All eyes on Pittsburgh as Obama pushes for end to fossil fuel subsidies

The fast-expanding global clean tech industry could receive a once-in-a-generation boost today, after a draft statement from the G20 group of nations revealed that US president Barack Obama had secured a victory in his push for fossil fuel subsidies to be phased out.

The draft communique, seen by news agency Reuters, commits the group of 20 industrialised and emerging economies to phasing out fossil fuel subsidies in the "medium term".

It states that "inefficient fossil fuel subsidies encourage wasteful consumption, distort markets, impede investment in clean energy sources and undermine efforts to deal with climate change".

It also commits ministers to identifying strategies for phasing out the use of subsidies and requires them to report back to the G20 on their progress.

The move marks a major victory for the Obama administration, which had led calls for leaders of emerging economies to begin phasing out the generous direct subsidies that many government's provide to help keep down the price of fuel, arguing that the subsidies are hampering efforts to curb carbon emissions and failing to boost quality of living for poor communities.

According to research from the International Energy Agency (IEA), phasing out fossil fuel subsidies would, at a stroke, serve to cut carbon emissions 12 per cent by 2050.

Currently, the largest developing economies spend $310bn a year on fossil fuel subsidies, and many are reluctant to remove incentives that help keep fuel prices for their populations relatively low, while providing employment in carbon-intensive sectors such as coal mining.

However, recent research from the IEA has shown that the subsidies and resulting low fuel prices tend to only benefit rich elites and the emerging middle classes, while actually hampering development efforts by diverting money away from other projects.

White House spokesman Mike Froman said the aim was to persuade members of the G20 that the current approach to fossil fuel subsidies was doing more harm than good.

"The G20 is not trying to do anything that would keep people in the dark, but is instead trying to encourage countries to move off blanket subsidies which are regressive," he said. "This is not us pointing fingers at anybody… eliminating fossil fuel subsidies will promote a more efficient investment climate, increase real income by as much as two per cent in some developing countries, and at the same time lead to better allocation of resources."

He added that, if successful, the phasing out of fossil fuel subsidies would provide a major boost to efforts to tackle climate change by significantly increasing the relative competitiveness of low-carbon and renewable energy alternatives. Citing the IEA research that estimates the removal of subsidies would help cut global emissions by up to 12 per cent, he argued that any such move would represent a "significant down payment on the effort to meet the global goal [of halving emissions] towards 2050".

To help make the case, President Obama recruited Indonesian president Susilo Bambang Yudhoyono to present to the G20 on mechanisms for reducing fossil fuel subsidies and diverting funds to help poor communities. The Indonesian government recently risked public unrest by cutting fuel subsidies, but has sought to ease the impact on households by launching a system of direct financial support for the poor.

However, the draft sets no timeline for the phasing out of subsidies and experts have warned that the move could face numerous obstacles, particularly given the fact that subsidies remain highly popular in many emerging economies.

There is also a very real risk that the US and other rich nations could face charges of hypocrisy over their own use of indirect subsidies to fossil fuel industries, such as tax breaks, tax credits and low-interest loans.

According to a recent study from the Washington-based Environmental Law Institute, the bulk of US energy subsidies are still rewarded to carbon-intensive sectors, with the fossil fuel industry enjoying subsidies worth $72bn in 2008, compared with just $29bn for the renewable energy industry.

The draft statement also reiterates the group's support for securing an international climate change deal at the UN's forthcoming summit in Copenhagen, pledging that leaders will "intensify efforts" to reach a deal.

The news comes as European Commission President José Manuel Barroso yesterday issued a blunt warning to negotiators involved in the Copenhagen talks to start delivering the detailed commitments that will be needed to secure a deal.

Speaking at Pittsburgh University on the eve of the G20 meeting, Barroso said that rich nations had to put a figure on the amount of money they have repeatedly pledged to provide developing economies to help them transition to a low-carbon economy. He said industrialised nations need to make a "credible financial commitment" to help move the deadlocked talks forward: "In other words – no money, no deal."

He also chastised large emerging economies such as India, China and Brazil for not providing a clear plan for what they would do with increased clean tech funding from industrialised nations.

China's president, Hu Jintao, won plaudits this week after telling a meeting of the UN that the country would set a target to reduce its carbon intensity, while the Indian government has also signalled it will soon present a major energy-efficiency strategy. But Barroso insisted both countries had to provide more details on how they plan to tackle climate change.

"If you are serious about the challenge of cutting emissions, we will be there to help, including with financial support. But we need developing countries to contribute to mitigation," he said. "In other words – no action, no money."

The commission president also urged negotiators involved in the Copenhagen talks to take a red pen to the unwieldy negotiating text. "The text that is currently on the table contains 200 pages, with a feast of alternatives and a forest of square brackets," he said. "If we do not sort this out, it risks becoming the longest suicide note in history."