Declaration is in fact stronger than an earlier version which was leaked before the Summit. This called for "voluntary, member-specific approaches" to removing the subsidies, and omitted the statement that the G-20 would "continue to review progress towards this commitment at upcoming summits." This stronger language is said to have been added upon the insistence of the United States.
It is also true that the G-20 commitment has made a significant impact more generally, giving the issue of fossil-fuel subsidy reform much-needed momentum. It spurred APEC to make a similar declaration in November last year, and led New Zealand to found the group Friends of Fossil-Fuel Subsidy Reform at the start of June.
The report on energy subsidies prepared by the IEA, OPEC, the OECD and the World Bank has recently been made public and is available on the OECD website. The implementation strategies and timeframes submitted by Finance and Energy Ministers have still not been made public.
Fernando Cabrera Diaz is a graduate of the University of Western Ontario's law school, where his studies concentrated on international law. He also spent a semester on exchange at ESADE University in Barcelona where he focused on international trade law. After law school, Fernando worked in the field of immigration and refugee law for a law firm in Toronto, Ontario. His freelance writing focuses on investment, trade and development, as well as subsidies.
Back to Subsidy Watch Issue 39 table of contents.
