Rising oil prices are testing the developing world’s resolve to quit fossil fuels. The president of Brazil has fired the chief of the country’s largest oil producer — inadvertently sending its currency, bonds and stocks plunging — in a bid to keep diesel prices from spiking. Nigeria’s dependence on low-cost gasoline threatens to scupper a year-long effort to phase out fuel subsidies. Peru and Mexico are reversing fossil fuel taxes as oil prices rise and families struggle to make ends meet, and India is under pressure to do so.
“They are continuing to subsidize the production and consumption of fossil fuels,” said Nathalie Girouard, head of the Environmental Performance and Information division at the Organization for Economic Co-operation and Development.“At this stage it is not very encouraging.”
Pandemic recovery efforts are exacerbating the issue, with 31 major economies having pledged at least $292 billion in Covid relief to fossil-fuel intensive sectors, according to energypolicytracker.org, a consortium of research organizations including the Columbia University Center on Global Energy Policy.
While 2020’s oil crash offered a “golden opportunity” to start eliminating federal support for fossil fuels, according to the International Energy Agency, political and economic pressures surrounding the pandemic have frustrated efforts to do so. Price reform remains deeply unpopular in countries where cheap fuel is one of the only economic advantages available to citizens already squeezed by Covid-related unemployment, inflation and poverty.
“There’s always an argument that the money is better spent elsewhere,” said Ben Cahill, a senior fellow at the Center for Strategic and International Studies. “But at a time like this when prices have risen as rapidly as they have since November, it’s a challenging time” to phase them out.
Governments are now more concerned with supporting families and businesses than with price reform – even though unwinding subsidies would offer much-needed relief to government coffers, and upholding them can have dire consequences for both climate and economies.
Simply allowing the market to dictate fuel prices would reduce global greenhouse gas emissions by up to 3.2% in 2030, according to Purdue University’s Center for Global Trade Analysis. Taxing fuel to account for air pollution and health would have lowered emissions 28% in 2015, the International Monetary Fund said in a 2019 report.
Instead, many countries are earmarking pandemic recovery funds for carbon-intensive industries. Government recovery funds for production alone surpassed the $264 billion earmarked for clean energy, according to energypolicytracker.org. In 2019, fossil-fuel subsidies for consumers and producers totaled $468 billion in 2019, according to the OECD.