Emerging economies delay clean energy move as oil prices rise

Large economies have pledged at least $292bn in COVID relief for fossil-fuel intensive industries, researchers say.

Rising oil prices are testing the developing world’s resolve to quit fossil fuels.

The president of Brazil has fired the chief of the country’s largest oil producer — inadvertently sending its currency, bonds and stocks plunging — in a bid to keep diesel prices from spiking. Nigeria’s dependence on low-cost gasoline threatens to scupper a year-long effort to phase out fuel subsidies. Peru and Mexico are reversing fossil fuel taxes as oil prices rise and families struggle to make ends meet, and India is under pressure to do so.

Around the world, countries spend a staggering $300 billion a year to keep a lid on fossil-fuel prices, stave off civil unrest and prop up their economies. And this year’s 20% rally in oil prices has only kept those subsidies flowing. While world leaders from the U.S. to Europe to China vow to slash emissions in their bid to combat climate change, some emerging markets are deepening their dependence on dirty energy and delaying the transition to clean energy.

“They are continuing to subsidize the production and consumption of fossil fuels,” said Nathalie Girouard, head of the Environmental Performance and Information division at the Organization for Economic Co-operation and Development.“At this stage it is not very encouraging.”

Pandemic recovery efforts are exacerbating the issue, with 31 major economies having pledged at least $292 billion in Covid relief to fossil-fuel intensive sectors, according to energypolicytracker.org, a consortium of research organizations including the Columbia University Center on Global Energy Policy.

While 2020’s oil crash offered a “golden opportunity” to start eliminating federal support for fossil fuels, according to the International Energy Agency, political and economic pressures surrounding the pandemic have frustrated efforts to do so. Price reform remains deeply unpopular in countries where cheap fuel is one of the only economic advantages available to citizens already squeezed by Covid-related unemployment, inflation and poverty.

Governments are now more concerned with supporting families and businesses than with price reform – even though unwinding subsidies would offer much-needed relief to government coffers, and upholding them can have dire consequences for both climate and economies.

Simply allowing the market to dictate fuel prices would reduce global greenhouse gas emissions by up to 3.2% in 2030, according to Purdue University’s Center for Global Trade Analysis. Taxing fuel to account for air pollution and health would have lowered emissions 28% in 2015, the International Monetary Fund said in a 2019 report.

Instead, many countries are earmarking pandemic recovery funds for carbon-intensive industries. Government recovery funds for production alone surpassed the $264 billion earmarked for clean energy, according to energypolicytracker.org. In 2019, fossil-fuel subsidies for consumers and producers totaled $468 billion in 2019, according to the OECD.

“It is very uneven. Some governments are looking at this as an opportunity for energy transition,” said Bronwen Tucker, who researches subsidies for Oil Change International, a clean energy advocacy group. “But there are governments taking big risks by doubling down on fossil fuels.”

The issue isn’t limited to the developing world. The U.K. gave tax breaks to oil producers leading up to the pandemic and is dedicating an estimated $42 billion in Covid relief to the industry. Including the untaxed cost that fossil fuels have on climate change and health, China and the U.S. are the world’s biggest subsidizers, according to the 2019 IMF report. But such support for fossil fuels can weigh more heavily on poorer countries that have less stable economies and tighter budgets.

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