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Leaked World Bank Report: Fossil Fuel Subsidies Should Go to International Climate Finance

By Stephen Lacey on September 22, 2011 at 9:44 am

"Leaked World Bank Report: Fossil Fuel Subsidies Should Go to International Climate Finance"

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The World Bank is calling on developed countries to cut out the roughly $50 billion in consumption and production subsidies for fossil fuels. But unlike proposals in the U.S. to use that money for domestic infrastructure projects, the World Bank thinks it should be used as climate aid for developing countries.

Technically, the World Bank hasn’t called on OECD countries to do anything yet. The proposal, which will be released at UN climate talks in November, was leaked to the Guardian newspaper and printed yesterday evening. The documents paint a dark picture for the future of international climate finance, unless a fresh approach is taken to raise the needed funds:

According to the confidential paper, there is little likelihood that in the current economic climate, public money will be available for raising the $30bn rich countries have pledged for the 2010-2012 period, and the $100bn a year that must be found by 2020. Instead, says the paper, “the large financial flows required for climate stabilization and adaptation will, in the long run, be mainly private in composition”.

It says: “A starting point should be the removal of subsidies on fossil fuel use. New OECD estimates indicate that reported fossil fuel production and consumption supports in Annex II countries [24 OECD countries] amounted to about $40-$60bn per year in 2005-2010 … if reforms resulted in 20% of the current level of support being redirected to public climate finance, this could yield $10bn per year.

“Reform of fossil fuel subsidies in developed countries is a promising near-term option because of its potential to improve economic efficiency and raise revenue in addition to environmental benefits.”

According to the World Bank, around half of fossil fuel subsidies are directed to the oil industry, with the other half going to natural gas and coal.

After Congressional debate over repealing subsidies to the oil and gas sector in the U.S. died down at the end of summer, President Obama renewed the idea as part of his job-creation proposal. But assuming the plan got traction, none of the $41 billion would be directed toward international climate finance.

Meanwhile, uncertainty around whether the U.S. can meet its international commitments beyond 2012 continues. As Rebecca Lefton of the Center for American Progress pointed out in her analysis of Congressional budgeting, the current proposals do not look good:

  • The World Bank multilateral Climate Investment Funds that the Bush administration established, and consist of the Strategic Climate Fund, the Clean Technology Fund, and the Forest Investment Program, were zeroed out.
  • The Global Environment Facility, the main funder of international global warming projects, was severely cut to $70 million, which is more than half the FY 2012 presidential request.
  • Funding for the UNFCCC and the Intergovernmental Panel on Climate Change—a body of scientists that studies the risk of human-induced climate change—is abolished.
  • USAID’s operating expenses are cut 30 percent below FY 2010 levels to less than $1 million, meaning consequent layoffs.
  • The Bush administration’s Millennium Challenge Corporation, which invests in country-led policies to generate economic growth with a major focus on climate change, would see its funding drop 20 percent.
  • The TFCA is excluded, indicating no continued funding for this program.

Both of these issues — repealing subsidies for mature fossil fuels and finding money for international climate — are politically-charged in the U.S. A combination of the two would be an especially hard sell. But perhaps it’s time to take a fresh look at the issue.

For a detailed report on U.S. commitments, check out the Center for American Progress report, “The U.S. Role in International Climate Finance.”

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6 Responses to Leaked World Bank Report: Fossil Fuel Subsidies Should Go to International Climate Finance

  1. Get used to ever increasing hell and high water folks.

    The primary weapon to fight increasingly extreme and destabilizing weather is raising the price of climate pollution. And yet the wealthy nations are still spending a billion dollars a week subsidizing climate pollution to make it even cheaper to keep dumping it into our weather system.

    Two decades after Rio the battle to stop climate destabilization hasn’t even made it to the point of stopping subsidies for climate pollution. Clearly the citizen of the wealthy nations are going to have to do a heck of a lot more to stop climate chaos than we have done so far.

  2. Joan Savage says:

    Do we have some idea about what climate aid in developing countries includes? It could include a desperate measure like building a seawall on a Pacific Island, or pro-active measures to limit the spread of malaria, help coastal populations move to higher ground, design climate-adapted housing, develop climate-tolerant food supply, plant CO2 absorbing organisms, move away from dependence on charcoal and kerosene…
    Here’s hoping.

  3. Hot Rod says:

    Does anyone know where the ‘new OECD estimates’ can be found? These numbers always baffle me. Certainly the EU countries in the 24 have no such net subsidies, when you look at the average price of gas of over $8 per US gallon at the pump, most of which is tax, plus the production taxes raised by UK and Norway. Australia gains a huge amount of revenue from fossil fuel production taxes.

    The negative subsidies, generally known as ‘taxes’, dwarf any subsidies.

    This was acknowledged in the IEA report on fossil subsidies, where the vast majority were in developing countries, mainly with fossil fuel production, where the domestic populations had access to oil/gas at prices below world prices. The developed countries were very small, and NET subsidies there were hugely negative.

  4. Lewis Cleverdon says:

    The assumptions underlying the World bank report warrant several criticisms.

    First, pledging to provide set funds for ‘stabilization & adaption’ (in response to an open-ended degree of climate destabilization now in the pipeline) is both deficient and compensatory in nature, and was proposed only as a means to gain nations’ participation in the plainly token effort of voluntary national emission targets for 2020.

    Second, it is sufficient reliable funding to allow developing nations to move directly to renewables without first establishing fossil infrastucture that has primary significance. Without that development funding a binding climate treaty is not negotiable as it would leave huge populations without better energy supplies while facing worsening weather impacts.

    Third, as the bitter history of western pledges of ‘aid’ funding and the report itself make clear, the pledge of $100Bn/yr by 2020 is declaratory and wholly unreliable long-term, particularly in light of the present western economic decline. The report acknowledges this tangentially with its statement:
    “the large financial flows required for climate stabilization and adaptation will, in the long run, be mainly private in composition”.

    Private funding, apart from an insignificant scale of philanthropy, will occur only where there is a competitive return on investment. Proposing that this normal commercial investment would somehow replace or qualify as part of the Climate Finance Initiative is brazenly dishonest, as the US-run World Bank well knows.

    In contrast to the Climate Finance Initiative the mechanism for funding nations’ avoidance of fossil fuel dependence and deforestation and their adaption to ongoing climate destabilization must logically meet three criteria:

    - it must be demonstrably efficient in meeting the objectives to avoid catastrophic collapse and conflict;
    - it must be demonstrably equitable to endure under the immense stresses that coming generations will face;
    - and it must be demonstrably robust and reliable to give sufficient confidence for its negotiability as a central component of a binding climate treaty.

    No voluntary pledge of funds can meet these criteria, and even statutory fixed national liabilities would fail the efficiency test, the equity test and the negotiability test due to their unresponsiveness to declining western economic dominance.

    What is required is the allocation of national GHG emission entitlements under an annually contracting global GHG budget, with those allocations converging from the present de facto shares reflecting national wealth to shares expressing international per capita parity, with those populous nations gaining surplus entitlements having the right to trade them with nations in need, with the revenues being ring-fenced to relevant spending.

    In this manner developing nations would have a reliably valuable commodity to sell, with the revenues dedicated to meeting the objectives, and all parties would have a strong direct incentive to terminate GHG emissions as rapidly as possible.

    From this perspective the World Bank proposal appears to be just more obfuscation by its US controllers to avoid discussing the actual mutual requirements of a viable climate treaty.

    Regards,

    Lewis