G20 nations funneled US$1.4T of public money into fossil fuels in 2022, finds IISD

06 Sep 2023 --- The Group of Twenty (G20) provided a “record US$1.4 trillion” in public money to support fossil fuels in 2022, according to a study titled “Fanning the Flames: G20 Provides Record Financial Support for Fossil Fuels” released by the International Institute for Sustainable Development (IISD) and partners.

With the G20 summit set to begin in India this weekend, IISD experts stress that shifting fossil fuel expenditure to install enough renewables to align with the 1.5-degrees Celsius agreement could help solve critical global problems, including energy requirements.

“Acknowledging and stopping financial flows to fossil fuels is a critical action that G20 leaders must address,” Shruti Sharma, senior policy advisor at IISD, tells Packaging Insights.

According to Sharma, the investment, including fossil fuel subsidies of US$1 trillion, investments by state-owned enterprises of US$322 billion, and lending from public financial institutions of US$50 billion, should be “a stark reminder of the substantial sums of public money that G20 governments continue to channel into fossil fuels, despite their well-known dangers and the related destructive effects of climate change.”

“There has been almost no meaningful discussion of public support to fossil fuels in official government working groups in the run-up to this year’s G20 talks. We urge G20 leaders to uphold the 2009 commitment strongly and set a deadline for fossil fuel subsidy reform.”

G20 leaders agreed to phase out inefficient fossil fuel subsidies in 2009 and pledged to accelerate those efforts at the UN COP26 climate conference in Glasgow, Scotland, in 2021.

IISD urges G20 nations to take decisive action on their climate commitments by discontinuing all public financial support for fossil fuels.The International Monetary Fund (IMF) recently released a new paper providing updated 2023 estimates across 170 countries of explicit and implicit subsidies (undercharging for environmental costs and forgone consumption taxes).

“Fossil fuel subsidies surged to a record US$7 trillion last year as governments supported consumers and businesses during the global spike in energy prices caused by Russia’s invasion of Ukraine and the economic recovery from the pandemic,” estimates IMF.

Recommendations for the summit
The G20 comprises 19 countries and the EU, representing approximately 85% of the global GDP, over 75% of the global trade and two-thirds of the world population. IISD emphasizes the active role played by state-owned enterprises and has put forth three key recommendations for G20 leaders to address climate change effectively.

First, the institute urges G20 nations to take decisive action on their climate commitments by discontinuing all public financial support for fossil fuels, except for cases where it is necessary to provide energy access to the poorest communities. The IISD emphasizes that wealthier G20 members, which have a historical responsibility for emissions and higher emissions per unit of GDP, should take the lead in this phase-out.

The second recommendation focuses on incentivizing a shift away from fossil fuels among consumers and investors. The proposal suggests setting minimum carbon taxation levels, ranging from US$25 to US$75 per ton of CO2 equivalent, depending on a country’s income level. Carbon taxes encourage individuals and businesses to reduce emissions and invest in cleaner alternatives.

Furthermore, the IISD report suggests using the revenues generated from subsidy reforms and carbon pricing to support low-income and vulnerable households through redistributive measures based on income and assets. Additionally, these funds should be allocated to accelerate the expansion of clean energy sources, facilitating a transition from fossil fuels.

The recommendations aim to align the efforts of G20 nations with climate objectives: Promote the transition to cleaner energy sources and ensure that the benefits of these actions are distributed equitably while addressing the needs of vulnerable populations. According to Sharma, most G20 nations have not established robust social protection mechanisms to directly assist people during soaring energy prices instead of subsidizing fuels.

Subsidies and social protection
IISD also suggests increased transparency and comprehensive reporting on fossil fuel subsidies from all member states, aligning with UN Sustainable Development Goal objectives. Additionally, a clear timeline for reform, and broadening the scope of G20’s commitment to encompass all public financial flows related to fossil fuels are suggested as adaptable measures.

“Public support for fossil fuels – subsidies, investments by [state-owned enterprises] and public financing – is fanning the climate crisis because it artificially lowers the price of fossil fuels, increasing the burning of coal, oil and gas. Therefore, human-induced climate change is intensifying by making extreme weather events – like heat waves, wildfires, torrential rains and hailstones – more frequent and intense,” shares Sharma.

“Slow progress in addressing fossil fuel subsidies has left G20 members facing a critical situation. While certain countries, such as India, have successfully reduced their fossil fuel subsidies by more than 70% since 2014, several other G20 members have yet to take similar steps.”

Furthermore, the policy advisor stresses that most G20 nations have not established robust social protection mechanisms to directly assist people during soaring energy prices instead of subsidizing fuels.

In June, US and EU lawmakers along with NGOs called for the removal of UAE Sultan as COP28 president and highlighted that policymakers do not dedicate much attention to extracting fossil fuels for materials, such as plastic and synthetic fibers.

“For decades, the fossil fuel industry has been well aware of the dangers of climate change. Despite this, they have continually promoted climate denial, downplayed their role in emitting GHG pollution, and have created countless roadblocks on our path toward a clean energy future,” said US state representative Jared Huffman.BFFP and CIEL report warned slashing plastic production could free energy during crisis.

Plastics, petrochemicals and packaging
Last October, a report by Break Free From Plastic (BFFP) and the Center for International Environmental Law (CIEL) warned that less plastic could free up needed energy for industrial and domestic use during the conflict with Russia. The report, titled “Winter is Coming: Plastic Has to Go,” highlighted the urgency of advancing energy security by cutting plastics and petrochemical industries.

“Even as governments demand action – and adaptation – from individual citizens, they are asking for far less from industry sectors that consume the lion’s share of fossil feedstock and energy and have the greatest potential to reduce both. The case of petrochemicals and plastics is emblematic of this problem,” Delphine Lévi Alvarès, European coordinator of the BFFP movement, told Packaging Insights.

“There are opportunities for Europe to cut its fossil fuel consumption, starting with challenging unnecessary use for fossil fuels, such as plastic packaging items for which reusable options or alternative delivery systems exist.”

IISD’s senior associate Tara Laan details that with fossil fuel companies gaining record profits amid the energy crisis last year, they have little incentive to change their business models in line with what is needed to limit global warming. But governments have the power to push them in the right direction.

“The G20 has the power and the responsibility to transform our fossil-based energy systems. The bloc must put fossil fuel subsidies on the Delhi Leaders’ Summit agenda and take meaningful actions to eliminate all public financial flows for coal, oil and gas,” says Laan.

A year on, as winter approaches again and world leaders continue to meet and discuss policies that can affect the packaging industry, questions over substantial climate action are ongoing.

By Radhika Sikaria

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