Despite numerous pledges to phase out inefficient fossil fuel subsidies, global direct subsidies reached a staggering $1.5 trillion in 2022, nearly doubling from the previous year. The International Monetary Fund forecasts a decline in subsidies in the near-term but predicts a rise by 2030 due to increasing fuel consumption in emerging markets. This is concerning as emissions must halve by 2030 to keep global temperature rise below 1.5C as per the Paris Agreement. Increasing subsidies are incompatible with reducing reliance on fossil fuels and slashing emissions, making urgent action necessary from G7 finance ministers meeting in Italy this week.
The G7 has previously committed to phasing out inefficient fossil fuel subsidies by 2025 or sooner, with the urgency of the current situation demanding immediate action. Finance ministers have the power to align financial commitments with the transition away from fossil fuels as agreed at COP28, a crucial step towards achieving net zero emissions by 2050. It is essential for governments, particularly those in the G7 historically responsible for greenhouse gas emissions, to set clear targets and timelines for phasing out unabated fossil fuels in line with a 1.5C trajectory, along with support for countries in the Global South to help them transition to clean energy economies.
While the G7 energy and climate ministers in April agreed to end coal power generation by the first half of the 2030s, more ambitious targets are needed to reach 100% decarbonized power systems by 2035 in advanced economies and by 2040 for other countries. This will require reorienting public and private financial flows away from fossil fuels, setting a meaningful carbon price, and reforming subsidies. The transition to clean energy will also impact jobs, requiring investments in upskilling and reskilling programs to ensure a fair transition for affected communities.
Christine Shearer of Global Energy Monitor emphasized the importance of concrete plans for retiring coal plants in line with the 2035 phase out target. Close to 60% of the G7’s coal fleet lacks such plans, with the US facing the greatest challenge due to the high number of coal plants. Shifting away from coal will require a significant transformation in the job market and governments must invest in supporting affected workers. G7 finance ministers can play a crucial role in aligning ambition with reality by providing the necessary planning and financing for the transition to clean energy.
