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

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.”