G20 to agree phase-out of fossil fuel subsidies: draft

PITTSBURGH Fri Sep 25, 2009 4:28pm EDT

People at a car petrol station queue to fill their tanks in Nanjing, Jiangsu province August 26, 2009. REUTERS/Sean Yong

People at a car petrol station queue to fill their tanks in Nanjing, Jiangsu province August 26, 2009.

Credit: Reuters/Sean Yong

PITTSBURGH (Reuters) - The world's largest economies will agree to phase out subsidies on oil and other carbon dioxide-spewing fossils fuels over the "medium term" in an effort to fight global warming, a G20 document said.

The draft G20 statement showed countries such as Russia, India, and China will back a move to reduce and eliminate most financial support that keeps fuel prices artificially low, albeit without a timetable for the cuts. Such subsidies hike greenhouse gas emissions by boosting consumer demand.

The G20 will also intensify efforts to reach a U.N. deal on climate change later this year, said the draft communique obtained by Reuters at a G20 summit in Pittsburgh.

The leaders will ask their finance ministers to come up with a range of options for climate finance -- payments from rich countries to poor countries dealing with global warming -- at their next meeting.

The final version of the communique will be issued by the leaders at the end of their two-day meeting on Friday.

Governments worldwide subsidize fuel, and the G20 called on other nations to join the phase-out. Some estimates put annual worldwide spending on such subsidies at around $300 billion.

Eliminating such subsidies would reduce greenhouse gases blamed for global warming by 10 percent in 2050, the draft said, citing data from the International Energy Agency and the Organization for Economic Cooperation and Development (OECD).

The statement from the G20, which groups major rich and emerging economies, said energy and finance ministers would develop timeframes and strategies for implementing the phase-out and report back to leaders at the next G20 summit.

Environmental activists welcomed the move, though they expressed disappointed in the lack of a firm timetable and the failure to make progress on financing for poor countries.

"Removing fossil fuel subsidies could be an important step toward cutting CO2 emissions," said David Waskow, climate adviser for development group Oxfam International.

"But it should not be allowed to distract from the failure of rich countries to offer poor countries the help they need."

VICTORY BUT QUESTIONS FOR OBAMA

Agreement on the U.S. proposal for subsidy cuts is a victory for President Barack Obama, who is hosting the meeting in Pittsburgh.

Obama's ability to produce results on climate change has been called into question as prospects dim that a bill to reduce emissions will be passed in the U.S. Senate before U.N. climate talks in December.

Energy producers were less enthused by the phase-out plan. The American Petroleum Institute (API), which represents the U.S. petroleum and natural gas industry, said the U.S. government had to make clear how the policy would affect the United States.

"The Obama administration and Congress now face many difficult choices if they choose to comply with the G-20 commitment to phase-out fossil fuel subsidies," the API said.

"Above all else, the president and Congress should not use this commitment as an excuse to raise energy taxes on American consumers and businesses."

A U.S. official said the policy was not likely to have a big effect on large oil companies but could have an impact on independent producers.

The G20 draft statement also called on big institutions such as the International Energy Agency and OPEC to analyze the scope of energy subsidies and make suggestions at the next G20 summit for implementing the subsidy phase-out.

Asking for OPEC input may have been a way of bringing Saudi Arabia, a major oil producer, on board.

The group agreed to increase energy market transparency with regular reports on oil production, consumption, refining and stock levels.

It said leaders would "intensify our efforts" to reach a U.N. climate change agreement at the Copenhagen talks.

(Editing by Frances Kerry)

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