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Plan to phase out fossil fuel subsidies back on G20 table

The plan for phasing out fossil fuel subsidies was back on the G20 agenda,with the US and other developed countries insisting on its inclusion.

Written by FE | Toronto | Published: June 28, 2010 1:12:34 am

The plan for phasing out fossil fuel subsidies was back on the agenda of the G20 meeting here on Sunday,with the US and other developed countries insisting on its inclusion.

Having taken the steps for de-regulation of prices of petroleum products just ahead of the meet,India did have the moral strength to respond to the demand for a debate on the issue. Advanced economies still account for a large part of these subsidies despite recent policy action by some of them — especially the US — to reduce these payouts which encourage wasteful consumption of fossil fuels.

However,while embracing the idea of curbing the extravagant consumption of these fuels with high greenhouse gas emissions,India would still resist making binding commitments for any definite plan of action to eliminate them,top government officials told FE.

The G20 grouping’s medium-term plan formulated in Pittsburgh last September was to “phase out” subsidies that make fossil fuels cheaper to buy and produce. India wants the scope of the G20’s remit in this regard in line with its plan for achieving double-digit GDP growth and sustaining it for a few years at least. India’s planned capacity addition in the power sector would continue to be coal-based,a fuel whose prices are not fully market-determined.

Even during the Pittsburgh summit,India had opposed inclusion of a road map to eliminate subsidies,even as it appreciated that these subsidies have resulted in wasteful consumption of these fuels. The wording of the G20 communique was subsequently tempered down with the phrase “phase out and rationalize,” and allowing to provide “targeted support for the poorest.”

The US was in the forefront of the campaign to end these market-distorting subsidies,and has seemingly sought to set an example by repealing several tax preferences for these fuels in the fiscal 2011 budget and vowing to include their phase-out package in the proposed new energy law.

The world’s fossil subsidies are variously estimated at between $250 billion and $500 billion,but there are more authenticated figures suggesting that developed countries themselves spent over $100 billion on subsidizing these fuels last year.

In a recent signed article,US Treasury Secretary Timothy Geithner and Obama’s top economic adviser,Larry Summers claimed that the US has made good on its pledge to lay out how it intends to phase out subsidies,and urged “the G20 countries to demonstrate their commitment to this critical objective by detailing how and when they plan to eliminate policies that encourage the over-consumption of fossil fuels.”

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