The world promised to phase out fossil fuel subsidies. Instead, it doubled them.
The sharp rise in fossil fuel subsidies is just one example of why activists say climate treaties are so often meaningless.
In November 2021, 197 countries signed the Glasgow Climate Pact, a last-ditch attempt to land the world on a pathway to safe levels of global warming.
The pact included a historic promise to stop pouring billions each year into financial aid for fossil fuels. It called on governments to accelerate the “phase-out of inefficient fossil fuel subsidies,” which keep the price of fossil fuels artificially low.
The promise had the potential to make a real difference in the climate fight. “Fossil-fuel subsidies are one of the biggest financial barriers hampering the world’s shift to renewable energy sources,” Jocelyn Timperley wrote in the journal Nature in 2021. “Each year, governments around the world pour around half a trillion dollars into artificially lowering the price of fossil fuels — more than triple what renewables receive.”
As such, many experts hailed the subsidy language as a milestone. Former Obama administration climate negotiator Jennifer Haverkamp called it “a reflection of the increased sense of urgency and public pressure on the parties to show that they are seriously addressing the problem.” The New Scientist called it “unprecedented,” noting that “fossil fuel subsidies have never been explicitly mentioned in 26 years of treaties and decisions at UN climate talks.”
But a year and a half later, it’s become clear that this historic promise was meaningless. According to an International Energy Agency report released last week, global fossil fuel subsidies rose to $1.1 trillion in 2022–more than double the amount of fossil fuel subsidies in 2021. Global oil subsidies rose by 85 percent, while subsidies for natural gas more than doubled.
It’s just the latest example of an international climate pledge failing to deliver. And it’s why many activists say it’s time to seriously revamp the process.
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Fixing the price of fossil fuels
The sharp rise in fossil fuel subsidies last year was, to be fair, primarily due to emergency circumstances: The energy crisis caused by Russia’s invasion of Ukraine.
As countries like the U.S. imposed increasingly strict economic sanctions on Russia for its invasion, Russia retaliated by shutting off its gas pipelines to Europe, inflating energy prices to new highs. To ensure consumers didn’t feel the full brunt of those prices, governments around the world sprang into emergency action, using tactics like keeping consumer fuel prices artificially low.
The majority of these extra subsidies were paid by governments in developing economies, the IEA said. But advanced economies like the U.S. and Europe also increased their fossil fuel subsidies, spending a total of $500 billion in 2022 helping people with their energy bills. (The IEA didn’t consider these subsidies in their report because consumers in the U.S. and Europe still paid above market value for fossil fuel energy).
These subsidies likely helped shield millions from the adverse impacts of the energy crisis. And this is precisely what governments are for: reacting quickly during emergencies to ensure people’s lives and livelihoods are not in danger.
But even the IEA noted that this emergency reaction was only necessary because of the world’s poor response to another emergency: the climate crisis. If governments had been doing what they’d promised in earlier climate pacts—that is, transitioning to renewables while correcting artificially low fossil fuel pricing—the energy crisis wouldn’t have necessitated so much additional spending on fossil fuel subsidies.
This is why the IEA says “It is far better for governments to spend time and money on structural changes that bring down fossil fuel demand, rather than on emergency relief when fuel prices go up.” Because fossil fuel subsidies may protect consumers in the short-term, but they have the long-term effect of exacerbating the climate crisis, which is only going to bring more pandemics, conflicts, supply chain issues, and future energy crises.
The energy crisis was an emergency, but it wasn’t an outlier. It is merely a precursor of things to come if governments don’t deal with the climate crisis. As the world continues to warm, access to basic necessities like power and fuel will get harder and more expensive.
We are already paying the price for our shortsightedness—and without major reform, that price is only going to rise.
The latest in a line of broken promises
This isn’t the first time countries have failed to deliver on promises to stop artificially inflating the price of fossil fuels. The G20 pledged to phase out inefficient fossil fuel subsidies at the Pittsburgh Summit in 2009, and never followed through. The G7 also reaffirmed a commitment to do the same at the Ise-Shima Summit in 2016, and did not do it.
Other climate promises also continue to be broken. Leading up to COP26, China said it would reduce emissions before 2030 and reach carbon neutrality by 2060. But in 2022, China committed to building more coal plants, a 50 percent increase over the year prior. The G20’s then-president and former Italian Prime Minister Mario Draghi pledged to phase out fossil fuels at COP26, but Europe looked to coal and natural gas from other countries to stockpile fuel reserves for winter. The U.S. under President Biden has made many climate promises. But in 2022, the U.S. profited by becoming the largest liquefied natural gas exporter in the world.
This isn’t to say that no progress has been made. A global $1.1 trillion was invested in low-carbon energy in 2022. This marks the first time ever that investment in clean energy equaled investment in fossil fuels. That historic milestone was thanks, in part, to energy transition investment in China, the U.S. Inflation Reduction Act, and the European Union’s REPowerEU Plan. The energy crisis also accelerated investment in renewable energy to a new high. The IEA forecasts that renewables will account for 90% of global electricity capacity expansion by 2027, mainly driven by China, the EU, the U.S., and India.
These milestones, however, are still not enough. Global investment in low-carbon technology has to immediately triple to reach a 2050 net-zero pathway, according to Bloomberg New Energy Finance. That would mean investing an annual average of $4.55 trillion for the remainder of this decade in order to get back on track.
This is why some activists say a new process for global climate promises is needed.
30 years of climate inaction
Activists and experts say that there is a fundamental problem with the way treaties like the Paris Agreement and Glasgow Climate Pact are set up. Countries have no incentives to comply, because there are no penalties for signing a climate accord but not following through. That’s led to 30 years of incremental progress where massive change is needed.
There’s even scientific evidence that international treaties of all kinds just don’t work. A recent study from York University in the Proceedings of the National Academy of Sciences reported that international treaties without enforcement mechanisms aren’t effective. The authors found that only tools like financial sanctions or expulsion compelled signatories to follow through.
That’s why environmental treaties need penalties for countries that don’t meet their climate goals, say experts like Larry Susskind, who runs the MIT Harvard Public Disputes Program. Trade restrictions between countries that have ratified a climate agreement, and those who haven’t, are another proposed solution.
But the industries that cause climate change also have to get on board with real solutions. Consider the Montreal Protocol: the one, shining example of collective action actually solving a climate problem, the hole in the ozone layer. One of the factors that worked in the Montreal Protocol’s favor was American chemical giant DuPont, which threw its support behind the agreement because it was no longer making money off of the ozone-killing chemicals known as chlorofluorocarbons (CFCs).
But the fossil fuel industry is still making money off their products—now more than ever before. This is why climate promises never come to pass. The polluters’ pocketbooks are government-lined.
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Biden is canceling fossil fuel subsidies. But he can’t end them all. Grist, January 2021.
Key quote: “Subsidies aren’t blank checks from the government: They usually take the form of tax breaks, regulatory loopholes, or anything else that gives a particular industry a leg up. The estimates for the U.S. run from around $20 billion to as much as $650 billion a year, if you think fossil fuel companies should be paying the government for all the damages from their pollution.”
Countries Made Bold Climate Promises Last Year. How Are They Doing? New York Times, November 2022.
Key quote: “Many countries and companies have made only halting progress toward the goals they set for themselves, like curbing deforestation or increasing the amount of climate aid to poorer nations. In some cases, governments are backsliding on promises as war, energy shortages and inflation have overshadowed climate concerns.”
Reforming global fossil fuel subsidies: How the United States can restart international cooperation. Brookings, July 2021.
Key quote: “To lead a global subsidy reform effort, the United States should first use the Group of Twenty (G20) to create a working group that develops a collective reform strategy, with the buy-in and participation of members. Second, the United States can recommend that countries, including itself, concretely link reform strategies with their Nationally Determined Contributions under the Paris Agreement. Lastly, it should develop a program to provide Least Developed Countries (LDCs) with technical and financial assistance to remove subsidies while also promoting economic recovery and growth.”
Catch of the Day: Besties Sully (left) and Gus are so happy to see you after hiking and playing in puddles!
Sully is now a spirit doggo, but reader Kimberly says that he’s with them every time they go out.
May we all have some puddles to play in, and a friend to watch over us.
This really is an exceptional article on this issue of fossil fuel subsidies. And I want to expand on something mentioned in the article.
“but Europe looked to coal and natural gas from other countries to stockpile fuel reserves for winter”
I think it is important to look at the secondary effects of policies like this, because as is discussed in the article about broken promises, those effects really illustrate how much of a broken promise this all is.
Europe is buying massive amounts of natural gas and coal, as mentioned, and since they are much wealthier than other countries who need that natural gas, they can out buy them. Which then leads to those countries having to burn more carbon intensive fuels like coal.
“Pakistan plans to quadruple its domestic coal-fired capacity to reduce power generation costs and will not build new gas-fired plants in the coming years”
“Despite power demand increasing in 2022, Pakistan's annual LNG imports fell to the lowest levels in five years as European buyers elbowed out price-sensitive consumers.”
All while pushing an image on the global stage of being leaders of a clean energy transition, and telling poorer countries to not build or use infrastructure like coal plants.
Which they shouldn’t, but then don’t be surprised when they have to resort to stuff like coal when you are buying the natural gas they would have used instead.
And that isn’t even getting into how Europe will get the energy benefits of these fuels, while poorer developing countries have to deal with the negatives of extracting and processing them.
Wealthy Europe is subsidizing fossil fuels not only in the market price, but since they have a carbon trading market, they are paying even more, so poorer countries have to subsidize new coal plants. All while pushing this image of being leaders on a clean energy transition.
When in fact it is their own abject failure of having sensible clean energy policy, worsening the climate crisis. Just a despicable broken promise.
I really don’t have a word for it other than it is just fucked and it makes me so god damn angry.
And for whatever it’s worth, I have never and will never be disappointed in anything HEATED publishes or produces. So much work goes into everything you do, and it matters so fucking much, I’m never disappointed by it.
Really, thank you for the excellent article.
I live near part of the route of the proposed Uinta Oil Train. The section of new rail line is asking for subsidized loans from a US DOT fund. Two billion bucks or so I think. Who knows if these subsidies are even counted as "fossil fuel." https://coloradosun.com/2023/02/24/uinta-basin-railway-bonds/