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The good, the bad and the ugly: Fossil fuel subsidies at the Paris climate talks

During the first nine days of the Paris climate talks, a lot of people have said that they want to be good. President Obama wants to be good.

“We are the first generation to feel the impact of climate change,” he told the UNFCCC plenary last Monday, “and the last generation that can do something about it.” China’s president Xi Jinping wants to be good. “Going forward, ecological endeavours will feature prominently in China’s 35 year plan.” Prime Minister Cameron, Chancellor Merkel and President Putin all want to be good. President Mugabe wants to be good. He is disappointed that other states are not as good as they should be. “It is unconscionable that not only are developed countries miserly in providing the means for implementation of the Convention, but also want, inordinately, to burden us with cleaning up the mess that they themselves have created.”

Prime Minister Key also wants to be good. He appeared on the first day of the Conference to present a Communiqué to the UNFCCC calling on the international community to remove fossil fuel subsidies. “New Zealand is leading this international effort because we strongly feel that it is the missing piece in the climate change puzzle.” “We have one critical message. The time for action, global action, on fossil fuel subsidies is now.” Almost 40 countries, and at least 60 international organisations and major corporate entities joined New Zealand and the 8-nation coalition that it leads, the ‘Friends of Fossil Fuel Subsidy Reform’, in affirming the document.

But amid this cornucopia of goodness, hints of less-than-goodness appeared. New Zealand was rewarded for its fossil fuel subsidy reform efforts last Monday by receiving the first “Fossil of the Day” of the 2015 talks. In making the award, the Climate Action Network said, “New Zealand claims a top spot for rather hilariously, or not, urging countries to phase out fossil fuel subsidies while shelling out big bucks to prop up fossil fuel production to the tune of $80 million.” The $80 million figure comes from a 2013 WWF-NZ report which also says that New Zealand has increased its support for fossil fuel production sevenfold since 2008. New Zealand’s big moment at the historic climate talks received widespread international attention, but not the kind of attention that one suspects the MFAT team had hoped for. The thrust of much of the international coverage was either on the perceived hypocrisy identified by environmental groups of New Zealand’s international position, or on the refusal of Australia – long, an enthusiastic subsidiser of fossil fuel production – to sign up to the document.

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Some of the cracks in the rhetoric surrounding the Friends’ Communiqué were revealed in a side-event on fossil fuel subsidy reform hosted by the IISD Global Subsidies Initiative and Friends of Fossil Fuel Subsidy Reform at the Paris Le Bourget conference venue yesterday.

The representative of Finland, another member of the Friends group, proudly announced that Finland had eliminated all direct subsidies for fossil fuel consumption and production. He conceded that a range of indirect production subsidies for fossil fuels remained. It has developed a ‘traffic light’ system for its production subsidies: the “good, the bad and the ugly”, taking into account the harmful environmental effects as well as “social and economic benefits” of subsidies. Only the bad and the ugly will attract the ire of the Finnish officials. But what is ‘good’? Beauty, after all, tends to be in the eye of the beholder, especially where economic benefits are involved.

This is where it’s important to read the fine print of the Communiqué. The final paragraph records that the commitment is to “eliminate inefficient fossil-fuel subsidies in an ambitious and transparent manner as part of a major contribution to climate change mitigation”.

Inclusion of as flexible a qualifier as “inefficient” wouldn’t necessarily be an issue, as long as there is a common understanding of what the term covers. However, no definition is included, referenced, or even hinted at. The Communiqué is a worthy initiative. But it suffers from the same fundamental problem that plagues other international initiatives developed to address fossil fuel subsidies – the 2009 G20 Pittsburgh Leaders Statement and APEC Singapore Statement – both of which have been championed by New Zealand and the Friends. The central concept of what is an undesirable fossil fuel subsidy (as opposed to benign, or even helpful subsidy) is left up to countries to determine on their own.

In New Zealand’s case, the open nature of its APEC commitment to “rationalise and phase out over the medium term fossil fuel subsidies that encourage wasteful consumption” allowed it a clear run through a 2015 international peer review (PDF) of eight selected fossil fuel support policies. They included a non-resident off-shore drilling rig and seismic ship tax exemption, government funding for research and development the oil industry, and group of fiscal support measures for the ailing state-owned coal producer Solid Energy comprising a $25M equity injection, $130M secured loan facility, and government assumption of a $103M environmental liability indemnity. None of these policies were inefficient or led to wasteful consumption, officials submitted. The peer reviewers agreed. Who can argue when there is no clear yardstick to measure these policies against?

In yesterday’s session, Minister Groser was asked to comment on a $4 billion Australian scheme providing for diesel tax rebates in the mining and aquaculture industry. 

“This is a game of progress,” he said. “And remember the old phrase: an exaggerated concern for consistency is the hobgoblin of small minds.”

Not too good, and not quite all the time.

Review overview