Obama to push G20 to cut fossil fuel subsidies

OREANDA-NEWS. September 01, 2016. US president Barack Obama will press the leaders of major global economies to outline specific plans to phase out most fossil fuel subsidies during the upcoming G20 summit in Hangzhou on 4-5 September.

"We must renew our efforts to phase out these subsidies," US treasury secretary Jacob Lew said today during a discussion at Washington-based Brookings Institution.

Energy ministers from the G20 countries meeting ahead of the Hangzhou summit have failed to reach an agreement on a timeline for the phase-out of subsidies. Climate groups estimate fossil fuel subsidies globally at nearly \\$450bn/yr, in the form of tax breaks, subsidized loans and government investments.

The US administration is hoping that the G20 leaders will follow the example of the G7 group of major economies that at a summit in Japan in May pledged to end most fossil fuel subsidies by 2025.

The US and China will use the summit to release reports detailing how much their respective governments spend on fossil fuel subsidies, Lew said. The reports have resulted from voluntary peer reviews of fossil fuel subsidies. Germany and Mexico will conduct such reviews next, Lew said.

"The challenge after the review is to enact policies to take away the subsidies," he said. "It is always hard for residential and industrial consumers that have built subsidies into their budgets." But low energy prices should cushion the effects of cutting such subsidies that distort energy markets, he said.

The US administration estimates tax preferences for US oil and gas producers at about \\$4bn/yr. The White House repeatedly has pushed for eliminating them, but Congress has stalled those attempts.

The industry says those preferences are crucial for sustaining US oil and natural gas output and points out that a shift from coal to natural gas in power generation has helped reduce US greenhouse gas emissions. Energy sector emissions in the first half of 2016 fell to their lowest level in 20 years and are down by 15pc from the same period in 2005, the White House said on 29 August.

A recent study by the Council on Foreign Relations estimated that US domestic oil production would drop by 5pc and natural gas by 3-4pc by 2030, relative to a baseline, as a result of phasing out tax preferences for producers.

Producer groups predict a much larger impact to production, estimating that removing tax preferences under the administration's proposal would cost almost \\$10bn/yr to the oil sector. Oil industry executives in the past expressed a willingness to consider tax changes in the context of broader tax reform. But a prolonged period of low oil prices has taken a toll on producers' finances, as well as on their willingness to compromise on tax reform. And chances for a major overhaul of the US tax code in many ways depend on the outcome of the presidential election in November. The House of Representatives likely will remain under the Republican control, resisting efforts to target oil and tax breaks.

"Obama's legacy on the environment has yet to be written. In his last few months in office, the president has an opportunity to promote, not restrict, American energy production," industry group American Petroleum Institute president Jack Gerard said yesterday.

Democratic presidential candidate Hillary Clinton has promised to continue Obama's climate change policies, and the call to eliminate oil sector tax preferences is part of the Democratic party platform. Republican nominee Donald Trump has promised to take on "anti-energy regulations," promising to roll back environmental rules that constrain coal, oil and natural gas output.