U.S. and China Review Their Fossil Fuel Subsidies

China and the U.S. are the world's largest greenhouse gas emitters, and both countries still heavily subsidize fossil fuels. Last week, the two countries released reviews of their fossil fuel subsidies as part of the G20 framework, which are reviewed by officials from China, Germany, Mexico, and the Organization for Economic Cooperation and Development (OECD).

At the 2009 Pittsburgh Summit, leaders of the G20 countries agreed to launch a framework and collaborate for "lasting economic recovery" and strong, sustainable growth. The U.S and China are the first to release reviews under the G20 framework. Both countries committed to eliminate and consolidate fossil fuel subsidies as part of the review process, a promise they made in 2013.

The reviews found inefficiencies in both countries' subsidy systems -- and both face challenges in fixing that problem. China is a “developing powerhouse with unbalanced regional developments, thus the reform will be a gradual process,” its review states. For the U.S., the primary roadblock is the Congress. As Climate Change News points out, of the 16 subsidies the U.S. has marked to be eliminated, all but three conclude with this: “The United States Congress must pass enabling legislation for this proposal to become law.” President Barack Obama has issued 11 proposals to eliminate subsidies, but not one passed the House.

What’s the big deal about inefficient fossil fuel subsidies? They “encourage wasteful consumption, reduce our energy security, impede investment in clean energy and undermine efforts to deal with the threat of climate change,” the Leader’s Statement of the G20 Pittsburgh Summit stated. And they are costly. The U.S. review found over $8 billion in inefficient subsidies, while China has over $14.5 billion. Fossil fuel subsidies need to be reformed, both in the U.S. and in China, in order to effectively address climate change.

China is the biggest energy user in the world and the top GHG emitter. Fossil fuel subsidy reform is critical for the country to reduce its GHG emissions. Reform is also necessary to implement China’s energy price marketization reform. Phasing out inefficient fossil fuel subsidies means government intervention in fossil fuel prices is reduced, better reflect the supply and demand of energy and “effectively promote the marketization of China's energy price mechanism reform,” as the review states. So, phasing out inefficient subsidies needs to be combined with energy price marketization reform.

Fossil fuel subsidy reform in the U.S. is like no other. Reforms of subsidies are “generally blocked when they reach the legislature,” as the review of U.S. subsidies states. The reason is that Congress has the power to legislate. That ol' system of checks and balances makes it harder to reform subsidies. But Americans can play an important role in getting Congress to pass reforms. Or as the review puts it, “Political processes can only happen if a sufficient number of citizens are informed about the case for reform and are motivated enough to express their views to their representatives in Congress.”

The problem is that many of the measures the Obama administration has proposed for subsidies reform since 2010 relate to fossil fuel production and those are either complex or obscure to the average American. In other countries, governments are trying to reform consumption subsidies, which are easier to understand. What the review recommends is a “bottom-up approach” to inform and convince Americans that subsidies reform is needed before the reform is ever proposed to Congress. 

In order to build support among Americans, an effective communication strategy is key and one that emphasizes the benefits of subsidy reform. Perhaps emphasizing that some of the savings from subsidy reform can be allocated to other priorities such as education and infrastructure. In other words, Americans need to know that reforming fossil fuel subsidies will benefit their lives.

Image credit: Flickr/SMelindo