Meanwhile
New Assessment of Clean Development Mechanism
Shows Climate-Friendly Energy Projects Achieving
Lift-Off in Sub Sahara Africa
Accra/Nairobi, 26 August
2008 - Scrapping fossil fuel subsidies could
play an important role in cutting greenhouse
gases while giving a small but not insignificant
boost to the global economy a new report
by the UN Environment Programme (UNEP) says.
The report challenges
the widely held view that such subsidies
assist the poor arguing that many of these
price support systems benefit the wealthier
sections of society rather than those on
low incomes.
They are also diverting
national funds from more creative forms
of pro-poor polices and initiatives that
are likely to have a far greater impact
on the lives and livelihoods of the worse-off
sectors of society.
Globally around $300 billion
or 0.7 per cent of global GDP is being spent
on energy subsidies annually.
The lion's share is
being used to artificially lower or reduce
the real price of fuels like oil, coal and
gas or electricity generated from such fossil
fuels.
Cancelling these subsidies
might reduce greenhouse gas emissions by
as much as six per cent a year while contributing
0.1 per cent to global GDP.
The report acknowledges
that some subsidies or mechanisms, whether
in the form of tax breaks, financial incentives
or other market instruments can generate
social, economic and environmental benefits.
A case in point are
feed-in tariffs that have kick-started a
renewable energy revolution in countries
such as Germany and Spain.
The report also accepts
that there may be cases where some subsidies
can, if well- devised and time-limited meet
important social and environmental goals.
For example ones to
encourage a switch from dirty, health-hazardous
or environmentally harmful fuels such a
charcoal.
The report also cites
the case of Chile where well devised subsidies
have increased rural electrification from
around 50 per cent to over 90 per cent of
the population over 12 years.
But the report argues
that many seemingly well intentioned subsidies
rarely make economic sense and rarely address
poverty. The report therefore challenges
the widely-held myth that scrapping fossil
fuel supports would hit the poor.
The report cites the
example of Liquid Petroleum Gas subsidies
in India where $1.7 billion was spent in
the first half of the current financial
year on trying to get the fuel into poor
households. "LPG subsidies are mainly
benefiting higher-income households…despite
the ineffectiveness of the subsidy the programme
is being extended until 2010,"says
the study.
Indeed the report concludes
that in many developing countries the real
beneficiaries of such subsidies are neither
the poor nor the environment but well off
households; equipment manufacturers and
the producers of the fuels.
Achim Steiner, UN Under-Secretary
General and UNEP Executive Director, said:
"In the final analysis many fossil
fuel subsidies are introduced for political
reasons but are simply propping up and perpetuating
inefficiencies in the global economy - they
are thus part of the market failure that
is climate change."
"There are now
less than 500 days before the crucial climate
change convention meeting in Copenhagen
in late 2009. Governments should urgently
review their energy subsidies and begin
phasing out the harmful ones that contribute
to the wasteful use of finite resources
and delay the introduction of renewables
or more efficient forms of generation while
creating disincentives and barriers to public
transport up to energy saving appliances,"
he added.
The new UNEP report
– Reforming Energy Subsidies: Opportunities
to Contribute to the Climate Change Agenda-was
released today at a meeting in Accra, Ghana
of the UN Framework Convention on Climate
Change (UNFCCC).
Here governments have
gathered to continue negotiations under
the Bali Road Map towards a conclusive and
far reaching new climate deal by Copenhagen
2009.
CDM Takes Off in Sub
Sahara Africa
Today UNEP also presented
new findings on the penetration of the Clean
Development Mechanism (CDM) in sub Saharan
Africa.
The CDM, part of the
Convention's Kyoto Protocol agreed in 1997,
allows developed nations to offset some
of their greenhouse gas emissions by funding
cleaner energy projects in developing countries
that generate carbon credits known as certified
emission reductions.
These can range from
wind and biomass energy projects to ones
that tap methane from rubbish tips and schemes
that encourage the use of less polluting
fuels or power plants.
There has been concern
that the benefits of the CDM, a contrasting
example of a policy tool aimed at wider
social, economic and environmental benefits
when compared with fossil fuel subsidies
have been by-passing countries in Africa.
The main countries benefiting
to date have been the rapidly developing
economies such as China, Brazil, and India.
The new figures, compiled
by UNEP Risoe Centre in Denmark, indicate
that this is changing with the first CDM
projects emerging over the past 18 months
in six countries - the Democratic Republic
of the Congo (DRC); Madagascar, Mauritius,
Mozambique, Mali and Senegal.
These include an oil
well, gas flare reduction project in the
DRC and a run-of river hydroelectric project
in Madagascar.
In Kenya new projects
include a 35MW extension of geothermal,
hot rocks, generation and a sugar cane waste-into-energy
project with Mumias Sugar Company.
Mr Steiner added: "Whereas
fossil fuel subsidies are an example of
a blunt policy instrument, perpetuating
old and inefficient economic models, the
CDM is an example of a more intelligent,
market-based mechanism that is fostering
the transition to a modern Green Economy".
He said the uptake in
Africa was due, in part to the impact of
the UN's Nairobi Framework initiative launched
in 2006.
Here UNEP, along with
partners including the UN Development Programme
(UNDP) have been working to build the human
and regulatory capacity of poorer countries
to access carbon financing.
Other measures have
included awareness-raising among banks and
industry players on the Continent to new
green finance opportunities.
UNEP Risoe has been
monitoring global trends in CDM investment
and the impacts of these activities for
some time.
This still remains low
compared to a global tally of close to 3,500
CDM projects, but does mark a departure
from the very low levels of the past.
"As new policy
drivers and planned capacity development
activities bear fruit, the market will likely
exhibit exponential growth like other regions,"
says Glenn Hodes, CDM Program Manager at
UNEP Risoe. Indeed, assuming governments
agree on a deep and decisive new climate
agreement in 2009, Africa overall could
see roughly 230 projects by 2012, according
to Hodes and Appelquist's calculations."
These could cumulatively
generate over 65 million certified emission
reductions, worth close to one billion US
dollars at a conservative carbon credit
price of $15.
"Compared to CDM
prodigies like India, Africa is poised to
be the late bloomer," says Hodes.
Notes to Editors
Reforming Energy Subsidies:
Opportunities to Contribute to the Climate
Change Agenda was commissioned by UNEP's
Division of Technology, Industry and Economics.
The principal author is Trevor Morgan of
Menecon Consulting and now with the International
Energy Agency.
It says that Russia
has the largest subsidies in dollar terms
amounting to around $40 billion a year and
mainly spent on making natural gas cheaper.
Iran comes second with
around $37 billion: Six countries, spending
in excess of $10 billion on subsidies come
next. These are China, Saudi Arabia, India,
Indonesia, Ukraine and Egypt.
The report can be downloaded
at www.unep.org
The new data and estimated
take up of Clean Development Mechanism (CDM)
projects in Africa can also be downloaded
at www.unep.org
For More Information Please Contact Nick
Nuttall, Spokesperson/Head of Media, UNEP
