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Politics will constrain global energy subsidy cuts

Friday, December 9, 2016

Significance

Several Australian and international banks have declined to provide the Carmichael project with financing, and Adani is seeking a loan of 1 billion Australian dollars (743.5 million US dollars) from the federal government to build a rail link, sparking opposition on both fiscal and environmental grounds. Governments have long subsidised the public consumption of electricity and fuel, but increasing attention is turning to subsidies for fossil fuels production in the context of efforts to implement the Paris Agreement on climate change.

Impacts

  • Deadlock on broader climate issues could see states adopt a 'minilateral' approach, with fewer parties and a technical focus.
  • Fossil fuel subsidy reform and the changing politics of power generation will amplify the risk of 'stranded assets' for investors.
  • Despite pressure on countries to account for these subsidies in their climate reporting, a common UNFCCC standard is unlikely to be reached.
  • Reducing energy consumption subsidies will prove more difficult than state support for production, given the political salience for voters.
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