Friday, 22 June 2012

On Rio+20, Twitter storms and fossil fuel subsidies

By Dirk Willenbockel

Up to now I have resisted all temptations from our blog coordinators to write about the Rio+20 summit. For a seasoned observer who consciously lived through the past 25 years of UN initiatives and political discourse on sustainable development from the 1987 Brundtland Report onward (yes, I am that old), it is  not easy to get particularly enthusiastic about Rio+20. After the 1992 Rio Declaration and Agenda 21 and the 2002 Johannesburg Plan of Implementation, the prospect of yet another declaration that more or less just reconfirms earlier broad aspirations and intentions without including specific and enforceable commitments does not appear overly exciting - politically important and necessary as such reconfirmations may be.

Moreover, from a global long-run perspective and in light of the Durban debacle, signing noble pronouncements of intent on sustainable development while postponing a meaningful global climate deal beyond the point of no return seems rather futile. As I put it bluntly elsewhere some time ago, ‘given that climate change ... is very likely to be the predominant force adversely affecting ecosystems over the course of the 21st century, discrete policy efforts to preserve ecosystems in the absence of decisive global climate change mitigation action would seem to be as useful as re-arranging the deck chairs on the Titanic’.

But enough fatalism for today. What I find interesting to see (and worth blogging about) is that Rio+20 seems to draw the attention of a wider public to the critical issue of fossil fuel subsidies. The Guardian reports that in the run-up to the summit a 24-hour Twitter storm campaign to end fossil fuel subsidies became the top trend on Twitter this Monday.

The International Energy Agency estimates that in 2010 such subsidies amounted to more than US $400 billion across 37 countries included in their study. According to the IEA chief economist, phasing out these subsidies could provide around half the emissions reductions needed over the next decade to reach a trajectory that would limit global warming to 2o C.

A large chunk of this sum is attributable to fuel subsidies in developing and emerging countries. Cutting such subsidies as part of a transition to a low-carbon growth path is widely considered as an unpalatable policy option, as the resulting fuel price increases hit poor households and reduce economic growth due to higher energy costs in production. In Nigeria, a fuel subsidy cut triggered mass protests that led to a policy U-turn last year.

However, recent collaborative IDS research with Vietnamese partners commissioned by UNDP and briefly summarised here indicates that adverse distributional and growth side effects of fossil fuel subsidy cuts are by no means inevitable. A model-based dynamic scenario analysis suggests in particular that adverse impacts on poor households can be neutralised by using part of the government savings arising from the subsidy cut for compensating income subsidies. Using the additional fiscal space to foster additional productive and more energy-efficient investments may actually raise income and consumption for all households in the medium run – a variant of the familiar double-dividend effect of environmental taxation.