European Commission drops demand to cut fossil fuel subsidies

Bloc accused of ‘cowardice’ after wiping requests to ditch billion-dollar bumps for coal and oil from annual review 

Bełchatów power station in Poland, one of Europe's largest stations. The country received 7 billion euros in 2011 in fossil fuel subsidies. (Flickr/ Kamil Porembiński)

Bełchatów coal power station in Poland, one of Europe’s dirtiest plants. The country granted €7 billion in fossil fuel subsidies in 2011. (Flickr/ Kamil Porembiński)

By Alex Pashley

The European Commission removed calls to end subsides for fossil fuels in its yearly audit of 26 economies on Wednesday, raising questions over its commitment to addressing climate change.

Last year, the EU’s executive arm told Italy to “remove environmentally harmful subsidies” and ordered France and Belgium to “phase out” grants in their extracting of coal, oil and gas.

Eight countries were urged to start taxing pollution, and 17 to boost renewables, electric grids and energy efficiency.

But this year’s ‘country specific recommendations‘ omitted all mention of the polluting subsidies and the environment – save a minor call for Luxembourg to “broaden” its environmental tax base.

The IMF put fossil fuel subsidies at  €79 billion in the EU in 2011.

Retrograde step

“There was a very deliberate decision to leave climate and environment out,” said James Nix, director of Green Budget Europe, a Brussels-based policy advisory. “It’s hard to imagine a more retrograde step in the year of crunch climate talks.”

The European Union has been a standard bearer in UN talks toward a global climate pact to be finalised in Paris in December.

Making up a tenth of world greenhouse gas emissions, it’s leading the pack along with the US in reining in global warming, pledging to slash carbon by 40% from 1990 levels by 2030.

But erasure of subsidies for coal, oil and gas, which in the form of tax breaks and state contributions lead to their increased use ramping up global warming, would run counter to that.

Indeed in 2013 top EU chiefs called on the G20 to ditch them.

EU examples

German taxpayers gave €2 billion to coal producers in 2011, while Poland gifted €7 billion to its miners of the most carbon-intensive fuel from 1999-2011, according to a comprehensive report by the OECD.

In the UK national exploration subsidies for oil and gas projects often for deep water and shale gas extraction total €1.2 billion a year, largely through tax exemptions, the Overseas Development Institute said in a report.

In a statement to RTCC, a spokesperson for the EC’s Economic and Financial Affairs (ECFIN) directorate – which rose to prominence after the Eurozone economic crisis in vetting country’s budget plans – said the so-called ‘semester process’ had been “streamlined” to “increase efficiency”.

That  led to to shorter recommendations “targeting the key, macroeconomic challenges of each country … possible to implement and monitor within 12 and 18 months.”

And “most recommendations on energy” were now dealt with by Energy Union officials, the project driven by new president Jean-Claude Juncker to wean Europe off Russian gas dependency.

Reckless use of money

Nix said the EC would deal with the issue at a “hopelessly unspecified” time, throwing out old policy tools before implementing the new scheme which lacked consensus.

“By the Commission’s cowardice and inaction – or ‘streamlining’ in its jargon – President Juncker is locking Europe further into fossil fuel dependence, failing to tackle reliance on imported energy in the process,” he added.

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The world is spending half a trillion dollars a year – a “reckless use of public money” – on incentivising production of fossil fuels, according to the ODI. Countries spent six times more on subsidies for them than renewables, according to the International Energy Agency in 2012.

In it the ODI outlined a “triple-lose scenario” for the planet.

Finance is funnelled into high-carbon assets that can’t be exploited to prevent temperatures rising above a universally-agreed 2C, depriving investments in low-carbon alternatives such as solar and hydro-power, and undermining chances of a meaningful global pact.

Crucial reform 

Scientists say between two-thirds and three-quarters of proven fossil fuel reserves are “unburnable” to prevent exceeding the maximum amount of carbon dioxide the atmosphere can withstand and avoid catastrophic global warming.

Thomas Spencer, director of the climate programme at the French think tank IDDRI said subsidy reform was “crucial” with low energy prices providing the EU with an opportunity to increase taxes on fossil fuels, without raising consumer prices.

Though the definition of a fossil fuel subsidy remains unclear.

“Member states are always unhappy when they are blamed by the Commission that they are subsidising things that they see having a social purpose,” Severin Fischer, an energy analyst at the Berlin-based SWP think tank.

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ECFIN’s attempts to force changes in country’s economic plans have been rarely successful, he said.

“They prefer to invent regulatory instruments than involving themselves in the budget of member states,” Fischer said.

Energy chiefs from the G7, which numbers France, Germany, the UK and EU among its members issued a communique yesterday.

While fossil fuels fuels will remain in countries’ energy mixes for some time “we remain committed to eliminating inefficient fossil fuel subsidies,” it read.

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