Investors urge G20 to end fossil fuel subsidies by 2020

Investors and insurers boasting more than $742bn in assets under management have urged the G20 to end fossil fuel subsidies by 2020, warning of severe risks to the global financial sector unless a clear phase-out deadline is set.

A group of nine major investor, including Aviva, Glenmont Partners and the Environment Agency Pension Fund, have signed a joint statement calling on G20 governments meeting in Argentina this week to set a strict timeline to end all forms of state support for fossil fuels no later than 2020.

The statement, which was released yesterday, warns continued government support for fossil fuels increases the risk of creating stranded assets within the energy sector and could also decrease the competitiveness of key industries, including in the green, low carbon economy.

It describes subsidies and public financing for production and consumption of fossil fuels as a "key concern" for the finance sector, slamming such support as "notoriously inefficient from an economics standpoint".

"They [fossil fuel subsidies] create a significant burden on government budgets, perpetuate income inequality by benefiting the richest consumers while failing to meet the energy needs of those lacking energy access, and damage public health by increasing air pollution," it states.

The letter therefore calls for "concrete and ambitious timelines" for reforming all forms of fossil fuel support, bolstered by peer reviews of how subsidies work, by 2020. It says the phasing out of fossil fuel subsidies should be accompanied by fresh commitments to deliver a 'just transition' for workers in fossil fuel sectors, and calls on the International Energy Agency (IEA) to develop a Paris Agreement-aligned decarbonisation scenario.

Subsidy support should instead be directed towards "wider social and sustainable development needs", states the letter.

It has also been signed by CCLA Investment Management, Earth Capital, Joseph Rowntree Charitable trust, Sarasin & Partners, USS, and WHEB Asset Management.

The intervention comes ahead of the two-day G20 leaders summit in Buenos Aires, where heads of state from many of the world's biggest economies, including the US, Brazil, China the EU, Russia, Saudi Arabia, South Africa, and Japan, are due to meet on Friday.

A draft communique leaked on Wednesday ahead of the event, however, appeared to water-down the bloc's resolve on tackling climate change, in a move thought to be aimed at appeasing critical voices from the US, Brazil, and others.

But the letter from investors yesterday said the actions of G20 governments were critical for investors seeking to shift to a low carbon economy and could "help unleash private investment towards the clean energy future we all want".

New research was also released alongside the letter showing how some G20 governments have successfully made progress on shifting subsidy support away from fossil fuels while also increasing fossil fuel taxes. For example, Indonesia has saved $15.6bn by cutting back on inefficient subsidies for gasoline and diesel since 2015, while India has enjoyed a $12bn revenue boost between 2010 and 2018 from taxing coal production, the report said.

But the research, which was published by the International Institute for Sustainable Development (IISD), the Overseas Development Institute (ODI), Oil Change International (OCI), and Fundación Ambiente y Recursos Naturales (FARN) warns that the shift away from fossil fuels must accelerate significantly if the G20 is to meet Paris Agreement targets and the UN's 17 Sustainable Development Goals (SDGs).

Steve Waygood, chief responsible investment officer at Aviva Investors, also warned that the current system of fossil fuel subsidies risked placing the burden of decommissioning onto taxpayers.

"As corporates are being asked to disclose the potential impact of climate risk on their balance sheets, we as investors are also asking governments to disclose the impact that fossil fuel subsidies have at country balance sheet level, providing us with useful information so that we can support economies as they make this important change," he said.

A commitment to phase out fossil fuel subsidies was a perrenial feature of G20 and G7 Summits duruing the Obama era, which has been largely abandoned as the international community seeks to manage the Trump administration's characteristic volatility. But as some of the world's leading investors highlighted again this week, phasing out highly inefficient subsidies remains one of the most effective ways of slashing greenhouse gas emissions and mobilising green investment.