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In 2022, G20 members spent $1.4 trillion to support fossil fuels and they could raise an additional $1 trillion per year by establishing a carbon tax floor of $25-50/tCO2e.

These funds could help solve some of the most pressing global issues, according to a new report released on Wednesday.

G20 members provided a record $1.4 trillion in public money to support fossil fuels in 2022, according to the study “Fanning the Flames: G20 Provides Record Financial Support for Fossil Fuels” by the International Institute for Sustainable Development (IISD) and partners.

That amount, which includes fossil fuel subsidies ($1 trillion), investments by state-owned enterprises ($322 billion), and lending from public financial institutions ($50 billion), is more than double the pre-COVID-19 and pre-energy crisis levels of 2019.

“These figures are a stark reminder of the massive amounts of public money G20 governments continue to pour into fossil fuels despite the increasingly devastating impacts of climate change,” said Tara Laan, Senior Associate at IISD and the lead author of the study.

“The G20 has the power and the responsibility to transform our fossil-based energy systems. It is crucial for the bloc to put fossil fuel subsidies on the Delhi Leaders’ Summit agenda and take meaningful actions to eliminate all public financial flows for coal, oil, and gas,” Laan said.

The researchers found that G20 members could raise an additional $1 trillion every year by setting minimum carbon taxation levels of $25–75/tCO2e, depending on country income. tCO2e stands for tonnes (t) of carbon dioxide (CO2) equivalent (e).

They warn that taxes on fossil fuels in G20 member countries currently do not reflect their costs to society, averaging just $3.2/tCO2e across the G20, with many members failing to impose windfall taxes on record profits that fossil fuel companies gained last year at the peak of the energy crisis.

Artificially lowering the price of fossil fuels is problematic because it increases the burning of fossil fuels, intensifying human-induced climate change and making extreme weather events like heat waves, wildfires, torrential rains, and hailstones more frequent and intense.

The authors recommend that G20 members set a clear deadline to eliminate fossil fuel subsidies, 2025 for developed countries and 2030 at the very latest for emerging economies, to deliver on their 2009 commitment to reform subsidies.

In addition, they should drop the qualifier “inefficient” from subsidies. Instead, they should name exceptional cases when subsidies could be considered justifiable, for e.g., if essential for energy access and improve the targeting of these subsidies to only include people who really need them.

IISD experts highlight that there are much better ways to support people during a crisis and that fuel subsidies are, in fact, a notoriously inefficient way to help the poor.

Governments should instead provide social welfare through other mechanisms, like targeted welfare payments.

The report highlights the notable progress of some G20 members in this area. As the current G20 president, India can confidently demonstrate global leadership in this area, having reduced its fossil fuel subsidies by 76 per cent from 2014 to 2022 while significantly increasing support for clean energy.

Experts note that shifting less than a quarter of the $2.4 trillion generated from subsidy reform and carbon taxation could help close the wind and solar energy investment gap, $450 billion per year until 2030, to limit global temperature rise to 1.5 degrees Celsius, with public support leveraging additional funds from private investors.

It could also be used to help end world hunger ($33 billion/year), provide universal access to electricity and clean cooking globally, in ways aligned with net-zero emissions ($36 billion/year), and close the climate finance gap that developed countries committed to mobilize for developing nations ($17 billion/year).

Removing subsidies could also save thousands of lives by reducing fossil fuel-related air pollution, which is responsible for over five million deaths per year in G20 members and one in five deaths globally.

The study emphasises the active role that needs to be played by state-owned enterprises, which dominate the energy landscape in many G20 member countries, and public financial institutions, which engage in considerable lending to fossil energy projects.

Governments should, in particular, set a deadline for these state-owned institutions to create ambitious net-zero roadmaps that will allow them to diversify their businesses and lending portfolios and avoid the risks inherent in continued investments in fossil fuels, such as stranded assets.

“With fossil fuel companies gaining record profits amid the energy crisis last year, there is little incentive for them to change their business models in line with what’s needed to limit global warming. But governments have the power to push them in the right direction,” Laan added.