G20 fossil fuel subsidy push may aid climate talks

LONDON/OSLO (Reuters) - A draft G20 commitment to end fossil fuel subsidies in the “medium-term,” pushed by U.S. President Barack Obama, could be a step to help a new U.N. climate deal in December.

A flare stack emitting fire is silhouetted against the sun at an oil refinery in Melbourne June 24, 2009. REUTERS/Mick Tsikas

The Group of 20 meeting in Pittsburgh planned to agree on Friday to phase out subsidies on oil, gas and coal, and so curb global greenhouse gases by about a tenth by 2050, said a draft text seen by Reuters.

Scrapping fossil fuel support could highlight cheap emissions cuts for developing nations, chiefly responsible for such handouts, and so aid U.N. talks meant agree a new climate pact in Copenhagen in December.

“It could be a critical element for Copenhagen from the side of what developing nations might do,” said Helen Mountford, head of the Organization for Economic Cooperation and Development’s climate, biodiversity and development division.

“Phasing out fossil fuel one of the few options where there are win-win benefits both for the economy and the environment,” said Mountford.

A phase-out would also enable nations such as Russia, which has high fossil fuel subsidies, to hold greenhouse emissions low, she said.

The U.N. climate talks are stuck on how to split cuts in carbon emissions between rich and poor countries and are due to resume in Bangkok Monday. Scrapping subsidies could also push up world economic growth, U.N. studies suggest.

Chinese President Hu Jintao won praise Tuesday by committing to limit emissions growth by a “notable” amount -- a highlight at a U.N. climate summit in New York where other leaders made vaguer pledges to agree a new climate pact.

Fossil fuel subsidies are costly, add to global warming and lead to more wasteful use of limited fossil fuel supplies, but may also improve energy access for millions of people off grid, who would otherwise depend on dung or wood for heat and cooking.

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A phaseout may be achieved within a decade, according to International Energy Agency chief economist Fatih Birol.

“In some countries it can take five to six years depending on the level of subsidies and the sensitivities of the countries,” he told Reuters, adding that subsidies now often benefited middle-income families, not the poor.

Birol estimated fossil fuel subsidies paid by non-OECD countries at $310 billion, chiefly in Iran, Russia, China, Saudi Arabia and India.

That compared with various estimates for low-carbon subsidies, for nuclear, wind, solar and biofuels at about $40 billion annually.

The G20 would intensify efforts to reach a U.N. deal on climate change later this year, said the draft communique. It deferred until later meetings debate on how to split the cost of fighting climate change, and how to implement subsidy cuts. It was insufficient to boost investors, said analysts.

Preben Rasch-Olsen, an analyst at Carnegie in Oslo who follows the photovoltaic sector, said that the proposed phase-out of fossil fuels would help in the long term but was too vague to be an immediate spur to solar stocks.

“This could be one of many things going in the right direction” adding momentum for renewable energy investments, he said. “But I don’t think people look at the G20 and make decisions based on this.”

The Chinese president’s commitment this week to cut the country’s “carbon intensity” -- making its output less dependent on carbon emissions -- would likely underscore Beijing’s efforts to curb intervention in prices of fossil fuels.

-- Additional reporting by Muriel Boselli in Paris, Emma Graham-Harrison in Beijing

Writing by Gerard Wynn in London; editing by Philippa Fletcher