As EESI prepares for our extensive coverage of the 28th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP28) in Dubai, we turn our attention to a topic that will be critical for global emission reductions—fossil fuel subsidies. Government subsidies are an important tool for stabilizing the economy, especially after a shock to the market, but they can also generate profits for polluting industries, as is the case with fossil fuels. Earlier this year, Canada made headlines by releasing the first national plan to eliminate inefficient subsidies to domestic fossil fuel companies. Dan and Alison are joined by Phil Gass and Laura Cameron of the International Institute for Sustainable Development (IISD) to discuss Canada’s framework and the state of global fossil fuel subsidies in the lead-up to COP28.

 

Show notes:

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Episode Transcript:

Dan Bresette: Hello, and welcome once again to The Climate Conversation. I'm Dan Bresette, president of the Environmental and Energy Study Institute, and seated next to me today—we're not on Zoom—seated next to me today is my co-host, Alison Davis. Hey, Alison. 

Alison Davis: Hey, Dan. It's always great to be here on the podcast, but it's especially great today, not only because we're both here in person, but because we've got a really compelling discussion lined up for our audience. A little over two years ago, EESI updated our factsheet on fossil fuel subsidies, which has become one of our most popular resources, and we've got another update in the works. But I think we're overdue to check in on this issue. And we're about to remedy that in today's episode. 

Dan: So not only are we talking about one of EESI’s top, most popular resources, but we're also in the preparation phase of our work around the 28th Conference of the Parties to the United Nations Framework Convention on Climate Change, but we'll call it COP28, for short. And that's happening in Dubai in the United Arab Emirates in a couple of weeks. Anna McGinn, my colleague, and I will be there for the first week, and we're really excited about that. We traveled to Sharm el Sheikh last year, we covered Glasgow virtually two years ago. But our work really picked up in a major way last year, and we're looking forward to picking up where we left off. One of the big things we'll be doing is our daily newsletter, COP28 Dispatch. I encourage everyone, if you haven't yet to go to www.eesi.org/signup to sign up for that. It's a daily newsletter, really kind of, we're not trying to recreate like mainstream media coverage of COP28. But we're trying to cover the proceedings and the negotiations and all of the events with a congressional audience in mind. So really picking up on things that members of Congress and their staff are working on, to help make connections between what's happening here in Washington and what's happening internationally. We also have a bunch of briefings coming up, we have articles, we have podcast episodes like the one today, and so we will be all about COP. We're actually recording this on the last day of COP-tober, then we get into COP-vember, and after that it’s COP-cember. The main purpose of the climate summit is to ensure that the United States and other nations stay on track to fulfill their Paris Agreement commitments, and the most important of those is to keep global warming less than two degrees Celsius above pre-industrial levels, and hopefully much lower than that, hopefully lower than 1.5 degrees Celsius. And that will be really hard to do if the international community and individual countries are not willing to tackle fossil fuel subsidies in order to free up additional resources for other types of energy generation, but also stop or at least slow down the emission of greenhouse gases into the atmosphere.

Alison: There are different ways that groups can define a subsidy, but basically a subsidy is any financial benefit granted by the government, and this can come in many different forms, such as tax preferences or below-market leases and royalty rates. Government subsidies can help to stabilize the economy, especially after a shock to the market, but they can also sustain profits for polluters, as is the case with the fossil fuel industry. According to the International Monetary Fund, the bulk of fossil fuel subsidies in 2022 were attributed to underpricing for local air pollution costs and climate damages. 

Dan: The International Monetary Fund estimated that in 2022, global fossil fuel subsidies added up to a total of seven trillion dollars—that's trillion with a T—representing an increase of two trillion dollars since 2020. But 2023, on the other hand, has proven to be a landmark year in tackling the issue, in large part because of Canada's announcement to eliminate inefficient subsidies to domestic fossil fuel companies. “Inefficient,” and I'm using air quotes here, that's the key term. And we'll talk more about that shortly with our guests. And it's important to note that the framework released by the Canadian government does not impact all of the nation's fossil fuel subsidies. That being said, the policy is the first of its kind in the world, and it provides a foundational model for other countries to follow thanks in no small part to the hard-working people at the International Institute for Sustainable Development, or IISD. And we're lucky enough to have to have them with us here today.

Alison: Phil Gass is the Interim Co-Director of Energy and the Energy Transitions Lead at IISD. His recent work has focused on developing fiscal policy approaches that facilitate climate change mitigation, including subsidy reform. He also works on economic approaches to sustainability, like the green economy, circular economy and just transitions. We really appreciate Phil's speaking with us today despite the time difference from Geneva, Switzerland.

Dan: And also here with us is Laura Cameron calling in from Winnipeg, Manitoba, Canada, so a little less of a time difference for her. But Laura is policy advisor for IISD’s Energy team working in the areas of fossil fuel subsidies, just transition, and oil and gas policy in Canada. Laura is also deeply engaged in social justice community organizing, in addition to her projects as an independent filmmaker that had been published on CBC and screened at international film festivals. Phil and Laura, welcome to the show!

Phil Gass: Thanks! Great to be with you. 

Dan: Well, this podcast has been a long time coming. So Alison and I are super excited to have you as guests today. And let's start off the conversation by addressing some misconceptions, perhaps, about fossil fuel subsidies. What do you see as the most common misconceptions about fossil fuel subsidies and how you address them?

Phil: One of the misconceptions that we have run into over the last couple of years was in regards to Russia's full-scale invasion of Ukraine and the impact that that has had on energy prices. We initially did see that there was an increase in subsidies as energy supply decreased. But what we also sort of saw on the other side, in particular, in North America was a narrative that we needed to increase export capacity to help Europe move away from Russian fossil fuels and onto North American fuels. In reality, what the goal there was, while there was some short-term need over the long term, Europe's moving towards renewable energy sources. And moving away from fossil fuels altogether, the goal is locally produced renewable energy. And what we were sort of combating against a little bit was this idea that export facilities that might take five years to build would meet European energy needs in light of the war in Ukraine, and that just simply hasn't happened. Europe isn't looking to trade dependence on one market for another. Even if it's a more friendly market, they're looking for energy independence. So that's a specific example. But Laura, you wanted to speak some more general ones.

Laura Cameron: One of the one of the most common, you know, questions that come up when we talk about fossil fuel subsidies is the employment implications. So do fossil fuel subsidies create jobs, and on the flip side, will ending subsidies lead to unemployment? And in the Canadian context, we see that, you know, aside from the energy transition, jobs in Canada's fossil fuel sector declined about 17 percent in the five years leading up to the pandemic, despite high subsidies. And you know, in the same period, we've seen fossil fuel companies experiencing very high profits—record-high profits—in the last few years. And so we don't see this clear link between job creation and investment. And if we look at I think the important comparison is always to make what would the same amount of investment in a different sector or different industries create in terms of jobs, and some really interesting research from Jim Stanford at Environmental Defence has found that for every one million dollars invested in the fossil fuel industry, there's only one job created, whereas compared to the economy-wide average, there would be about 8.6 jobs created. So it's a very minimal job creation for the amount of investment and there are much more efficient and more direct ways to create jobs. And one other piece I would mention, is this question around equity, like will cutting subsidies lead to higher gas prices? Will it impact low-income households? And that's a super important question to ask. What we see is that oil and gas prices are really dictated, you know, by global markets. And so ending subsidies will not necessarily have a large influence on prices at the pump, for instance, or home heating prices that are tied to fossil fuels. On the contrary, you know, ending subsidies frees up more government funding to support people to deliver on social goals, and being able to redirect those funds from fossil fuel companies to more direct social support programs, including green energy and energy efficiency programs.

Dan: I want to pick up on sort of something you're talking about Laura, where you're talking about that these are global issues, right, the price of gas in the United States is dependent on things that are happening in other parts of the world. And the existence or not of a fossil fuel subsidy in North America may or may not have a significant impact on what that is. How would you describe the global landscape of fossil fuel subsidies, especially in comparison to subsidies for clean and renewable energy, which is also something that you were talking a minute ago about, Laura? 

Laura: Yeah, I think maybe I'll let Phil speak to this, given his international context.

Phil: Yeah, sure. So I think what we've sort of seen, I mean, subsidies are up, right they’re up as a result of first COVID recovery programs where there were things like wage supports or energy supports for people affected by job impacts or other impacts of COVID. And then immediately after that, we had Russia's invasion of Ukraine, which had an impact on energy prices, so energy prices and subsidies in 2022. It was one of if not the highest year ever within the G20 alone, IISD research identified roughly USD 1.4 trillion in support to fossil fuels in that year alone. And that's a dramatic increase over previous years, or even more than double of 2021. A lot of that was consumer subsidies, which are the subsidies for assisting people for example, with brakes on home heating costs or exemptions for motor vehicle fuel taxes, and so those have been drastically up. We haven't seen the numbers from 2023 yet, so we're still within that year, but expect is still going to be quite high. This is after several years of either slight decline or leveling out. But the combined impact of couple of years of COVID, as well as what's happening in Ukraine right now. And the impact of energy prices, subsidies are definitely up. And so we haven't seen that broad phase out that we want to see. But the sort of silver lining is subsidies and support for renewable energy are also up and the gap is closing a little bit. So we also saw at the same time as these massive fossil fuel subsidies, unmatched from previous history supports for renewable energy transition as well, the difference is just that the fossil fuel subsidies are continuing to outpace the renewable energy subsidies. So on one hand, you could say that over the last couple of years, we've seen more support and investment in renewable energy than we've ever seen before. But at the same time, we've seen even more amounts of investment in subsidy in fossil fuel development as well, which is a troubling trend.

Alison: I want to turn it now more specifically to Canada, which is sort of Laura's area of expertise. Laura, could you talk to us about some of the key tenets of Canada's framework for ending domestic fossil fuel subsidies, which is the first of its kind in the world? What role did IISD play in this work? And do you all have similar initiatives underway in other countries?

Laura: Sure, maybe I'll start with the second part of your question. So IISD has been working on fossil fuel subsidy reform for many years, back in 2010 we put out our first paper on subsidies. And at that time, it was pretty controversial. You know, very few organizations were working on this topic back almost 15 years ago. And I think it's gained a lot of traction, as well as a lot of public support over the years. So we've undertaken many fossil fuel subsidy inventories in Canada and other countries, we've hosted webinars and other public engagement tools. And we've provided direct technical advice to government on how we see that they could best meet their commitments. And so the framework in Canada really marked significant progress, I would say, on this long standing commitment. So Canada first committed alongside other G20 countries to end inefficient fossil fuel subsidies in 2009. So this was a long-awaited policy, and Canada is the first country to publish a clear framework that has clear criteria for how it will meet this commitment. And the framework has two parts. So the first part is how Canada will define a subsidy, a fossil fuel subsidy. And the second part is looking at criteria for inefficiency. So on the definition piece, we Canada has adopted the World Trade Organization's definition, which is widely recognized internationally, and it was what we were hoping to see. But there is one sort of criteria added to that, which is that the measure must disproportionately benefit the fossil fuel sector. So that is slightly concerning. It's yet to be seen how that will really be applied or interpreted in the application of the framework. And then on the efficiency piece, there's six criteria that it sets out for defining what is inefficient, what would make an efficient subsidy, and with everything else being considered inefficient, and would need to be ended or, you know, new measures that would not be started if they didn't meet one of those criteria. And so overall, you know, we see it's, it's a good start, but there are some some important loopholes that we will be looking for to be closed, when, as Canada implements this framework, particularly one I wanted to mention was the continued support for carbon capture and abated fossil fuel production that is, you know, allowed through this, this framework, it carves out sort of exemptions for projects and subsidies that would support reducing emissions in the sector. And we really feel that those emissions, you know, it's critical to reduce emissions in oil and gas production. But that cost should be buried by the companies themselves.

Alison: You mentioned that there are specific qualifications for what actually counts as an inefficient subsidy. And I would love to hear more also about the status of implementation for Canada's framework on inefficient subsidies. Have there been any lessons learned thus far from the process that could help guide other countries on the same journey?

Phil: Sure, I can sure start with this inefficient term. It's most cases been less of a technical terminal more of a political term. And what I mean by that is it doesn't have a common definition, although it's been inserted in a way to sort of have better expediency in terms of agreements to say that look, we understand that there are some subsidies that are inefficient, some might be inefficient. We want to focus on those that are inefficient. We've been asked at IISD a lot how we would determine inefficient, we've sort of turned that question around on governments to say to us well, what do you think is an efficient subsidy? Our general position is that by nature of fossil fuel subsidies almost certainly inefficient. Often these subsidies are designed to deliver on social goals addressing poverty, increasing energy access, supporting jobs, but they do so by making a polluting form of energy cheaper to either burn or produce. So we would generally advise reform that delivers on those social benefits like reduction of poverty in ways that don't make it cheaper to burn fuels, that has a negative impact on climate change. So we press on governments that, you know, if they really do feel that a fossil fuel subsidy is the best way to deliver on such a goal. If it is efficient, they should explain why. And essentially, why a fossil fuel subsidy is the only way possible to deliver on this particular goal. Our general term is to sort of avoid a bit getting caught into the inefficiency in efficiencies, just focus on the idea of reform and delivering the ultimate positive goal, which we want to determine. So some countries have started to make this determination and what they mean in terms of what's efficient, what's inefficient. And then an organization like IISD, can evaluate that definition to say where it needs to be stronger or where it's sufficient enough. But Laura, maybe you want to elaborate exactly, on what Canada has mentioned in terms of its framework in terms of efficiency and inefficiency.

Laura: Sure, so yeah, as I said, there are six criteria in the policy for efficient subsidies. So a subsidy or a measure has to meet at least one of those criteria. So the criteria include things like that, as I said that a subsidy supports significant greenhouse gas emissions reduction in Canada or internationally, that it supports clean energy or clean technology, that it provides essential energy service to a remote community that it provides short term support for emergency response, that it supports Indigenous economic participation and fossil fuel activities or supporting abated fossil fuel production processes. And so right now, where we stand is that Canada has published the framework in July. And they've identified, they said that they have identified 128 non-tax subsidy measures or measures that they will be evaluating with this framework to determine, you know, which ones are subsidies and then which of those would meet the efficiency criteria and which ones would not. And then they would determine how to phase those out. But we have not yet seen that list of measures published. So that's sort of the next big step that we're looking for is for those measures to be published. And for the analysis that shows how this criteria was applied as well, we would like to see that made public. And ultimately, I think there is a little bit more work to be done on how this framework will be implemented, we would love to see the government publish something of an implementation guide to go along with the the framework because the language while being somewhat specific, it still leaves a lot of room for interpretation, I would say when applying the framework to give given measures like what does significant emissions reductions mean? You know, things like that, like we need to have more specificity in order to hold the government accountable to this framework. And yeah, that would be the the other thing that I would add is just that we definitely would like to see more transparency and accountability as to ongoing subsidies, including tax measures, which ones are going to be covered by this framework, and which are not, and having more regular transparency and reporting, as well as accountability on how this framework is applied.

Alison: So for example, if a fossil fuel corporation is buying carbon credits, could that perhaps still count as an efficient subsidy?

Laura: Good question. And these are the questions that we also have that we're asking government at the moment. So I can't really answer one way or another on a given example. But that's what we'll be looking for is how will this be applied? And making sure that examples like that, that, you know, those aren't supported. There's no reason why we should be giving public funds to fossil fuel companies to buy carbon credits. But you know, there is this criteria around enabling emissions reductions, even internationally. And that's a big question about how would that be proven? So that's something that we really hope to get more clarity on from government. But yeah, we really hope that this will be interpreted in a very narrow way where the subsidies that are found to be efficient are the exceptions, and the vast majority of measures are phased out in the spirit of their original commitment.

Phil: If I could elaborate there, too, I think so. Maybe less concerned about credits, but I think so I'll give you two examples of subsidies that we might be intended to give a bit of a pass on, but with a caveat—one on the producer side, one on the consumer side. So we mentioned that there were some subsidies that came up in terms of COVID response. One of those was public funding for the cleanup of abandoned oil well sites, cleanup of abandoned wells. So obviously there was a specific public need to address these wells that were an environmental hazard. There wasn't sufficient funding available from a fund that industry is supposed to pay into to fund the cleanup of these sites. And so nobody else was going to be able to do this without public money. It also provided jobs and economic support during the COVID period when there was a lot of depression in the economy. So there our general position was yes, this is a possible subsidy, this is something that industry should be paying for if they're making the mess, that should be polluter pays where they pay to clean it up. But we've gotten into this situation where we have these abandoned oil wells, and we don't have the money to clean them up. And so we were able to indicate that, okay, we are okay with that, but fix the system long term. So we don't end up in this situation again, so that five years from now, we don't need more public money to clean up things that industry should be paying for. The second is something that Laura alluded to in terms of the efficiency criteria, and that is providing essential energy service to remote community. In Canada, we've got a lot of Indigenous communities, some of those North 60s parallel, extremely cold winters, they get down to minus 40 degrees centigrade, which I think is roughly the same at Fahrenheit at that temperature at minus 40. And these are communities that have specific energy needs, and the cost to deliver energy can be over a dollar a kilowatt hour, which compared to southern Canada could be five or six cents a kilowatt hour in some jurisdictions, so people can't, can't bear that cost. And so there is a need to have a public subsidies support energy access there or else people just wouldn't be able to afford to heat their homes in really harsh winter conditions. The caveat we have there is we should be looking at alternatives for the longer term. Are there renewable energy alternatives? Are there ways to have better insulation for housing, better energy efficiency benefits that we could invest in over the longer term and try to reduce or reform that subsidy over time. So those are the types of subsidies that we might be inclined to give a pass on where there's an immediate need, where there's no other alternative. But we always want to see a long term eye on reforms that we're not locking in these diesel or clean up subsidies in perpetuity, when we should be looking at other ways to deliver the ultimate benefit of, be it energy access, or economic development or environmental remediation?

Dan: Well, this has been great. And we are in the lead up to COP28. And I think this will be a topic of discussion at the international climate negotiations in Dubai in a few weeks. EESI, for the last couple years, we really prioritize coverage of the UNFCCC negotiations. Because now that the U.S. is back in the Paris Agreement, it's really important for policymakers, especially Congress to understand sort of the role that they play or need to play in the U.S. actually, you know, making the investments and acting the policies doing everything we need to do to stay on track. And the last couple of years, actually, with the infrastructure bill and the Inflation Reduction Act, a decent start, but we have a lot of work left to go and fossil fuel subsidies is one of those things, Phil like you were saying, kind of a political term, right? The very existence of an inefficient subsidy implies the existence of an efficient subsidy. And it's something that we've seen pop up in the negotiations and the text and the cover decisions. And I'm curious, sort of looking ahead, what should U.S. policymakers or policymakers generally be on the lookout for at COP28 When it comes to fossil fuel subsidies? And are there any major announcements or advancements? Or are there any potential rollbacks that might be at hand that we should be on the lookout for when we all get together and Dubai in a few weeks?

Phil: Yeah, there's some things I can specifically say that we're looking for, and others that are some things that we're hearing that might reach greater clarity over the next little while. So IISD also supports a group called the Friends of fossil fuel subsidy form. It's a group of non G20 countries that advocate for philosophy of subsidy reform internationally chaired by New Zealand but including several other members from from different regions, including, including Europe, we are hosting an event with them on December 4 at the COP at the Finnish government pavilion that will be led by the Minister of Foreign development for Finland, there, they're going to be talking about what countries in the Global North can do. On a domestic level, there's a lot of talk that there's focus on reforming subsidies in the global south in the developing world. But there's a need for countries to sort of in the global north to walk the talk on this as well. It's not enough to promote diplomacy internationally. It's something that countries need to sort of lead by example. And that said, the US would be included there. So I'd encourage both EESI as well as us members of Congress to attend that event, and to speak with members like the group of friends that are looking to push this domestically. We've also seen some movement in the Government of the Netherlands to start to put together some movement on the reform of fossil fuel subsidies internationally as well. They are a member of the friends but are also looking at what more can be done with greater ambition, hoping to see more momentum on that and more clarity as we move. And I would expect that there'll be engaging us delegates at the COP as well. I think just in general, you know, we shouldn't be losing sight of fossil fuel subsidies. I mentioned 1.4 trillion USD in the G20 alone, in 2022 alone. That's a massive amount. And we have a lot of talk about carbon pricing. But the way I see it is carbon pricing and fossil fuel subsidies go hand in hand, carbon pricing makes it more expensive to burn polluting fuels, fossil fuel subsidies make it cheaper to burn polluting fuels, pricing carbon without reforming fossil fuel subsidies is like bailing water out of a leaky boat without fixing the leak, no matter how much water you bail out of that boat, you continue to have water coming in unless you ultimately fix the leak. We were quite impressed a couple of years ago in Glasgow to see fossil fuel subsidy reform included in the cover text. So we're going to be pushing for more elaboration on what does that mean, and what will specific countries be doing, for example, including fossil fuel subsidy reform commitments, and in their nationally determined contributions going forward, we think that can contribute a lot based on our modeling in terms of meeting global emissions reductions targets. So you know, our general view would be just not to forget about this issue to engage with other countries that are making progress, because there is a lot of progress going on. And as I said, it's almost as if fossil fuel subsidy reform, in a way, is a prerequisite for other policies, such as carbon pricing. And so we'll be watching all of these issues closely at COP28.

Dan: Well, I've got a pretty good authority that will see you at the Finnish pavilion on December 4. It would be a bummer to go all the way to Dubai and not see an IISD presentation at the COP. So we won't let that happen. 

Phil: Well look for you in the front row.

Dan: Yes, put a little reserved sign on the seat. And I'll be right there. For sure. This has been, like I said, a long time coming. And we're super excited, Phil and Laura, to have you on the podcast. Thank you so much for sharing your expertise and for sharing updates about what's happening north of the border. For those of us here in the U.S. it's been a real treat to talk with you. And I look forward to seeing at least you Phil in a couple of weeks. 

Phil: Thanks. Looking forward to it on our end as well.

Laura: Thanks very much.

Dan: Well, Alison, that was a great conversation, I met Phil at COP27 last year in Sharm el Sheikh in Egypt. I watched the presentation of his and thought, “Oh, that is an organization that we need to touch base on because of the interest in our fossil fuel subsidies factsheet. And also, that organization just does tremendous, tremendous work.” So it was super cool to have him and Laura on the podcast today. You know, I think for my key takeaway, I'm gonna go back to kind of what we were talking about before, which was, when you call something inefficient, that implies that there's also an efficient version of it. And you know, maybe, but I'm also a little worried that, you know, if inefficient, isn't defined, then it will continue to kind of, the definition will continue to expand. And eventually, every fossil fuel subsidy could potentially become efficient for one reason or another. And, you know, if none of them are deemed inefficient, well, then we won't have to phase down. Something we also talk a lot about here and EESI is, it's not just and Phil made this point as well, right? The old saying is when you're at the bottom of a hole, you stop digging, and you know, putting more greenhouse gases into the atmosphere, really not what we ought to be doing and we're making policy choices that make that happen more than it needs to. But these are policy choices, they’re choices. Subsidies aren't inherently bad, subsidizing renewable energy or energy efficiency. We subsidize lots of things in the United States that deliver benefits to everybody. But ultimately, these are choices and policymakers are the ones who have to make those choices. And so hopefully, when our new fact sheet is out there, we'll take a look at it. And that will help inform the decision making going forward. Whether it's at COP 28, or whether it's beyond.

Alison: It really struck me that Canada's framework, although it certainly isn't perfect—you know, something like carbon capture, if that can make a fossil fuel subsidy, quote-unquote efficient, that can really only go so far if we can't really store it properly, there's room for improvement in that technology. But overall, I think that even though there is a lot of room for improvement, this is a case where we cannot let the perfect be the enemy of the good. And at the end of the day, Canada's framework is a win. You know, it's pretty easy to criticize someone who is the first to do something new, it is much harder to be the one doing it. So I definitely commend Canada for their groundbreaking work in eliminating fossil fuel subsidies. If you want to learn more about EESI’s work on COP28 or fossil fuel subsidies, head to our website at eesi.org. Also, follow us on social media @eesionline for all of our recent updates. The Climate Conversation is published as a supplement to our bi-weekly newsletter, Climate Change Solutions. Go to eesi.org/signup to subscribe. Thanks for joining us and see you next time!