Cutting Fossil Fuel Subsidies Can
Cut Greenhouse Gas Emissions Says UN Environment
Meanwhile New Assessment of Clean Development
Mechanism Shows Climate-Friendly Energy Projects
Achieving Lift-Off in Sub Sahara Africa
Accra/Nairobi, 26 August 2008 -
Scrapping fossil fuel subsidies could play an important
role in cutting greenhouse gases while giving a small
but not insignificant boost to the global economy a new
report by the UN Environment Programme (UNEP) says.
The report challenges the widely held view that such
subsidies assist the poor arguing that many of these
price support systems benefit the wealthier sections of
society rather than those on low incomes.
They are also diverting national funds from more
creative forms of pro-poor polices and initiatives that
are likely to have a far greater impact on the lives and
livelihoods of the worse-off sectors of society.
Globally around $300 billion or 0.7 per cent of
global GDP is being spent on energy subsidies
The lion's share is being used to artificially lower
or reduce the real price of fuels like oil, coal and gas
or electricity generated from such fossil fuels.
Cancelling these subsidies might reduce greenhouse
gas emissions by as much as six per cent a year while
contributing 0.1 per cent to global GDP.
The report acknowledges that some subsidies or
mechanisms, whether in the form of tax breaks, financial
incentives or other market instruments can generate
social, economic and environmental benefits.
A case in point are feed-in tariffs that have
kick-started a renewable energy revolution in countries
such as Germany and Spain.
The report also accepts that there may be cases where
some subsidies can, if well- devised and time-limited
meet important social and environmental goals.
For example ones to encourage a switch from dirty,
health-hazardous or environmentally harmful fuels such a
The report also cites the case of Chile where well
devised subsidies have increased rural electrification
from around 50 per cent to over 90 per cent of the
population over 12 years.
But the report argues that many seemingly well
intentioned subsidies rarely make economic sense and
rarely address poverty. The report therefore challenges
the widely-held myth that scrapping fossil fuel supports
would hit the poor.
The report cites the example of Liquid Petroleum Gas
subsidies in India where $1.7 billion was spent in the
first half of the current financial year on trying to
get the fuel into poor households. "LPG subsidies are
mainly benefiting higher-income households…despite the
ineffectiveness of the subsidy the programme is being
extended until 2010,"says the study.
Indeed the report concludes that in many developing
countries the real beneficiaries of such subsidies are
neither the poor nor the environment but well off
households; equipment manufacturers and the producers of
Achim Steiner, UN Under-Secretary General and UNEP
Executive Director, said: "In the final analysis many
fossil fuel subsidies are introduced for political
reasons but are simply propping up and perpetuating
inefficiencies in the global economy - they are thus
part of the market failure that is climate change."
"There are now less than 500 days before the crucial
climate change convention meeting in Copenhagen in late
2009. Governments should urgently review their energy
subsidies and begin phasing out the harmful ones that
contribute to the wasteful use of finite resources and
delay the introduction of renewables or more efficient
forms of generation while creating disincentives and
barriers to public transport up to energy saving
appliances," he added.
The new UNEP report – Reforming Energy Subsidies:
Opportunities to Contribute to the Climate Change
Agenda-was released today at a meeting in Accra,
Ghana of the UN Framework Convention on Climate Change
Here governments have gathered to continue
negotiations under the Bali Road Map towards a
conclusive and far reaching new climate deal by
CDM Takes Off in Sub Sahara
Today UNEP also presented new
findings on the penetration of the Clean Development
Mechanism (CDM) in sub Saharan Africa.
The CDM, part of the Convention's Kyoto Protocol
agreed in 1997, allows developed nations to offset some
of their greenhouse gas emissions by funding cleaner
energy projects in developing countries that generate
carbon credits known as certified emission
These can range from wind and biomass energy projects
to ones that tap methane from rubbish tips and schemes
that encourage the use of less polluting fuels or power
There has been concern that the benefits of the CDM,
a contrasting example of a policy tool aimed at wider
social, economic and environmental benefits when
compared with fossil fuel subsidies have been by-passing
countries in Africa.
The main countries benefiting to date have been the
rapidly developing economies such as China, Brazil, and
The new figures, compiled by UNEP Risoe Centre in
Denmark, indicate that this is changing with the first
CDM projects emerging over the past 18 months in six
countries - the Democratic Republic of the Congo (DRC);
Madagascar, Mauritius, Mozambique, Mali and Senegal.
These include an oil well, gas flare reduction
project in the DRC and a run-of river hydroelectric
project in Madagascar.
In Kenya new projects include a 35MW extension of
geothermal, hot rocks, generation and a sugar cane
waste-into-energy project with Mumias Sugar Company.
Mr Steiner added: "Whereas fossil fuel subsidies are
an example of a blunt policy instrument, perpetuating
old and inefficient economic models, the CDM is an
example of a more intelligent, market-based mechanism
that is fostering the transition to a modern Green
He said the uptake in Africa was due, in part to the
impact of the UN's Nairobi Framework initiative launched
Here UNEP, along with partners including the UN
Development Programme (UNDP) have been working to build
the human and regulatory capacity of poorer countries to
access carbon financing.
Other measures have included awareness-raising among
banks and industry players on the Continent to new green
UNEP Risoe has been monitoring global trends in CDM
investment and the impacts of these activities for some
This still remains low compared to a global tally of
close to 3,500 CDM projects, but does mark a departure
from the very low levels of the past.
"As new policy drivers and planned capacity
development activities bear fruit, the market will
likely exhibit exponential growth like other regions,"
says Glenn Hodes, CDM Program Manager at UNEP Risoe.
Indeed, assuming governments agree on a deep and
decisive new climate agreement in 2009, Africa overall
could see roughly 230 projects by 2012, according to
Hodes and Appelquist's calculations."
These could cumulatively generate over 65 million
certified emission reductions, worth close to one
billion US dollars at a conservative carbon credit price
"Compared to CDM prodigies like India, Africa is
poised to be the late bloomer," says Hodes.
Notes to Editors
Reforming Energy Subsidies:
Opportunities to Contribute to the Climate Change
Agenda was commissioned by UNEP's Division of
Technology, Industry and Economics. The principal author
is Trevor Morgan of Menecon Consulting and now with the
International Energy Agency.
It says that Russia has the largest subsidies in
dollar terms amounting to around $40 billion a year and
mainly spent on making natural gas cheaper.
Iran comes second with around $37 billion: Six
countries, spending in excess of $10 billion on
subsidies come next. These are China, Saudi Arabia,
India, Indonesia, Ukraine and Egypt.
The report can be downloaded at http://www.unep.org/
The new data and estimated take up of Clean
Development Mechanism (CDM) projects in Africa can also
be downloaded at http://www.unep.org/
For More Information Please Contact
Nick Nuttall, Spokesperson/Head of Media, UNEP on Tel:
+254 20 7623084, Mobile: +254 733 632755 or +41
795965737, E-mail: email@example.com
Or Anne-France White, Associate
Information Officer, on Tel: +254 20 762 3088, Mobile: +
254 728600494, or E-mail: