US and China release fossil fuel subsidy peer reviews

With public assessment of each others’ $15.42bn and $8.2bn in subsidies, China and the US take a big step on transparency, but inch forward on reform

Arguably the most consequential relationship President Obama built was with Chinese counterpart Xi Jinping (Pic: White House/Flickr)


The world’s biggest polluters have released their fossil fuel subsidy peer reviews and the obstacles to reform are clear: the US will wait on Congress, while China will wait on China.

The documents, released on Monday by China’s G20 presidency, reveal the long road ahead. The G20 has commited to eliminate “inefficient” subsidies for coal, oil and gas in the medium term and the G7, of which the US is a member, has tightened the timeline to 2025.

Of 16 policies marked for elimination by the US, all but three concluded with the sentence: “The United States Congress must pass enabling legislation for this proposal to become law”.

Since 2010, the Obama administration has put forward 11 proposals to eliminate fossil-fuel subsidies. None have yet passed the house.

In a pointed observation about the drawbacks of the US political structure, a review panel of officials from China, Germany, Mexico, and the Organisation for Economic Cooperation and Development (OECD) noted: “A result of this system is that political processes can only happen if a sufficient number of citizens are informed about the case for reform and are motivated enough to express their views to their representatives in Congress.”

The reviewers called upon the administration to deliver an “effective communication strategy” to convince constituents of the need for subsidy reform.

China was not even able to estimate the annual cost of six of the nine policies it identified as subsidies, citing a rapidly changing policy environment. The remaining three totalled around US$15.42bn – almost all of which was directed to lowering petrol prices. The government’s submission to the peer review set out a framework for “rationalising” subsidies, without setting a timeline, simply tagging some policies as short-medium term and some as medium-long term.

“Although the production and consumption of non-fossil energy is booming worldwide in recent decades, it can be predicted that for a long time in the future, production and consumption of fossil fuels is still dominant,” said the Chinese government document, adding that: “The excessive total fossil fuel consumption in China is, to a certain degree, linked to the unsatisfactory system and mechanism relating to energy subsidies.”

The US Congress has block 11 proposals to reform fossil fuel subsidies put forward by the Obama Administration since 2010. (Pic: Mark Fischer/Flickr)

The US Congress has block 11 proposals to reform fossil fuel subsidies put forward by the Obama Administration since 2010. (Pic: Mark Fischer/Flickr)

Despite its lack of firm commitments, the review process is seen as a major step forward in cooperation and transparency between two nations whose generally cagey international relations have seen a flowering of cooperation when it comes to climate change. China called on other G20 nations to join the two nations in the peer review process.

“This gesture of openness signals a genuine desire to remove subsidies that are both environmentally and economically harmful,” said Peter Wooders, director of the energy programme at the International Institute for Sustainable Development.

Morrocco’s environment minister Hakima El Haité, who will host the next UN climate conference in November, was at Climate Week in New York on Monday, where she called on nations to arrive in Marrakech with cuts to subsidies foremost in their minds.

In all, the US self-assessment identified $8.2bn in subsidies, of which $4.8bn was deemed inefficient. The remainder was tied up in the Low Income Home Energy Assistance Program (LIHEAP), which was not marked for reform. This result expands dramatically the size of US subsidies previously estimated by the OECD at $4.2bn (including the LIHEAP).

The US subsidies identified for culling included a $52m excise exemption for tar sands, the most carbon intensive source of oil. Like many of the subsidies, the exemption is earmarked for a cut, but waits on the approval of the Republican-controlled Congress.

The review of China’s submission was conducted by officials from the US, Germany and Indonesia as well as the International Monetary Fund (IMF) and Organisation for Economic Cooperation and Development (OECD). In their report they noted that Chinese authorities “indicated that they do not consider lower rates of resource tax to be an inefficient subsidy on the grounds that these tax reductions seek to encourage greater resource recovery”.

The review process worked from a definition for subsidies similar to the OECD’s. The argument over how subsidies are defined is vexed. For example, the IMF believes they should account for the extra burden on public health systems caused by pollution. This leads them to estimate the total public spend on fossil fuels to be around $5.3tn each year. The OECD’s narrower definition estimates it to be $160-200bn for its member states.

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