Obama to press G20 leaders to cut fossil fuel subsidies that benefit big business

US president to propose elimination of tax breaks and cheap loans as 'downpayment to end global warming'
Suzanne Goldenberg, US environment correspondent
guardian.co.uk, Wednesday 23 September 2009 18.27 BST
Barack Obama will press leaders at the G20 summit tomorrow to end the billions of dollars of subsidies that encourage the use of fossil fuels around the world and help drive climate change.
Obama, who will host the summit in Pittsburgh, will propose a gradual elimination of the tax breaks, cheap loans and other measures extended to oil, gas, coal and electricity producers. The White House said elimination of the subsidies would be a "significant downpayment" to ending global warming.
Studies from the International Energy Agency (IEA) and the Organisation for Economic Development (OECD) have estimated that carbon saving of ending subsidies would be 10% by 2020.
But an end to the subsidies would bring world leaders into conflict with powerful fossil fuel lobbies as well as developing nations where the subsidies make fuel affordable. Over the past six years, oil and coal producers in the US received more than double the subsidy of renewable energy companies.
The world's biggest polluters — America, India, China, Brazil and Russia — all offer significant subsidies, totalling many billions of dollars every year which encourage the use of fossil fuel. OECD and IEA studies also found that last year, countries who subsidised fossil fuel increased their consumption by 1barrels of oil and in countries without subsidies, consumption fell by 1.5m barrels.
Another OECD report last week noted that removing the subsidies would free up cash for programmes that could help the poor. "Removing environmentally harmful subsidies would be an important first step," the OECD secretary-general Angel Gurría said. "It would also improve economic efficiency. For instance, the budgetary savings could be used to reduce other distorting taxes or to alleviate poverty in a more targeted and efficient way."
Obama has already faced multimillon dollar lobbying campaigns against his proposals to force cuts in US greenhouse gas emissions.
The US government has consistently offered more tax breaks and other incentives to the oil and gas industry — rather than producers of renewable energy — undermining efforts to reduce greenhouse gas emissions. In the last six years, oil and coal producers got $72bn in tax breaks compared with $29bn for renewable energy, said a report from the Environmental Law Institute.
Developing nations also spent heavily on fuel subsidies — and they are seen as crucial to keep prices low for the poor. Twenty of the largest non-OECD countries together spent $400m on subsidies last year.
Mike Froman, the national security adviser for international economic affairs, said: "We are working with the rest in the G20 to see if we can forge an agreement that would make significant contributions in direction [of removing subsidies]."
He emphasised that the US administration was not opposed to targeted fuel subsidies for the poor, but was seeking to phase out the blanket programmes that also benefit big business and the wealthy. He also said that the administration would maintain subsidies for cleaner technology, like carbon capture storage from coal plants.
"The G20 is not trying to do anything that would keep people in the dark but instead trying to encourage countries to move off blanket subsidies which are regressive," he said.
But he noted that developing countries spent more than 1% of GDP on fossil fuel subsidies last year. "So eliminating fossil fuel subsidies will promote more efficient investment climate, increase real income by as much as two percent in some developing countries and at the same time lead to better allocation of resources."