Fossil Fuel Subsidies
G20 Fossil Fuel Subsidies Analysis
Are we done with the coal or did nothing is happened after we have decided to phase-out inefficient fossil fuel subsidies?
After a long time, I continue my blog posts again. While I took a break from my writings, we can all see how Europe and some other countries find themselves in trouble with the shock wave in energy prices during this time. The increase in energy prices undoubtedly stands before us as one of the threats that will prevent the transition of economies to low-carbon ones.
We have been experiencing the green transformation, which is based on the transition from the use of fossil fuels to renewable energy sources on a global scale for a while. In this process, many countries individually took steps to reduce their dependence on fossil fuels, especially coal, both in exports and imports or to remove coal use from their growth strategies. Interestingly, however, the term ‘fossil fuels’ has never found a place for itself in all of the G7 and G20 leaders’ declaration and in the decisions taken at the United Nations Convention on Climate Change (UNFCCC) Conference of the Parties (COP) at the same time. Fossil fuels were never mentioned in the history of climate change negotiations regarding fossil fuel resources, which we know as one of the most important causes of climate change. Additionally, at COP26, the 39 signatories committed to putting an end to fossil fuel finance from offshore. The year 2021 was a very critical turning point in this respect not only for coal but all fossil fuels.
Problem is Solved?
Although this picture that emerged as a result of the developments indicates that fossil fuels will be abandoned in a short time, the discussions in the negotiations have shown to the whole world that this is not so easy for both developing and developed countries. On the last day of the intense and protracted negotiations, minutes before the Glasgow Climate Pact was ratified, reactions from developed countries arose when India demanded the use of the phrase phasing out coal instead of phasing it out.
Shortly after the release of the Glasgow Climate Pact, the European Union found itself struggling with high energy prices. When geopolitical developments and economic troubles came one after another, the EU decided to classify natural gas and nuclear energy investments, which it attaches great importance to and never brought to the table, among sustainable investments, albeit temporarily.
In this period, which is extremely important in the fight against climate change and when we need to take urgent action, this action that will undoubtedly be described as a backward step aside, we will focus on the policies of exclusion of fossil fuel subsidies, which is another important element in this study. Although it seems like we are dealing with separate issues, with this study, I aimed to touch on the G20 countries’ approach to fossil fuels in general.
In retrospect, a transformation brought about by the Paris Agreement is taking place under the leadership of the leading economies in the world. But how effective are the G20 countries in this transformation? To find the answer to this question and to shed some light on the uncertain period we are in, I think it would be right to consider the past 10 years to see the policy preferences of the G20 countries, which are the 20 strongest economies.
In this research, I will try to find an answer by making a simple data analysis using the Data of OECD on Fossil Fuel Supports and Our World in Data regarding the differences in the behavior of countries regarding the reduction of coal use and the exclusion of fossil fuel subsidies compared to before and after the Paris Agreement. Our data provided by OECD contains fossil fuel supports for 18 of G20 member states for the years between 2010 and 2020. The missing 2 members of the analysis are the European Union and Saudi Arabia since the information was not provided by the OECD. Data capture not only natural gas, coal, and oil but also electricity. Although the Our World in Data captures much more information than the OECD data, I constrained it to harmonize both datasets.
Understanding the of Role of Coal in Fossil Fuels
The main aim of this study is to look at the role of coal among other fossil fuels and understand the dynamics of it and visualize our fossil fuel and coal subsidy data. The best way to start doing that is to see the whole picture of fossil fuel subsidies without classifying them.
From 2010 to 2020, after a peak in 2013, fossil fuel subsidies in G20 countries have entered a downward trend. Although it is seen that starting by 2017 and ending in 2009 there is a little raise above 320 trillion dollars, after that near-term peak, a sharp decrease realized.
To understand what is driving this trend, let’s look at the distribution of subsidies by fuel types.
By looking at the graph, it is crystal clear that most subsidies are provided for oil, and as is expected the trend of total subsidies is driven by oil as well. Therefore, I neglect oil in this section to distinguish between the coal incentives that formed the basis of our research.
Excluding oil, it is clear that natural gas, other than oil, has taken the largest share among fossil fuel subsidies in the last 10 years.
Another remarkable finding is that incentives for coal in 2020 are almost at 2010 levels. During this period, the highest level was reached in 2015 and the lowest level was reached in 2019.
If the three fossil fuels are evaluated, it can be seen that the incentives given to electricity and coal are below the average subsidies most of the time.
Moreover, subsidies for natural gas appear to be higher for the entire 10 years than subsidies for coal and electricity.
In other words, the share of coal subsidies is the lowest in the G20 for the last decade. This result is in line with expectations because the G20 countries have been excluding ineffective coal subsidies for a long time, and coal seems suitable to be determined as the first fossil fuel to be excluded in this regard.
Data based on country shows us another insight. The country that gave the most fossil fuel incentives between the 2010–2020 period is Germany. Considering Germany’s policies on coal, this result is within expectations. Germany is followed by the United Kingdom, Indonesia, and the USA.
When we rank the subsidies given based on countries according to their types, the natural gas incentives provided by the United Kingdom for residences come first, followed by Indonesia with the electricity production incentives it provides to the ‘other’ category.
As a result of the analysis, it is seen that between 2010 and 2020, the types of subsidies differ in Germany, the United Kingdom, Indonesia, and the USA, which are the countries that give the most fossil fuel subsidies. The United Kingdom, which provides the highest subsidy to natural gas in housing, is followed by Germany and Indonesia which have the highest share in the ‘other’ category that excludes sectoral subsidies and generally consists of consumer supports, for electricity.
Looking at the types of subsidies given in the context of fossil fuels, the most subsidies are given to the producer sector in coal and ‘other’ types of subsidies in electricity. In natural gas, as expected, the subsidies are provided dominantly for the production sector and residents.
In the continuation of the analysis, it is time to get in deeper for the incentives specific to coal.
Coal Subsidies Provided by G20
After seeing the snapshot of energy subsidies, in this part, G20’s coal subsidies will be analyzed. All amounts are in USD 2020 in millions unless it is stated otherwise.
As seen in the distribution of all fossil fuels excluding oil by country, the finding that the country that gives the highest subsidy to coal is Germany among the G20 countries. Germany is followed by the USA and China. The $56 billion subsidies provided by Germany is almost 3 times as much as the United States, which follows it. China and Indonesia come after these two.
When the figures are visualized, which covers the entire period between 2010 and 2020, with respect to countries, it can be seen that Germany is far more coal subsidy provider compared to any G20 country. By looking at the average of coal subsidies provided by all G20 countries, it is remarkable that Germany, the USA, China, Indonesia, and the United Kingdom are the 5 countries that are above the mean level.
However, this visual will be insufficient to show us the effects of the landmark Paris Agreement. From this point of view, I would like to carry out the analysis a little further and try to measure the impact of the Paris Agreement by separating observations into the years 2010–2015 and 2015–2020.
Seeing the position of G20 members in terms of average coal subsidies before and after the Paris Agreement can show us which countries have done already successfully and which ones need to take more steps. In this context, the finding that emerged as a result of the analysis, countries that provided coal subsidies above this average before the Paris Agreement, remained above the new average after the Paris Agreement.
Another prominent result in the chart is that China, France, Italy, and South Africa among the G20 member countries increased their coal subsidies compared to the period before the Paris Agreement.
While the production sector received the highest amount of incentives in all of the 2010–2020 years, it is followed by consumer support. As we did in our previous analysis, let’s see if the Paris Agreement has led to a change in the composition subsidies.
After the Paris Agreement, the graph shows us a decrease in all types of subsidies except residential. It is seen that subsidies provided to the production sector, recorded the biggest decrease and it is followed by electricity and other categories. On the other hand, the placement among subsidy types has not changed in the new period.
Coal and Primary Energy Consumption Preferences
In this last but not least part, it would be beneficial to analyze whether all the abovementioned subsidies-related developments have an impact on the share of coal in primary energy consumption and primary energy consumption from coal per capita. Let’s start by looking at the change in the average share of coal in the primary energy consumption before and after the Paris Agreement. In this section, the data is produced by the Our World in Data and it captures the data for the same period as the previous analysis, from 2010 to 2020.
According to the data on the share of coal in primary energy consumption in G20 countries, surprisingly South Africa (ZAF) has taken the lead both before and after the Paris Agreement dates. It is seen like there is not adequate action taken by the South African government to diminish the share of coal in their energy mix. Similarly, despite China, the runner-up, making some efforts to reduce the share of coal in primary energy consumption it is still at considerably high levels compared to other G20 members. India is another country with a high share of coal and nothing has changed in its energy mix regarding the Paris Agreement.
Those are facts coming from basic data visualization about the share of coal in primary energy consumption but what should we get as an insight?
When we look at the averages per capita in primary energy consumption from coal, it is remarkable that the country that made the most significant progress after the Paris Agreement is the US, which was not a party to the agreement between 2016–2021. After the US, the most severe decreases are observed in the United Kingdom, with relatively minor decreases observed in Germany, Canada, South Africa, Italy, France, and Russia. On the other hand, in Japan, Indonesia, India, and Turkey, per capita average are increased.
By putting together the total coal subsidies graph with the average per capita primary energy consumption from the coal graph, we could be able to get an understanding -pretty general and rough but help to explain dynamics in a sense- on what is the impacts of trends in coal subsidies and the Paris Agreement.
The graph leads us to one of the most important findings in the analysis which is in some of the G20 members, there is no direct link between coal subsidies and the per capita primary energy consumption from coal. In other words, reducing or phasing out coal subsidies policies have not been applied in the countries where the per capita primary energy consumption from coal is at high levels except Germany and USA.
What We Need to Understand and What is Next for the Climate Change Agenda ?
While the impact of climate change is felt more and more day by day, countries must take ambitious and determined steps. In this context, as agreed with the Glasgow Climate Pact; phasedown of unabated coal power and phase-out of inefficient fossil fuel subsidies seem to be pretty good policy options. On the other hand, just before the UN Climate Summit, G20 countries came together and decided to phase out and rationalize, over the medium term, inefficient fossil fuel subsidies. It is seen that there is a global transformation led by developed countries, and incentives and subsidies for fossil fuels, primary coal, are desired to be terminated gradually.
Within the scope of this study, it has been tried to evaluate how successful the G20 countries have been in this leadership so far, very superficially and within the framework of the limited data we have. Accordingly, it has been determined that the largest share in fossil fuel subsidies is by far the subsidies given to oil, while coal has a relatively smaller share. It has been found that natural gas subsidies, which are given in a higher amount compared to coal, are mostly for the housing and production sectors. On the other hand, it has been visualized that coal subsidies are a heavily used approach in the production sector. As a result of this, it has been put forward that it is much easier to reduce coal subsidies than to reduce natural gas subsidies, therefore the reasons why countries prefer to exclude subsidies to coal as the first target.
When we look at fossil fuels and electricity subsidies other than oil, it is seen that Germany and the United Kingdom are the countries that give the most subsidies, followed by Indonesia and the USA. It has been found that the majority of subsidies are provided to the housing sector in the United Kingdom and the USA, while this other category is relatively dominant in Germany and Indonesia.
In terms of coal, it is seen that among the G20 members, Germany has far surpassed other countries in coal subsidies, while the United Kingdom, Indonesia, China, and the USA provided coal subsidies above the G20 average over 10 years. In the sample, which was divided into two separate periods as before and after the Paris Agreement, it was found that the majority of G20 countries, especially Germany and the USA, reduced their coal subsidies in the post-Paris Agreement period. When we look at the sectoral breakdown, it is seen that the subsidies are reduced the most in the production sector, followed by the electricity sector.
In the study, it was tried to investigate what kind of change it caused in the relationship of coal with primary energy consumption in the G20 member states in the same period. In the evaluation made in general terms, it was observed that the average share of coal in the primary energy consumption decreased in the majority of countries after the Paris Agreement, and a similar decrease was experienced in averages per capita in primary energy consumption from coal. In terms of countries, it has been visualized that the G20 members, which provide high coal subsidies, are not the countries that use coal at a high rate in primary energy consumption, except for Germany and the USA. Likewise, the table averages per capita in primary energy consumption from coal are also valid for the analysis. As a result, it was possible to conclude that the changes in the primary energy consumption profile before and after the Paris Agreement were not in a relatively close relationship with the coal incentives.
In a nutshell, phasing-out fossil fuel subsidies is a good starting point in the fight against climate change. However, it is unrealistic to rely solely on this policy and think that coal and then fossil fuels will be removed from the energy mix completely. Even a historical landmark like the Paris Agreement failed to bring an impact to reduce subsidies sufficiently. Moreover, the introduction of the Paris Agreement and policies to phasing-out subsidies, have not been enough to reduce the share of coal in the primary energy consumption mix.
In short, the G20 countries have always been the leading countries in global politics. Nevertheless, there is an obvious need for more effort, more assertive, decisive, and effective steps to be taken in the fight against climate change, which stands before us as one of the most important risks today. Unless phasing-out fossil fuel policies are accompanied by the promotion and incentives for renewable energy policies, it seems difficult to achieve success.
