On the whole, human beings want to be good, George Orwell famously quipped. But not too good. And not quite all the time.
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.
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 and 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 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 8 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.
(This article was originally published by Idealog on 9 December 2015.)
A feature of any international negotiation process, and the latest round of international climate talks in Warsaw is no exception, is the entirely predictable – but almost always interesting – tendency for domestic policies and politics to inconveniently crop up at the precise moment that Ministers and diplomats are attempting to nobly position themselves on issues of global significance.Sometimes where especially contentious domestic policies are being implemented, the heat is expected to be just too much. National political representatives simply don’t turn up to international negotiations to face the scorn of their convention counterparts. But more often than not, negotiators and Ministers doggedly press on, expecting (not unreasonably perhaps) that party and public criticism will go unnoticed, or pass quickly, and will in any event not overly impede them from sailing their charted course.
Along these lines, an intriguing interchange on aspects of New Zealand’s domestic energy policy took place at a session in Warsaw on Tuesday evening. It was a side-event to the official talks fronted, amongst others, by Trade and Climate Change Minister Tim Groser, and former Minister for the Environment, now head of the OECD Environment Directorate, Simon Upton. The event was co-hosted by the ‘Friends of Fossil Fuel Subsidy Reform’ and the Geneva-based NGO, Global Subsidies Initiative to raise awareness for fossil fuel subsidy reform. This is an issue which Minister Groser has pursued in the international arena with enthusiasm (and some success) for over 3 years, including as de facto head of the ‘Friends’, a group of eight non-G20 countries who have all confirmed their support and interest in advancing fossil fuel reform efforts around the world.
The case for limiting fossil fuel subsidy policies is compelling. Estimates vary according to definitions and methodologies, but a commonly cited figure published recently by the IEA has the global sum of fossil fuel subsidies at $544 billion in 2012. To put this in context, it has been reported that domestic subsidies in developed countries outstrip international climate finance provided to help address climate change in developing countries by a ratio of 7:1.
Almost all economists, and most politicians, if pressed, will concede that although well-designed and targeted subsidies can play a useful role in supporting some aspects of public policy, on the whole, subsidies are Not a Great Thing. They distort markets and create a drain on public resources. From a resource use and environmental perspective, subsidies create excess demand for products which, in turn, causes a range of negative environmental impacts. The role of subsidies in contributing to the current collapse of fish stocks is well documented. In the climate change area, fossil fuel subsidies lead to excess demand and use of fuels which result in greenhouse gas emissions. They ‘tilt the playing field’ against emerging renewable energy technology, making it more difficult to transition to cleaner energy sources.
Fossil fuel subsidies are typically divided into two categories. The first – ‘consumption subsidies’ describes forms of government support which make fuels cheaper for consumers. The IEA observes that countries that export fossil fuels see fuel subsidies as a way to “share out” the benefits of energy exports among their population. It is often argued (often not convincingly) that subsidising fossil fuels is to help lift poorer members of society out of energy poverty.
The second category is ‘production subsidies’. These are various forms of government support for the fossil fuel industry: often hidden within layers of complex tax, favourable royalty, insurance or other indirect means of support. Like consumption subsidies, they distort the market, by making it easier for firms to enter and operate within the fossil fuel exploration, production and processing sector, implicitly gaining a competitive advantage over non- or less-subsidised industries, such as renewables.
There are very strong arguments for why fossil fuel subsidies should be curbed, and ultimately eliminated. The ‘Friends’ group has played an important role in raising the profile of the issue. Along with his panel colleagues Minister Groser presented a typically energetic, and engaging précis of the case for the affirmative.
So far so good. Then came a question from a young woman from Norway, Live Kvelland, a member of environmental NGO ChangeMakers. In imperfect English, she asked, a little hesitantly:
In Norway we have.. [energy production support systems] such as R&D, discount rates and exploration support. I’m wondering if you also have this in New Zealand? And if you do consider them to be subsidies, do you want to phase out the subsidies as well, now that you are doing this good job with consumption subsidies?
The question was neither naïve, nor irrelevant. Earlier this year, WWF published a report on fossil fuel subsidies in New Zealand, estimating that New Zealand government support for the oil and gas industry was worth around $46M in 2013. In international terms, that figure is low. But it contributes to a much larger chunk of funds spent globally on production subsidies for fossil fuels. (An OECD inventory complied in 2013 identified over 550 measures that support fossil-fuel production or use in its 34 member countries, with an overall value of around US $55-90 billion a year between 2005 and 2011.)
There is also the small matter of a proposed New Zealand government bailout of the troubled state owned coal mining company Solid Energy – difficult to describe in terms other than Large Government Subsidy. So there were fair questions to ask, and a fair expectation of a response.
Kvelland’s query elicited the following response from Minister Groser. He didn’t answer the question. Instead, he said:
… Don’t get hung up about every single little thing that you might say was a subsidy in one form or another. Just tackle the big issues that are spending between 6 and 700 billion dollars a year. It’s a question of going for the money, and not getting carried away with trying to have a completely purist approach … I would strongly encourage those of you who are interested in this policy area not to go down the path of trying to get too pure on what is a subsidy and get the last bit of economic rationality into this. The problem is huge. Let’s just get going and look at the obvious issues. It will be for the next generation to take the step further.
Earlier in the presentation (perhaps anticipating a question along the lines of Kvelland’s, the Minister had said:
This [Friends initiative] is not an attack on the whole system and use of fossil fuels, and quite deliberately so. That is decades away: the complete removal of fossil fuel from the fuel and energy system. What this is, is the process of an attack, a concerted attack, on inefficient subsidies. I know that sometimes political commentators, political players, in this field find it very difficult to get their head around those qualifiers. But it’s very important, because, that’s already beyond what the traffic will bear. Extend this further, into a wholesale attack on the use of any fossil fuel, and I’m sorry, this will be a rhetorical exercise only.
The young Norwegian observer’s question, and Minister Groser’s response provoked a cascade of further questions and comments. Another Norwegian observer, referring to a long-standing Norwegian policy of allowing oil exploration subsidies, asked the Minister how he would regard them in terms of the Minister’s preferred “traffic light” categorisation (red – damaging, not OK; green – not damaging, OK; orange – not clear).
The Minister said
Intuitively I would put [the Norwegian oil production subsidies] into the green or the orange, but not the red. Because the real damage is being done, frankly, by consumption subsidies. I’d have no question in saying where the real target is at this point.
It’s worth reflecting for a minute or two on these responses. Perhaps there are some subtleties to the Minister’s views. But if there were, they were not articulated. In the space of few short statements, the Minister swept off the table up to $90 billion of fossil fuel subsidies. Production subsidies are either non-issues, or not worth devoting any significant attention to (at this stage at least) in the grander aim of eliminating consumer subsidies in countries such as Malaysia, Indonesia, India, Saudi Arabia or other similar countries.
It will escape few that the particular subsidies in place in New Zealand are, on the whole, production subsidies. A similar situation exists in many other developed countries. New Zealand, and potentially other members of the Friends group, has narrowed the scope of its attention to one category of subsidies – admittedly the largest – which tend to be administered by developing countries. Tackling fossil fuel production subsidies is a job for the next generation.
Unsurprisingly, other views were voiced. Steve Kretzmann, a respected US commentator on energy subsidies, responded in this way:
Without a doubt, we have to think about putting production subsidies, and particularly, subsidies for new exploration, in the red category. And that’s because we have IEA, and IPCC telling us we need to leave roughly two thirds of the existing fossil fuels in the ground if we’re going to meet our goals of staying under 2º of climate change. Why, in God’s name, are we spending millions more incentivising companies to find more of something that we can’t burn. It makes absolutely no sense.
Speaking with Kretzmann after the event, he added:
There’s also an equity issue, which I find, frankly, offensive, where…people..want to focus on consumption subsidies in the developing world and not on their own subsidies, putting aside what the historical subsidies for the oil industry and the rest of fossil fuel industry in the developed have been, which actually stretch back much farther than many of the consumption subsidies…
It was telling that Simon Upton took care to distance himself and the OECD from Minister’s Groser’s approach:
I’m not sure that I’d agree with [the Minister] that you just say, well “consumption is the thing” and we won’t worry about production… And we know that the United States has actively tried to get rid of some production subsidies. They’re not trivial. They’re in the billions. But the [US] government decided that it wanted to go for that. It had labelled them itself, which was at least in the amber box. So in the first instance it is actually getting the stuff out there, and then you can argue over the priority with which you attack it.
Upton’s approach – and that of the OECD – has the advantages of logic, consistency and pragmatism. Not all fossil fuel subsidies, whether production or consumption, are born equal. Nor should their continuance or demise necessarily be equal. A case might be made for some New Zealand, Norwegian, and other developed country production subsidies. Most are likely to be found wanting. But to discard the possibility of putting a global total of up to $90 billion annually of production subsidies under the microscope represents a deeply myopic view unbecoming of the Friends initiative, which in all other respects deserves applause and support from the international community.
A blog on public, international & environmental law
I'm a New Zealand academic lawyer, lecturer, & writer, researching & teaching public, international & environmental law at AUT Law School, Auckland. I'm particularly interested in sustainability, climate change, fossil fuel subsidy reform & climate displacement.