G20 agrees on phase-out of fossil fuel subsidies

PITTSBURGH Fri Sep 25, 2009 9:38pm 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 agreed on Friday to phase out subsidies for oil and other carbon dioxide-spewing fossil fuels in the "medium term" as part of efforts to combat global warming.

But Group of 20 leaders at a two-day summit meeting here did not advance discussions about financial aid for developing nations dealing with climate change, exacerbating concerns that U.N. talks to form a new climate pact are in peril.

Some $300 billion a year is spent worldwide to subsidize fuel prices, boosting demand in many nations by keeping prices artificially low and, thus, leading to more emissions.

The agreement -- backed by all of the G20 including Russia, India and China -- was a victory for U.S. President Barack Obama, whose credentials for fighting climate change have been marred by dimming prospects that the U.S. Senate will pass a bill to reduce emissions before the December U.N. meeting.

"This reform will increase our energy security ... and it will help us combat the threat posed by climate change," Obama told reporters at the close of the meeting.

"All nations have a responsibility to meet this challenge, and together we have taken a substantial step forward in meeting that responsibility," he said.

Eliminating such subsidies by 2020 would reduce greenhouse gas emissions blamed for global warming by 10 percent by 2050, leaders said, citing data from the International Energy Agency and the Organization for Economic Cooperation and Development.

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

Environmental activists welcomed the move, though they expressed disappointment 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."

WORRIES AHEAD OF COPENHAGEN

The G20 committed to intensify efforts to reach a U.N. deal on climate change later this year, a joint statement said. Leaders agreed to keep in touch about the issue, and some Europeans suggested another meeting would happen soon.

"I do not hide my concern at the slow rate of progress. Negotiations cannot be an open-ended process. It's time to get serious now, not later," said European Commission President Jose Manuel Barroso, referring to climate negotiations.

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.

Energy producers were not enthused by the subsidy phase-out plan. The American Petroleum Institute, which represents the U.S. petroleum and natural gas industry, said Washington must clarify 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 G20 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 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.

(Editing by Frances Kerry)

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