Rhein on Energy and Climate

The desperate efforts of finance ministers across the world to balance their budgets also produces some positive effects on the global climate.

This is most visible in the recent moves towards phasing out subsidies on fossil fuels in developing and developed countries. These subsidies have been huge, in the order of more than $ 300 billions per year.

The 2009 G 20 in Pittsburgh had called for their phasing out; and the Toronto Declaration of the 2010 G20 Summit repeats the plea in the toothless wording of internationally agreed texts.

But the budgetary plights of several major countries like India, Indonesia, Malaysia, Mexico and the USA prove to be more effective agents for change than any well-meant international declaration.

Thus India with a huge subsidy bill of $58 billion – 3 percent of GDP – in 2010, has decided to abolish all subsidies on gasoline, which will generate extra government revenue of $ 5 billion. Gasoline will in future cost $ 1.2/litre, quite a high price for a poor country.

Malaysia, paying $ 17 billion for fossil fuel subsidies, has decided to raise the gasoline price by 41 percent, Indonesia by 29 percent!

Iran, fighting with budget constraints and the effects of the UN embargo, is also set to abolish its lavish $ 100 billion subsidies on gasoline, which contribute to very excessively high C02 emissions and gigantic traffic congestion in Teheran.

Ukraine finally had to agree to raise its gas price as part of its efforts to reduce a high budget deficit and secure IMF emergency financing.

The USA will progressively eliminate its tax breaks for the gas, oil and coal industries, which have cost the government some $ 40 billion!

These spending cuts will progressively produce some effects: they will induce well-to-do Asian citizens to use automobiles more efficiently and switch to public transportation. The IEA has estimated that the phasing out of all fossil fuel subsidy schemes, which cost governments as much as $ 560 billion in 2008, global C02 emissions would decline by 2.4 GT, the equivalent of 5 percent of global emissions.

In parallel a few finance ministers also discover the merits of “green taxation” for raising precious budget revenue.

Germany offers the most telling example. Against strong opposition from airlines and airports, as well as the transport minister, the finance minister in alliance with the environment minister have persuaded the Cabinet to introduce an airport levy as of 2011, which it is hoped will generate extra budget revenues of 1 billion per year. This amount is substantially higher than the revenue to be expected from the inclusion of air transport in the EU emissions trading system to become effective as of 2012. That is why the finance ministry insists on maintaining the national levy in addition to whatever EU wide emission system might be introduced.

India has also taken a remarkable move by introducing an excise tax on coal, which is expected to raise $ 600 million annually. The government wants to use these receipts to finance its National Clean Energy Fund, with which it intends to realise its ambitious solar energy programme that should enable India to install 20 GW of solar power by 2022. This would be the biggest solar programme launched anywhere.

Hopefully these measures, motivated more by budget than climate considerations, find many imitators across the world. Their multiplication might give a boost to green taxation and help putting a lid on C02 emissions.

Brussels 19.07.10 Eberhard Rhein

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