COP26

No UK fossil fuel subsidies should be classed as “efficient” – Climate Change Committee

The government’s climate advisor has addressed possible loopholes in the COP26 agreement on phasing out fossil fuel subsidies.

An early proposal from the climate summit in Glasgow had been to phase out all fossil fuel subsidies. But this was weakened in the final document to include only “inefficient” fossil fuel subsidies.

This morning the Committee on Climate Change (CCC) said:

“The Committee does not consider that any fossil fuel subsidies should be classed as ‘efficient’ in the UK.”

In a review of the COP26 outcomes, the CCC said there was no single definition of subsidies, nor what constituted an inefficient subsidy.

It said that under a narrow government definition the UK did not have fossil fuel subsidies (government action that lowered the pre-tax price to consumers to below international market levels).

But the CCC said the World Trade Organisation considered all public financial support that provided a selective advantage as a subsidy.

And the International Monetary Fund had proposed the concept of post-tax subsidies, which count any failure to fully factor in the costs of fossil fuels, including their impact on climate change.

The CCC said:

“By this definition, reduced VAT and the lack of a carbon price on gas and other fossil fuels used for heating buildings, and the lack of VAT or a carbon price on aviation fuel are all post-tax subsidies.”

“Need to remove post-tax subsidies”

The CCC added:

“If the tax system is to support the transition [to net zero emissions by 2050] as it should, a higher and more consistent carbon price across the economy will be needed, which would also remove post-tax subsidies.”

The CCC said government promises to review the imbalance between gas and electricity prices and the scope of the UK Emissions Trading Scheme would “go some way” in addressing the fossil fuel subsidies.

But it said:

“a more systematic review of taxation and carbon pricing including consideration of post-tax subsidies, should be undertaken by the Treasury.”

The Glasgow Climate Pact was the first agreement from a climate summit that specifically referred to fossil fuels as part of measures to cut global greenhouse gas emissions.

It agreed to phase down unabated coal. But the CCC said today “other fossil fuels must also be significantly reduced” to achieve the goal in the Paris Agreement to limit temperature increase to well below 2C and the Glasgow aim of keeping a 1.5C within view.

The CCC said:

“At best, this ambition suggests the Paris target of well-below 2°C might be coming into view, but ambition falls far short of that needed to reach 1.5°C. Current policies put the world on course for expected warming of 2.7°C. Urgent increases in ambition, backed by policy and delivery, are needed in the decade to 2030.”

The CCC’s chair, Lord Deben, said:

“The UK must not walk away after COP26. Glasgow was a step forward in global efforts to address climate change, including a genuine increase in ambition to reduce emissions worldwide. We also saw important technical advances, with new rules agreed for reporting emissions and on international carbon trading, and multiple initiatives and sector deals. This is real and welcome progress, but success depends on what happens now.

“The next year is critical for climate action in the UK and internationally. At home, we need to walk the talk and urgently deliver actions in the Net Zero Strategy. Globally, the UK must continue to encourage stronger action on climate and insist on rapid emissions reductions and stronger adaptation through all diplomatic channels. The ultimate success of the Glasgow Climate Pact will be measured in climate risks averted, not words on a page.”

“Explicit on methane reduction”

The CCC has advised that the UK should reduce methane emissions by 32% from 2020-2030. This in line, it said, with the global methane pledge, formally launched at COP26.

The CCC said the UK government’s net zero strategy had not split emissions reduction trajectories into different gases. This should now be made explicit, it said.

The CCC also said it was considering the implications of international and UK emissions reduction commitments for oil and gas production in the UK. It would report on this shortly, it said.

Wales and Ireland have already joined an initiative led by Denmark and Costa Rica, to keep oil and gas in the ground. The UK and Scottish governments did not sign-up to the Beyond Oil & Gas Alliance, also formally launched at COP26.

4 replies »

  1. Climate change action: Very much a ground up movement. Top down dragged kicking and screaming when they can no longer ignore the numbers (people and temperature), but will resist as long as the power and money are safe.

  2. I believe those with some experience in off shore oil have predicted for a little while that Cambo was rather suspect in terms of economics-even on DoD.
    That seems to be the reason that Shell have pulled out.

    Perhaps they are hoping to pick up some of the Gulf of Mexico which has recently been auctioned, instead? 80m acres. Quite a lot to chose from.

  3. The same Shell:

    https://www.theguardian.com/business/2021/dec/03/shell-go-ahead-seismic-tests-whale-breeding-grounds-court-oil-south-africa

    “Royal Dutch Shell will move ahead with seismic tests to explore for oil in vital whale breeding grounds along South Africa’s eastern coastline after a court dismissed an 11th-hour legal challenge by environmental groups.

    The judgment, by a South African high court, allows Shell to begin firing within days extremely loud sound waves through the relatively untouched marine environment of the Wild Coast, which is home to whales, dolphins and seals.

    Campaigners filed an urgent legal challenge against the seismic survey, which was scheduled to begin on Wednesday, but the last-minute interdict was dismissed by a judge on Friday morning.”

    Perhaps this will change when they drop the “Royal Dutch”?

    Cambo is interesting in that it is very hard to see (for me at least, and I have experience in this area) how Shell could justify this development from an economic perspective. I doubt the value and rate of return for what is a deep water heavy oil field in tough environmental conditions would have passed their economic thresholds. Marginal at best, add in the bad press and they drop it? Perhaps they expected something bigger when they drilled the 2018 final appraisal well.

    Meanwhile:

    https://www.shell.com/media/news-and-media-releases/2021/shell-invests-in-the-whale-development-in-the-gulf-of-mexico.html

    https://www.shell.com/media/news-and-media-releases/2021/shell-delivers-first-gas-from-barracuda-project.html

    I expect most of the majors to follow Shell out of the North Sea which is now very mature; most have already gone. They are refocusing on natural gas, bigger fields and countries which need the tax revenue such as South Africa, and some like Equinor, Shell and BP are investing heavily in renewables in addition to their O & G business.

    There will be a queue of smaller (and far less competent) companies looking to take up Shell’s 30% of Cambo – who have much lower economic thresholds and will not be influenced by bad press or the delighful Nicola…..

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