Carbon Market Watch

For fair and effective climate protection.

Getting the G20 to move on fossil fuel subsidies and carbon pricing

22 Feb 2017

The 2015 diplomatic success of the Paris Agreement now seems far away. Today we are faced with a very different geopolitical reality both in general, and especially when it comes to climate policy. Germany, a country Europe often looks to for stability, now also finds itself in the global limelight in 2017 as it holds the G20 Presidency and will host the COP 23 along with Fiji in Bonn.

Will Angela Merkel, once known as the Klimakanzlerin (Climate Chancellor), be able to get the likes of Trump, King Salman, Putin and others to move on climate, carbon pricing and fossil fuel subsidies? It is an imperative that she pushes the issue.

The G20 countries account for about 85% of global GDP and represent 80% of global GHG emissions. While, the UNFCCC is an important forum, it will need reinforcement and to work in lock-step with other global grouping, like the G20 to face the climate challenge. As negotiations on pricing carbon internationally through new Paris market mechanisms continue to stall, several G20 INDCs are less ambitious than business as usual, amounting to about 1 gigaton of hot air. International trading with these countries could undermine global efforts, so it may be worth talking about global trading rules a while longer.

At the same time, domestic action cannot wait and sending a clear price signal to reduce emissions is an important step. While often thought of separately, carbon pricing and fossil fuel subsidies are two sides of the same coin: fossil fuel subsidies are really just a negative carbon price. The G20 first addressed fossil fuel subsidy reform in 2009 as President Obama played host in Pittsburg. Since then, the G20 has mentioned it several times notably in 2015 and 2016, but with little real action to back it up.

Carbon pricing has proven more popular with multiple countries experimenting with both taxes and cap and trade systems. The World Bank estimates that 40 national and 20 sub-national jurisdictions have a price on carbon, a list that overlaps with many G20 countries. While these prices are generally too low, and recent votes have shown them to often be resistant to meaningful reform, their comparative popularity means that along with continued work on subsidy reform, it makes sense to have them high on the G20 agenda.

Over the past few years, both the G7 and the G20 have served as opportunities to reconfirm climate and energy commitments providing impetus and laying the foundation for the Paris Agreement and the Kigali Amendment to the Montreal Protocol. Reconfirming these commitments and increasing ambition is now more important than ever.

Giving clear market price signals through subsidy reform and carbon pricing are potentially powerful tools to make this happen. While it’s going to be a big challenge, especially considering shifting leadership in key countries, Germany has now an important opportunity to merge its G20 Presidency and COP 23 host roles by making sure that the message coming out of Hamburg is that fossil fuel subsidy reform would mean ‘huge’ financial and emissions savings, and that a clear pricing signal for emitters can be ‘tremendous’.

by Aki Kachi