Phasing out incentives for emissions & phasing in benefits for the poor
To keep the 1.5° climate goal alive, immediate action to remove regressive and climate-damaging economic incentives is required. The General Assembly of Atlas proposes:
- The phasing out of national fossil fuels subsidies in the next five years (until 1.1.2027).
The creation of an energy transition fund
- financed by the fiscal gain of countries that have historically contributed more to emissions
- accessed by countries that have historically contributed less to investments in the renewable energy transition
- The phasing in of a progressive social safety net or a realistic UBI with the resulting GDP savings from fossil fuel subsidies
Context - Why? Current State?
Fossil fuels—including coal, oil, and natural gas— formed from the fossilized, buried remains of plants and animals that once lived (millions of years ago) and currently supply about 80 percent of the world’s energy. Countries subsidize fossil fuels to spur economic growth, with 60% of the fossil fuel subsidies going to the companies producing fossil fuels and 40% cutting prices for energy consumers. While cutting prices for energy consumers creates a more equitable environment on a global scale, nationally, people in low-income countries that consume a lot of energy are part of the richest part of the population. Both subsidies should be phased out, with leeway for countries that historically contributed less.
The Intergovernmental Panel on Climate Change (IPCC) has found that emissions from fossil fuels are the dominant cause of global warming. In 2018, 89% of global CO2 emissions came from fossil fuels and industry. The G20 was responsible for 76% of global CO2 emissions. Tackling fossil fuels is fundamental. Yet, every year, $5.9 tln is spent on fossil fuel subsidies. Instead of stopping dirty fuels, we subsidize them, often more than green energies.
The G20, despite multiple commitments to phase out (slowly) some subsidies, has spent $3.3 tln in the five years following the Paris Agreement.
The extent of fossil fuel subsidies is staggering across the world - with many citizens not even being aware that their own country subsidizes fossil fuels. Furthermore, they take up a large part of a country's budget in several cases, with many countries' energy subsidies exceeding the entirety of their social safety net expenditures many times over. The International Monetary Fund (IMF) estimates the sum of these costs in their regularly updated study ‘How Large Are Global Fossil Fuel Subsidies?’. In the latest issue, the researchers estimate them to amount to USD 5.7 trillion. This is equivalent to 6.8% of the global GDP.
Subsidies have sizable fiscal costs (prompting higher taxes/borrowing or lower spending), incentivize pollution (adding to climate change and unexpected losses from local air contamination), and are not targeted at poor people (families who are able to purchase fuel are richer).
Goal - How should it be?
The state has the agency to provide the right incentives to promote technologies and material usage for an equitable and sustainable future. If the system is designed to discourage fossil fuel subsidies while increasing better targeted social spending, the disparity between the poor and the rich can be systematically changed for the better. Additionally, the revenue gain can be used to reduce inefficient taxes and increase productive investments, which lead to sustainable and equitable outcomes. Lastly, removing fossil fuel subsidies can reduce energy and climate security concerns, which are felt around the globe due to the current war in Ukraine.
Pathway - How do we get there?
It is not easy to get rid of established subsidies, but the world is making progress, and the direction is clear. Our demand is to make this process as quick as possible with our proposed timeline.
- Examine the large amount of research provided by The World Bank Group and IMF - if available, use a country-specific feasibility analysis or the one of a similar peer country and understand the structural situation of subsidies in this country.
- Establish a country-specific timeline of reducing fossil fuel subsidies to 0 until 2027 together with the financial ministry of the country / other responsible governing body
- Design a usage for the revenue gain (progressive social safety net, realistic UBI, decrease of inefficient taxes, R&D investments in carbon capture / sustainable energy)
- Creation of an energy transition fund with the fiscal gains from countries that have historically contributed more, which can be accessed by countries that historically contributed less for renewable energy investments.
- Ban fossil fuels subsidies at the national level
- Ensure that COP and other organizations support and facilitate this globally