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How fuel subsidies could be the sleeper hit of the G20

JASON REED/JASON REED/REUTERS

There are a few sleeper issues at this weekend's Group of 20 summit. One is the G20's promise in Pittsburgh to "rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption." It would be foolish to predict a resolution to this issue, but the climate change question has a powerful backer with reason to push the energy-subsidy debate much higher on the agenda.

In his Oval Office speech on the environmental disaster in the Gulf of Mexico on June 15, President Barack Obama said he would accelerate the U.S.'s push for green energy. "Now, there are costs associated with this transition," Mr. Obama said in the televised address. "And there are some who believe that we can't afford those costs right now. I say we can't afford not to change how we produce and use energy -- because the long-term costs to our economy, our national security, and our environment are far greater."

So, where will the money come from? A dollop could be had from keeping that Pittsburgh promise to scrap energy subsidies. Climate change advocates certainly think so. The Globe and Mail's Jeffrey Simpson writes about the G20's subsidy promise in Wednesday's paper, although, like most of the commentariat, he doubts anything will happen in Toronto on that issue or any other.

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That sort of skepticism - or is it cynicism? - isn't stopping the NGOs from seizing the opportunity that Mr. Obama's Oval Office speech provided. The World Wildlife Fund's Canadian operation issued a press release Wednesday that put the money spent on subsidizing fossil fuel production and consumption at more than $550-billion (U.S.). The WWF said that amount is about 10 times greater than the cost of keeping the United Nations Millennium Development goals for eradicating poverty by 2015. An end to fossil fuel subsidies by 2020 would result in a 10 per cent drop in climate change emissions.

In Pittsburgh, leaders asked institutions such as the International Energy Agency and the World Bank to provide analysis on the "scope of energy subsidies and suggestions for implementation of this initiative and report back at the next summit." That means this weekend.

The WWF said its release that it is worried G20 countries are lagging in meeting this deadline. As Mr. Simpson noted, Prime Minister Stephen Harper was reluctant to discuss climate change at all this weekend. But Mr. Harper also has been making much of the need for the G20 to be accountable. Toronto was always a transitional summit, as most of the deadlines set in Pittsburgh were for November in Seoul. But there are a handful of tangible things the leaders said they would address in Toronto. One of them is energy subsidies.

Indeed, there's some evidence that some within the G20 are unhappy with the thrust of the conversation around energy subsidies. Greenpeace International on Wednesday released what the organization says is a leaked version of the draft communique for the Toronto summit. You can read the document, some of which Greenpeace said it edited to protect its source, here.

If the draft is current, it appears the G20 broadly is less enthusiastic about putting an end to energy subsidies.

"We reviewed progress made to date in identifying inefficient fossil fuel subsidies that encourage wasteful consumption and we agree to continue working to develop voluntary, member-specific approaches for the rationalization and phase out of such measures."

Here's the full text of what the G20 promised in Pittsburgh:

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"Rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption. As we do that, we recognize the importance of providing those in need with essential energy services, including through the use of targeted cash transfers and other appropriate mechanisms. This reform will not apply to our support for clean energy, renewables, and technologies that dramatically reduce greenhouse gas emissions. We will have our Energy and Finance Ministers, based on their national circumstances, develop implementation strategies and timeframes, and report back to Leaders at the next Summit. We ask the international financial institutions to offer support to countries in this process. We call on all nations to adopt policies that will phase out such subsidies worldwide."

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About the Author
Senior fellow at the Centre for International Governance Innovation

Kevin Carmichael is a senior fellow at the Centre for International Governance Innovation, based in Mumbai.Previously, he was Report on Business's correspondent in Washington. He has covered finance and economics for a decade, mostly as a reporter with Bloomberg News in Ottawa and Washington. A native of New Brunswick's Upper St. More

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