Words Malek Hakim
Major global insurance companies are urging G20 leaders to commit to a specific timeline for rapidly phasing out fossil fuel subsidies – something that they have repeatedly failed to do over the years despite numerous promises to end support for the industry. In a joint statement issued ahead of the G20 conference in China last August, insurers with more than 1.2 trillion in assets under management warned that support for the production of coal, oil, and gas is at odds with the countries’ commitment to dealing with climate change as they agreed to do in Paris in December 2015. The phase-out should begin by eliminating all subsidies for fossil fuel exploration and coal production.
Climate change poses a great risk – to business and to society as a whole, and that risk is magnified by the way in which fossil fuel subsidies distort the energy market. These subsidies are simply unsustainable. G20 countries have been pledging to phase out fossil fuel subsidies every year since 2009. Yet, research by the Overseas Development Institute (ODI) and Oil Change International shows that governments spent $444 billion in 2013 and 2014 supporting the fossil fuel industry. In May 2016, G7 nations agreed to phase-out fossil fuel subsidies by 2025. However, when G20 leaders gathered the following month, they were met with criticism for failing to follow the G7 in setting a date to end the subsidies.
In December 2015, more than 190 nations adopted the Paris Agreement — a legally binding international agreement committing countries to significant reductions in global greenhouse gas (GHG) emissions to limit global warming to less than 2˚C and to pursuing efforts to limit it to 1.5˚C above preindustrial levels.
Ending fossil fuel subsidies is necessary to reduce greenhouse gas emissions
In Paris, the various governments and major corporations endorsed the Fossil Fuel Subsidy Reform Communiqué. This Communiqué recognized that the elimination of fossil-fuel subsidies would contribute significantly to reducing global greenhouse gas emissions and that accelerating the reform of fossil-fuel subsidies was therefore an urgent priority.
Insurance companies aren’t the only ones putting pressure on governments to set a clear phase-out timeline. The Institute and Faculty of Actuaries (IFoA) joined the Overseas Development Institute (ODI) in calling for leaders to end support for fossil fuels by 2020. Also, a group of 130 major institutions controlling $13 trillion in investments called on the G20 nations to ratify the Paris Agreement this year along with committing themselves to increasing investment in clean energy and disclosing climate-related financial risks.
If fossil fuel subsidies persist, they may weaken or undermine carbon pricing commitments. Policy and fiscal coherence is necessary to make the clean energy sector attractive to domestic and foreign investors, and to maximize the support for the clean energy sector. As such, remaining subsidies for the production and consumption of oil, gas, and coal must be eliminated.