Fossil fuel subsidy peer reviews from the United States and China released Monday by China’s Group of 20 presidency reveal billions of dollars in inefficient subsidies. According to the reports, 16 inefficient fossil fuel subsidies in the U.S. total more than $8 billion, while China’s nine inefficient fossil fuel subsidies are valued at $14.5 billion annually. China’s review includes timelines to phase out or reform some of the subsidies. The U.S. on the other hand, could offer little in terms of a plan. “U.S. officials have indicated their intention to reform all 16 measures, though in most cases reform can only take place with action by the U.S. Congress,” the U.S. report explains.
The U.S. subsidies include: expensing of intangible drilling costs, domestic manufacturing deductions for fossil fuels, and corporate tax income exemptions for fossil-fuel publicly traded partnerships. “Fossil-fuel subsidies are also often granted in order to avoid producers shutting down operating wells in response to sudden price drops. Hedging producers against market-price volatility, however, reduces incentives to innovate and develop productivity-enhancing technologies,” the U.S. report says. The review was conducted by representatives from China, Germany, Mexico, and the Organization for Economic Co-operation and Development (OECD).
The release of the reports is a step in the right direction, Han Chen, an international climate advocate for the Natural Resources Defense Council’s international and climate and clean air programs, wrote in an NRDC blog post Monday. “[O]ne weakness of the peer reviews is that they do not require countries to submit a plan for phasing out subsidies by a certain date. The only way to address this weakness is through national leadership by heads of state for all members of the G20,” Chen wrote.