To be published as HC 61-i




Environmental Audit Committee

Energy subsidies IN THE UK

Wednesday 15 May 2013


Evidence heard in Public Questions 48 - 87



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Oral Evidence

Taken before the Environmental Audit Committee

on Wednesday 15 May 2013

Members present:

Joan Walley (Chair)

Martin Caton

Katy Clark

Zac Goldsmith

Mark Lazarowicz

Caroline Lucas

Caroline Nokes

Dr Matthew Offord

Mr Mark Spencer

Dr Alan Whitehead

Simon Wright


Examination of Witnesses

Witnesses: Peter Wooders, Programme Leader, Global Subsidies Initiative, Shelagh Whitley, Research Fellow, Overseas Development Institute, and Charles Perry, Partner, SecondNature, gave evidence.

Q48 Chair: I would like to give a warm welcome to each of you and thank you for taking the time to come along to our session on energy subsidies this afternoon. I know that two of you particularly have expertise with respect to fossil fuel subsidies on the global stage. It is how we link that in a vertical way to what is happening in the UK as well. There is recent interest in this and reports on it, and the news today about Shell and BP may be connected in some way with subsidies or pricing. This is to give you an opportunity to give us some idea of the extent of extra global emissions that would result directly from energy subsidies. I will try to catch the eye of all three of you and give you an opportunity to respond.

Peter Wooders: Thank you very much, madam Chair. Firstly, could I offer my thanks for being invited to the session today? I think the inquiry is extremely important. To have a leading country like the UK and a G20 member saying how large its own subsidies are and whether they are good public policy or not is very important, both nationally and internationally.

On the scale of international subsidies, there are a series of benchmark publications. The International Energy Agency, first in 1999, put together an initial estimate of consumer price subsidies-consumer support in determining lower prices for fossil fuels. That figure is around $500 billion per year across the world. When we say across the world, they look at 37 countries. Those are developing and emerging countries. They are not looking at the UK within that list and they are not looking at most of the developed world. It is around $500 billion per year.

Another very important publication that has been done for the last couple of years by the OECD is An Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels. The OECD has looked at its own membership in 34 countries and worked out how big subsidies are to consumers and producers for fossil fuels, and their estimates are somewhere around $55 billion to $70 billion per year. Then there is a whole bunch of other studies, including work by my own organisation, Global Subsidies Initiative, that seek to get extra information, particularly on the producer side. It is relatively easy to make estimates of consumer subsidies; it is much harder to make estimates of producer subsidies. If we think about upstreaming oil or gas and there is a tax break for a particular field allowance or a particular initiative, is that a subsidy or not? What is the benchmark? There are a lot of decisions that have to be made in that calculation. The consumer side is very easy. You look at the price the consumer pays, you relate it to what it would be if there were a proper free market and you look at the difference. It is pretty simple.

You asked about the scale of emissions. There has been modelling work done. Again, the IEA and the OECD are very strong in this area and their models tend to show that if subsidies were all withdrawn, all removed, the world would reduce its global greenhouse gas emissions by something in the order of 5% to 10%. Those are very significant compared to climate change. This is far from a throwaway comment.

You mentioned the news about Shell and BP and some of the other oil companies this morning. The ultimate aim to remove subsidies is to move to deregulated markets that work very well. In countries that have prices that are set on an ad hoc basis and are subject to government interference, it is very hard to reflect when the oil price moves that the local price moves as well, and subsidy tends to build up. However, all countries have an ongoing challenge to make sure that their energy markets continue to function well.

Q49 Chair: Thank you. Do you want to add to that?

Charles Perry: I am Charles Perry. Hello everybody. It is a great pleasure to be here and I am very pleased this inquiry is happening because I am one of the people who suggested it. I suggested it initially to the Energy and Climate Change Select Committee but Tim said that they were not going to put it forward. Then I came to see Joan and Simon and suggested it here. I am very pleased that it is happening, so I am glad also to participate. There is very little that I disagree with in what Peter said, even though we only met each other today, and I have just had the pleasure of meeting Shelagh today as well.

I run my own business. It is called SecondNature. We are a sustainability consultancy, but I used to be at BP so I have a bit of a cross-section of experience. We did the whole rebranding with John Browne in 2000-2001 to Beyond Petroleum with the Helios. Then I ran the renewable energy division and left in 2006 before Tony Hayward became the chief executive. I ran further renewables, so good energy; I was managing director there, and now I run SecondNature.

In my experience in energy, both on the fossil fuel side and on the renewable energy side, language is very important and definitions are particularly important. There are lots of words that are used often to confuse people, not intentionally but, for example, the phrase "feed-in tariff" is a very confusing English phrase when you first hear it. Some people use a very narrow definition of fossil fuel subsidies or energy subsidies and others use a much broader one. Peter has talked about the IEA, OECD and WTO. They all use a very broad definition, which I do too, but others, for example Her Majesty’s Treasury, use quite a narrow definition in the UK of subsidies, quite a literal definition. I am going to throw just a few words out-support, intervention, benefits, concessions, breaks, access, price manipulation, research and development. For me, these are all part of the field of energy subsidies, or energy support if you like. That is the context from which I am coming in this discussion.

Q50 Chair: How do you think it might be possible to get some kind of consensus about a definition of what constitutes a subsidy to include all those subsections that you just read out to us?

Charles Perry: I would suggest following the quite well-established definitions of the very credible sources on the international scale that have already wrestled with this. Whether it be the OECD, the WTO or the IEA, there are fairly similar definitions between those three international groups and their definition is very broad. I will read you the IEA definition right now, "Any government action that lowers the cost of energy production, raises the price received by the energy producers or lowers the price paid by the energy consumers". That is a very broad definition, which I like. The WTO definition is not dissimilar.

However Joan, in particular on your question, in the UK I think it is about a discussion, and I would encourage more discussion on this in Government, across Government Departments but also with the public and NGOs. I think all of us could be involved. It is a very interesting topic that we need to know as citizens of Britain. We need transparency on this. The media in this country-especially for example the Daily Mail-would like us all to believe that we are paying a lot more for renewable energy as consumers but if you compare what we are paying for renewable energy versus fossil fuels, it is six times more for fossil fuels as a taxpayer than it is for renewables. It is having that transparency. Another example is that I have had conversations with the Treasury and they would say that a lot of the things that I would argue are subsidies are not subsidies. For example, tax breaks, field allowances for the North Sea, they would argue are not subsidies. It is important to be broad in this definition if we want to establish transparency.

Q51 Chair: Shelagh Whitley, did you wish to add to what has just been said about global emissions and how we can measure them?

Shelagh Whitley: Peter quoted the OECD number, which I have as 6% if fossil fuel subsidies are eliminated by 2020, which some people think is possible. I would agree with that statistic. On linking UK subsidies to global fossil fuel subsidies, in the research that I work on, I work with the Overseas Development Institute and we are looking specifically at climate finance-finance from developed countries to developing countries that was agreed in Copenhagen. The goal is 100 billion going from developed to developing countries by 2020.

The goal of that money is to address climate change, mitigation and adaptation in developing countries. That finance, when we look at it, is really a drop in the bucket compared to fossil fuel subsidies, both domestically in countries like the UK but also in these countries themselves. This has been broadly ignored in terms of how important it is to understand domestic subsidies when you are, in a way, putting in place new subsidies through climate finance. The goal of climate finance is to incentivise change and the goals are directly contrasting with those being achieved through these different subsidies.

That would be the main link and it is important both in the climate finance that the UK provides directly but also what it provides through intermediaries such as the World Bank, the IFC and other development banks. There are some fairly good statistics as well about the scale of fossil fuel subsidies that are being provided by those institutions. There are estimates. Again, one of the main challenges of subsidies is that the data are not very good. We do not have a lot of transparent information, so all these are almost sometimes finger in the air estimates, but for international financial institutions and national development banks, the estimates, and you can tell by the range, are between 15 billion and 150 billion annually for fossil fuel subsidies and from export credit agencies again between 50 and 100 billion. We do not have very much robust data but these are the estimates and some of that money will be coming directly from the UK in order to support developing countries. The question is what do we want to be supporting.

Q52 Chair: How important do you think it would be for us to get someone from the IMF-because they have just done a recent study-before our Committee to give evidence about their role in all of this?

Shelagh Whitley: I think it would be important because they are engaging other Governments directly about how they can address fossil fuel subsidies. They are always looking at fiscal policies within countries so they have a good sense of what is happening on the ground and the potential for reform. We were speaking about this outside. The World Bank is becoming more active in this space so it could be worthwhile having someone from the World Bank come to speak about the work that they are doing. I understand that there is the potential for a facility to be set up on this by the World Bank. This was recently discussed at the spring meetings. I think that would be very useful.

Q53 Chair: When we were discussing this before we were told that there were various justifications for having subsidies. We are going to be looking at inequality and affordability later. One of the reasons that was suggested to us as a justification for subsidies was to protect industry. Do you think there could ever be a justification for a subsidy on that basis?

Peter Wooders: I would be very happy to answer that question. The subsidies are given across the energy sector to different fuels, to different processes and to different users. When we think about the $500 billion per year on fossil fuel subsidies from the IEA, that is low prices for energy consumers who tend to be drivers of vehicles. The most common source is gasoline, petrol and diesel use. Some of that is for productive economic use of transport and so on but a lot of it is private transport use. Other subsidies are going to electricity, to kerosene, to LPG. Again, some of that is for productive function but a lot of it is not. A lot of it is for heating homes, it is for keeping people going within their daily lives, but it is not directly related to production. When we look at the energy side, very few of the actual energy subsidies are, in effect, making industry more competitive. There are some industries that are heavy users of energy but most industry is not. Most industry uses a little bit. It is a small fraction of their operational costs.

Where it differs is when we look into renewables. There is a big debate at the moment. Whenever my organisation, the International Institute for Sustainable Development, looks at a scenario for a more sustainable world, it has more renewable electricity generation in it. That is clear. So how do we best encourage that and how do we best incentivise that? There is a temptation for Governments that they would like, therefore, to have that subsidy or that support to that industry generating jobs and generating world class industries and export competitive industries in their countries. That is a very legitimate aim. Whether it is legal within all trade agreements and so on is another question. That is a very important question for the UK and for this Committee to look at.

Q54 Chair: Is it an issue that we should be looking at in terms of how, through WTO or other mechanisms, this gets resolved?

Peter Wooders: I think it is, yes.

Q55 Chair: Do you think that there is a mechanism in place to establish what does constitute it and what does not and whether it should be allowed?

Peter Wooders: The WTO has its ASCM, Agreement on Subsidies and Countervailing Measures, which we, the Global Subsidies Initiative, would say is probably the most useful definition of subsidies there is because it is agreed by the entire WTO membership of over 150, has been legally tested and so on. However, within that, lots of countries want to support clean energy production sectors in the future and it is really an industrial policy type question, that everyone is trying to build up their industries.

Is that WTO-legal or not? There has been a recent case just last week with Ontario against Japan, in particular, where various decisions were made. We think it would be very helpful though if the major countries within the WTO were to sit down and say, "We all want more renewables here for sustainable development reasons. We all like to support our industries as well. Can we come to some sort of agreement about what would be fair support and what would be unfair support?" Maybe that can go through the official rules of the WTO or maybe it needs to happen in a plurilateral-type way among the main players. The UK is clearly one of those.

Q56 Caroline Lucas: I wanted to see if I could risk putting words in your mouth. You have all been quite polite about the way in which different subsidies work and the word ringing out hard in my head is that it is just utterly incoherent. Would you agree that in a sense there is a fundamental incoherence between subsidies on the one hand that seem to be with one set of objectives versus subsidies being given by the same Government, often at the same time, to achieve a perfectly alternative objective? Fundamentally what we are looking at here is a real lack of coherence, for want of a better word.

Peter Wooders: All subsidies are generally put in at the beginning for good reasons. Whatever subsidy you look at, at the beginning there was a need to support the public or to stop deforestation or to build up an industry or whatever it was. The Government had a legitimate aim that it wanted to follow. However, as that subsidy goes through over time-five, 10, 20 more years-it gets captured, in effect. The benefits go to those we do not want to see get them. The classic would be if we look at the subsidies that are given in developing countries to consumers, less than 10% goes to the poorest 20%. The other 90% is going to other people who do not really need it and that then gets defended as a right.

However, going back to the definition question about subsidies, there is always a debate about definitions and which is the right one to use. What we are really asking here is, is public policy good or bad. Often when people use the term "subsidies" it implies bad subsidies, so we say, "There is $500 billion of subsidies, they should all be reformed, they are bad". On the fossil fuel side, on the consumption side, that is a pretty good rationale because it is not a hard one. Most of the impacts are perverse, are unhelpful. When we look at renewables, it is a different question. Technically they are still subsidies but are they good, are they bad, are they indifferent? There is very little information and analysis about evaluating those subsidies and that is what we really need to get to, away from the kind of definition to measurement and then to evaluation.

Charles Perry: It is important to understand the context of history here. When the combustion engine was first developed in the early stages of the Industrial Revolution, times were very different. It was hugely expensive to own your own automobile and there was support at the early stages of technology, as there often is. When you fast forward to a point where we have never consumed as much globally as we are doing today-some people like to talk about us burning 1.5 million years worth of fossilised matter every year with 7 billion people on the planet-you have a very different situation. What started off as support, and of course most of it was nationally owned way back then, with private enterprise and competition and the mass market applicability of things like the automobile you get to a point where now it does become incoherent-your word, Caroline-because we are trying to use instruments to change behaviour. If you introduce a Climate Change Act because you recognise that things have changed and we are burning too much fossil fuel, then of course you want to use carrots and sticks to change public behaviour in line with that change. That is very different from when the automobile was first invented, for example.

As evolution happens, one has to use those carrots and sticks to incentivise the right sort of behaviour. Good clean behaviour is what we want to incentivise, I imagine. If subsidies are about protecting the consumer, which indeed they often are, it is around what sort of policies we need to protect the consumer going forward. We all know what happened in Nigeria when fossil fuel subsidies were removed and prices were suddenly unaffordable. There were massive riots. That is the other end of the scale. Iran is clearly keeping prices down at the moment. The USA has got used to what they call cheap gas and certainly we know that that was not the true cost of that gas at the pump. It was an artificial cost that had been helped by successive Administrations. In the context of history, given that we are trying to solve the massive problem of burning too much fossil fuel, we need to leverage the right carrots and sticks.

Shelagh Whitley: Just to follow on Caroline’s question, I have published a paper entitled At Cross Purposes. I agree completely but I think that none of that is intentional. What you find is that it will be different Ministries with very different sets of expertise and very different mandates that are putting in place the subsidies or incentives, both internationally and domestically. If you look at this broad definition of subsidies, it includes direct financial transfers, tax treatment, regulation, infrastructure support and trading and investment restrictions. Those are managed by very different actors and within those different groups you may not have awareness of the different subsidies that exist, let alone across them. So it requires a certain amount of co-ordination and almost a very high level direction that is put in place by the Government to say, "These are the goals we want to achieve, so which levers or carrots or sticks do we want to use?" That requires quite a lot of co-ordination, which I think is one of the main challenges. It is not intentional that these things are happening at cross purposes.

Q57 Chair: That raises a lot of questions as to who should have the responsibility for bringing coherence to all of that. Do you have any proposals about what our inquiry could come up with by way of recommendations?

Charles Perry: Just one point that seems fairly obvious. We have had some progress, for example, at the G20 level. The G20 has already agreed to phase out fossil fuel subsidies and, indeed this was on the agenda of the Rio+20 Summit. I remember talking to Caroline Spelman at the Aldersgate event, before she went off to the Rio Summit where she was going to take it up. Unfortunately at the last minute this topic got bumped down the agenda at Rio, but the G20 has still committed to phase out fossil fuel subsidies so there is a recognition that something needs to be done.

Then it comes to the UK. To what extent does the UK need to phase out fossil fuel subsidies and what is the level of fossil fuel subsidies in the UK at the moment? One figure, for example in 2010, said it was 3.6 billion in UK fossil fuel subsidies but these figures change and they are very different, depending on the source. William Blyth did some interesting work and he came up with some numbers as well. Getting to the bottom of what it means to phase out fossil fuel subsidies for the UK, what the current level is, what the objective is in the next few years and having milestones to make sure that we meet those objectives is vital. I think some people feel that we do not have any fossil fuel subsidies to phase out in the UK unlike in Iran or Saudi Arabia.

Q58 Chair: Presumably there is a case for coming up with a temporary subsidy, whether it is to get fledgling new technologies on stream, or in certain circumstances to perhaps relieve the worst effects of withdrawing the subsidies. Is there a general rule that applies to how you might introduce a time limit or a specific time period that they would apply that has buy-in from other countries internationally? Are there any general rules about that? For example, by way of UK legislation should we be looking at sunset clauses or things like that? Should there be a beginning and an end to these things?

Shelagh Whitley: I have done some work and I realised that there is a correlation across these. I was giving recommendations about how, if you were going to put in place an incentive for the private sector around low-carbon development, you would design such an intervention. When I was looking at that I realised that again these interventions or incentives are just another word for subsidy. What seems to be missing for existing subsidies and how they are structured is around this question of monitoring and reporting and around the question of exit and failure. I do not know-maybe others on the panel do know-what are the best ways to put in place sunset clauses, but planning for an exit, planning for flexibility, planning for modification, building that around a system where you have monitoring and reporting so that you can make decisions around milestones seems to make a lot of sense.

We talk about this often when we are talking about clean energy because we want to do it in a way that reflects the mistakes that we have seen so far in trying to balance the question of long-term signals that the private sector needs or investors need with the fact that you do not want to be locked into an incorrect pricing model-allowing for flexibility. I do not think anyone knows how to do that perfectly and it would be interesting to hear what others on the panel think, but it is more that you would incorporate monitoring, reporting and milestones and the concept of an exit, and the concept that any subsidy also will involve some entities that receive that subsidy failing.

Q59 Chair: I presume you would do that monitoring automatically?

Shelagh Whitley: Yes.

Q60 Martin Caton: One subsidy that you have already identified in your answers so far is a blanket subsidy to consumers that is justified by trying to look after the poor. Correct me because I am putting words into your mouth, but I get the impression that none of you thinks that that is a good way of going about things. Do you have suggestions about how we tackle fuel poverty without that sort of blanket support?

Charles Perry: I think it is the principle of the polluter needs to pay rather than paying the polluter. If you adopt a principle of the polluter pays, then of course you can incentivise those people who are polluting less and less and you can penalise the people who are polluting more and more. If that sounds like a good principle, which I think it does, then using the carrots and the sticks around that principle makes sense because then you can help the people who also want to help the problem, which is polluting less. You reward the people who are polluting less and using less and you penalise the people who are using too much and polluting too much. That happens on a consumer individual level and also on a company, industrial and commercial level. Then there is a logical follow-through to how you take that from the principle.

Q61 Martin Caton: What about the domestic consumer? Often the very poorest people do not have a choice about what fuel they have. They can’t change the technology they have in their home because, by definition, they are very poor.

Shelagh Whitley: I do not know if you want to speak about developing country examples, but there are developing countries that have restructured fossil fuel subsidies and instead of using an energy price signal to support the poor-so lowering energy prices-they are using direct cash transfers. That allows the poorest consumers to make choices with the money that they have. The funds are being given to them to make those decisions as opposed to being given to energy producers so that they can lower their costs. I am guessing Peter might have some more to say on that.

Peter Wooders: I would. We have produced a guidebook recently at Global Subsidies Initiative collating a whole set of international experience on subsidy reform, which does not tend to be an economic problem. It tends to be that the economics is understood but it is a serious political problem; it is a political economy problem. We categorise subsidies of the type you described, blanket population subsidies, as, "A basic inefficient economic and social assistance system". The corollary is that if you can think of any more efficient economic and social assistance system, it will perform better than the pricing mechanism because the pricing mechanism is so inefficient everybody benefits from it, particularly people who use more, and that just does not seem to make sense if your target is to protect the poorest. The savings are vast on some of these schemes in certain countries, and I think the UK VAT exemption has some of those characteristics too. We would advocate that any sort of different assistance scheme, as long as Government has the credibility and the ability to implement it, will perform better. It can be a cash transfer, something through the tax scheme, payments into the other functions of Government, or helping with schooling-all sorts of things that work in different countries. If any of those can be put in place they will tend to work better than the pricing mechanism because the subsidies are so large.

Charles Perry: I would like to follow on to the theme of this, which is collecting revenue from the bad and using it to help the good. If you make the polluter pay you collect revenue on that and then you use that revenue to help where people need help, from an affordability point of view but also from a doing the right thing, cleaner behaviour point of view. At the moment, subsidies are extremely costly for the UK Government in a situation where our biggest problem is getting the deficit down. These subsidies are hugely costly. For example, the field allowances for the North Sea, where we have a boom now in North Sea oil and gas exploration, we are supporting, through tax breaks, to the tune of £2 billion. A recent study by Friends of the Earth found that for the last five years, since Alistair Darling introduced it and George Osborne increased it, there is a total of £2 billion for North Sea oil and gas exploration in tax breaks where companies exploring are paying a much lower rate of tax as well. They are paying 30%, 20% corporation tax, but because of the national good they were always paying a higher tax. It was supposedly in theory 62%, but that has been reduced to 30%. They are getting huge support and that is not about supporting efficiency, in my view. That is about supporting inefficiency. How we use our carrots and sticks to drive efficiency and the right behaviour is the critical challenge.

Q62 Martin Caton: Looking at the developing world, if those developing countries are going to be enabled to wean themselves off fossil fuel subsidies, what sort of action is it going to need from the developed world to assist them?

Shelagh Whitley: First, and this is what I argued for in my paper, we have pools of money in the form of climate finance that are meant to be assisting countries with this transformation from, let’s say, brown business as usual growth models to green growth models. The first thing that we can do is use some of this money to support transparency so that they have a clearer sense of what subsidies are, and there is an ability to report on subsidies, which then gives them the information that they need to make choices about these carrots and sticks.

At the moment, this is very much a level playing field where neither developed nor developing countries have a clear sense of the subsidies on the ground, and I guess in the climate space I would extend this beyond fossil fuel subsidies. I used data on fossil fuel subsidies because those are some of the subsidies that we have the best data on, but for climate change you have subsidies to agriculture, you have subsidies to all sorts of different activities that have also a huge climate impact. In enabling these Governments to have a clear sense-a cross-ministerial sense-of what is going on, the carrots and sticks that they are currently using and the implications of those, is very important.

At the moment, climate finance is already being used to do that in looking at the expenditure side. Looking at public expenditure, there is already work around this that is being done in a number of developing countries. However, for fiscal policies and other levers, there is not much work being done, so my argument is that we should start with that and then you have the data and information that enable Governments to make informed choices.

Q63 Mr Spencer: Under the UN climate change negotiations there has been a big push looking at the amount of cash that is going into developing countries. To what extent do those subsidies distort and twist the market, and is that preventing private companies investing in those countries? Does it warp the whole thing so the private sector keeps out of the way?

Shelagh Whitley: I would argue yes. What we are doing right now is using climate finance and other tools, even carbon pricing, in order to reduce risk in investing in these situations where the playing field is skewed against investment in clean energy. What we need to be doing is both. In the short to medium term we have to have reduced risk to private investors because the playing field is distorted, but you also need to be working on the larger scale for making match-up. Obviously it is different in different contexts, but the main problem is that we just do not have a sense of what instruments are being used and the impact that they are having. We know the playing field is not level but we do not know what the main causes of that are and how we could change them. We need to be doing both. In the short term we have to de-risk, but to think we are only going to use that money for de-risking is almost us conceding defeat that we can’t change the broader policy and investment climate of these countries.

Q64 Mr Spencer: Should we put measures in place to make sure that if you are going to give subsidies a condition should be the elimination of subsidy for fossil fuels?

Shelagh Whitley: I am not sure if you want to go that far. It is a possibility. It is what I have just said; it is this question of transparency. At least you should have the data available. Maybe you don’t force a Government to make a reform but what you want is for the Government to be able to show you clearly, or to be able to report on, the subsidies that it has in place so that when you are making a decision to make a subsidy that is a de-risking you are at least doing it in a place where they are not working full-time against you, if you see what I mean.

Peter Wooders: Governments understand how difficult fossil fuel subsidies are making their lives. It is for fiscal reasons, for clean energy, investment reasons; they understand that. To impose conditionality would possibly just hold back the move to cleaner energy. However, I support very much what Shelagh is saying, that we must have in mind what is the shadow price-an economic term. If we are going to compare properly what should be the energy price we are comparing with, and that should be the unsubsidised fossil fuel price, asking Governments to go ahead and make that change before we help them with their investment in renewable energy is probably a step too far. Governments are trying very hard to reform their subsidies. They understand what a big problem it is for them.

Going back to the previous question, there is a role for a lot of players. It is very helpful for the UK with its bilateral aid to support those countries. There is a role for civil society organisations like ours to help with the public debate, and then there is a role for organisations like World Bank and IMF to come in and advise the Government as well, and use their levers of access. Moreover, that process to get to subsidy reform on gasoline in Indonesia, or whatever it may be, can take a couple of years. It has to be careful. You have to build support for reform, look at the options and so on. I would not advocate conditionality on the clean energy there.

Shelagh Whitley: Although support, I guess-there is a process for reform so there could be support that could help at different stages of that.

Q65 Mr Spencer: Why do you pick on Indonesia? Where are the worst places on earth where they are taking the most subsidy, subsidising their fossil fuels to the highest level?

Charles Perry: Iran, Saudi Arabia, Russia China, India, but India, Russia and China are all making real steps to reduce their subsidies for fossil fuels.

Q66 Mr Spencer: So they are in a poor position but they are heading in the right direction.

Charles Perry: They are trying to.

Q67 Mr Spencer: Is there anybody heading in the wrong direction?

Charles Perry: I think we are heading in the wrong direction because we are incentivising high polluting behaviour, which is ironic. It goes back to Caroline’s point. It doesn’t really make sense.

Peter Wooders: An awful lot of developing country Governments, when there is an increase in world oil, gas and coal prices, find it very difficult politically to pass that full increase on to their consumers. As the world prices increase, the level of subsidy tends to increase, and that is really their challenge. They are all motivated to reduce those subsidies but it is difficult. It is possible but it is difficult.

Q68 Caroline Nokes: From some of your earlier comments I could probably predict the answers to some of my questions. Can there ever be a case for allowing fossil fuel subsidies in order to encourage either economic development or to alleviate poverty?

Peter Wooders: Yes to both, but the key is to target it. If it is a blanket subsidy through a general price lowering, lots and lots of people you are not targeting will benefit from it. Some of the keys are in your example; if you look at a country like Saudi Arabia, which has a huge petrochemical industry, they will argue that they will supply oil at a low price for that industry in order to build their economy, to make it more modern, to bring people into the tax system and so on, economic development. There is a case for that, but that is not the same as a low price for a private transport user to have cheap gas. They are very different, so targeting is the key.

Charles Perry: Back to my point about history. For a long time Governments around the world have supported the profitable extraction and production of coal, oil and gas since they were first used. That made sense at the time because we had the Industrial Revolution and that is what economies were built on. Moreover, things have changed and now we have a problem we did not have at the beginning of the Industrial Revolution, which is that we are using too much of an exhaustible resource and as a result we have pollution problems that are local, health problems as well as international climate change problems. It is a valuable finite resource. Oil, gas and coal are still valuable finite resources, but when the global rate of consumption has never been higher and they are getting harder and harder to exploit, plus the added costs of pollution, of course you have prices rising and inflation, and this hurts people.

It is a very difficult situation when you are in a vicious circle and consumers are being hurt by the very thing that you are trying to reduce. You are trying to reduce their dependence on an exhaustible resource-fossil fuels-that has become polluting and is no longer as beneficial as was once seen at the beginning of the Industrial Revolution and the early phases of combustion of vehicles and plants. When as a population we have become used to a resource where we can get it cheaply at an artificial cost and suddenly it starts to hurt our wallets-and these are voters we are talking about-you are in a very difficult situation and a vicious circle.

How do you break that vicious circle and turn it into a virtuous circle? This is the challenge we are facing in 2013, which is no small challenge. We have a legal premise with the Climate Change Act to do something, and people generally recognise we need to change behaviour. Moreover, how the Government actually helps people to change their behaviour is the point of this whole discussion, and that is back to carrots and sticks in the right way. For example, the phrase "green taxes" to me is a total oxymoron. It is a total contradiction. I cannot understand why people continue to use this phrase that makes no sense-"green taxes". If anything it should be "green incentives" and "pollution taxes". If you are trying to change behaviour, don’t tell people "green taxes". They will run away from doing anything green, of course.

Q69 Caroline Nokes: Do you think we should allow overseas aid to support fossil fuel energy when it is linked to achieving economic development or poverty alleviation?

Charles Perry: Such as the UK Export Credits Guarantee $1 billion for Petrobras for offshore projects? I definitely think we should not be doing that.

Shelagh Whitley: I would agree. If we are going to be using overseas development assistance it should be towards achieving the goals of those organisations and the goals of providing overseas development assistance, which are poverty alleviation, protection of the poor, social protection. If you are also trying to assist in this transformation, specifically how can you use those resources to support transformation and transition in those countries?

For instance, in Brazil where the UK may be supporting Petrobras through Export Finance, what you find is they have also set up a fund where some of the revenue from oil is going to be directed towards mitigation and adaptation projects. What we should be doing is co-investing alongside those funds and helping Governments to set up those facilities so that when they discover fossil fuel resources we can help them redirect some of those resources back towards transformation. These are the places where we can engage with the fossil fuel industry. How do you promote greening of an economy at the same time as exploiting existing resource without single-handedly driving the economy towards business as usual or a brown path?

Peter Wooders: It is a really good question and quite a difficult one. We can start in general with the point that electricity is fundamental to development, and using overseas development assistance and other investments to help countries build up their electricity infrastructure seems like, in general, a good thing. It helps people right at the bottom of the pyramid and it helps with general economic activity. There is a big change when families and communities get electricity compared to when they did not have it. That is clear and that can be built up in essentially a technology-neutral way. You have a better grid and you can feed whatever into it.

However, in certain countries there is a real problem at the moment, which you would think in some cases fossil fuels could help with. If we look at, for example, the case of Bangladesh, it is really struggling to supply enough electricity to its country. It is trying to generate larger amounts of access so more people are on the grid. It is subsidising the price of fossil fuels going into that system at the moment-principally fuel oils of various types and some diesel-and it is racking up huge debts of $1 billion-plus a year, which it is going to struggle to pay back. In that case, better pricing would help but some assistance in building up the electricity system and its generation capacity might be useful there too. It is very country-specific. It goes back to the same point again that everything is about targeting.

Q70 Caroline Nokes: Going back to the Export Credits Guarantee Department that we have in the UK, if such support were used in other countries to guarantee fossil fuel products would that necessarily constitute a subsidy?

Peter Wooders: In the broader definition, yes.

Shelagh Whitley: Yes. In the subsidy definitions that are used, at least in my paper and if you look at what the OECD and IEA would include, those would be included and categorised as subsidies. A guarantee is a very specific type of subsidy and there are methodologies to estimate the size and value of guarantees in the subsidy space.

Q71 Caroline Nokes: Even if the guarantee arrangements were effectively just providing insurance in a financially neutral way, would you still regard that as a subsidy?

Shelagh Whitley: Yes, it is a specific category of subsidy, insurance and guarantees.

Q72 Caroline Lucas: So far most of our discussion in the debate has been about reducing fossil fuel subsidies in developing countries, but if we used a definition that was going to include environmental externalities that would bring the debate right to our own doorstep. The first question would be to what extent should the battle to eliminate fossil fuel subsidies be waged in the rich world rather than the developing countries, if you use that definition?

Charles Perry: One has to innovate the solutions at the same time as reducing the technologies of the past that we have depended on for generations. One has to do them in a complementary way because we are trying to get people to switch from yesterday’s world of dependence on fossil fuel consumption and usage. Now that we know about these externalities that have come round to haunt us, we are trying to get people to switch from those to the solutions that we are trying to innovate, and unless you incentivise the solutions side of it you just have more and more deficit on the other side. You have a problem that you have no solutions to guide people towards.

It goes back to the other point about $1 billion for Petrobras. Surely Great Britain should be innovating low-carbon technologies for export. If we can help not only British citizens but international citizens reduce their carbon consumption then that is a good way of both helping our economy and their economy, our citizens and their citizens. Again it goes back to how we incentivise the solutions side of the equation using the carrot. I have wrestled with this long and hard in my own energy journey and I honestly believe the only way to do it is by following the models of countries like Norway where you take the revenue from taxing the burning of fossil fuels and use that revenue to incentivise R&D and the embracing of cleaner technologies. Norway has done that extremely successfully and I think we could learn a lot from what they have done. There are a lot of parallels with what we are good at in our history of innovation and pioneering new technologies. We pioneered the steam engine in the Industrial Revolution. We should be able to pioneer low-carbon technologies for export.

Peter Wooders: My organisation is an NGO. We have a global subsidies initiative and we get asked a couple of questions very commonly. The first one is, are you against all subsidies? The second one is, if fossil fuel subsidies were eliminated would renewables become cost effective? The answer to the second question is in fiscal terms generally not. There still remains a gap between fossil fuel generated electricity and renewable electricity, but if we include the externalities, that gap more than disappears. That is the key construct there, and we think it is extremely important that the issue becomes properly international. If we just focus on fiscal consumer subsidies, it is a developing world issue. If countries are going to move forward together, it needs to include producer subsidies and ideas around a clean energy and externalities and so on.

Subsidy reform remains a national issue. It is not the same as trade. If I, as a country, reform my subsidies I tend to benefit. I don’t benefit at your expense and vice versa. It is very much a national issue. However, processes like G20, G8, WTO, UNFCCC, all these international forums, are very important to get that issue going, and to support those international issues it is very useful if all the countries have a stake in the debate and discussion.

Shelagh Whitley: I am very new to the subsidy space-I work mostly on climate policy-but what you find is that there is innovation happening in the space globally, so there will be lessons for developed countries from developing countries and vice versa. In a way this is a journey that everyone is taking together and there are leaders and laggards in both spaces. The more you can get common reporting templates, common definitions that are internationally recognised, you can also get lesson learning on a level playing field across developed and developing countries.

Q73 Caroline Lucas: To what extent do you think it would be a good tool to internalise some of those externalities, if the emissions trading system were working properly, which it is not as we know? Building on what you are saying, Charles, would part of that for you be about what you do with the resources, the revenue that you get in?

Charles Perry: Yes. I think that is why countries like Australia and now China are introducing carbon tax, because essentially they are realising they have to take this matter into their own hands. We have seen what happened after 20 years of international negotiations. The carbon price is floundering at $3 per tonne. It is a total joke. In that sort of desperate situation one has to look at how to make one’s own economy competitive internationally. In our case it is a very interesting situation because now we have had the vote in Brussels and the motion was defeated, so ironically the EU ETS is on its last legs and could completely disintegrate at any moment. We have to make a decision on the carbon floor price in the UK, which is a pillar policy of the Coalition Government.

If you look at it through one lens it makes us very uncompetitive to have a carbon floor price coming in at a ridiculously high rate compared to $3 a tonne across the way. The Chinese for the word "crisis" is two characters, danger and opportunity. That is if you focus on the danger side. If you focus on the opportunity side, you can look back at Norway and say they have made the polluter pay in order to take that revenue and pump it into the low-carbon growth side of the equation. Indeed, our low-carbon economy is growing at 4.2% per annum, which is very fast-growing compared to the rest of the economy. How does one use something like the carbon floor price to take revenue from the polluter and incentivise the low-carbon economy? That is the sort of thing I would be thinking for making Britain a more competitive economy rather than fearing the converse, which is that we are going to become less competitive.

I would be taking a longer term view. Many people are suffering from short-termitis, where we are just using carrots and sticks for the short term to try to get the immediate results we have. There is reconciling the short and the long term because the point about externality is that if we leave the cost for future generations, or for the environment or for society down the track because we have taken those short-term fixes without a view to the longer term solutions, then we are certainly not going to be thanked by future generations.

Shelagh Whitley: On the carbon market point, I worked in the carbon markets for five years before becoming a researcher and I worked specifically on the development of CDM projects in developing countries. I guess that is why I have started to focus on the question of subsidies because we don’t have time to waste and we don’t have this price signal that was incentivising investment in developing countries in clean energy. What are the other things we can do that shift price signals so that you can enable that investment? As Peter said, these are decisions that can be made domestically and we know we won’t have a carbon price in the short to medium term. Potentially maybe in the medium term, but we won’t in the short term have an international carbon price. What are the things that we can do now to create the energy price shift that can incentivise investment? That is why I am focusing on this, because of that change.

Q74 Dr Whitehead: Before I go on to what I was going to say, can I take the question of floor price a little further? The floor price in this country was originally devised as a rider on top of the EU ETS; a rather clunky rider but a rider nevertheless. Incidentally the floor price is based on a three, four year projection of what the forward trading price might look like. As the trading price goes down, the response in this country has been to put the floor price up so that the overall price collectively stays the same, but to some extent that has to guess on the collapse of the forward price. The legislation that is going through at the moment effectively institutes a substitute floor price for ETS so that in the event that ETS happens to revive, the consequence is that the floor price gets even higher. The overall final consequence is that the whole lot gets swept away into the Treasury. The only effect at that point is that there is some indirect effect on possible investment decisions in terms of comparative advantage. However, there is the possibility of leakage, for example if you put a gas-fired power station on the other end of an interconnector with that differentiation in price between UK and Europe, say, you stand to gain rather a lot of advantage thereby rather than putting it in the UK.

The issue as far as Norway is concerned depends on hypothecation, which then stands out against all of the theory on how a tax regime works. Are there other things that need to change in how that process works in placing externalities into a tax regime rather better than might be suggested by a carbon floor price that simply does rather well for Treasury but doesn’t save any carbon, for example?

Charles Perry: It is a tough one. I am certainly no expert on policy instruments to do that. Hypothecation is another big word, and I am not sure it needs to be literally hypothecation in a way. It is a very difficult one in the UK because of the tradition that we have. To try to do something more lateral and creative would take working across Government Departments, of course, and I do not know how that more federal behaviour could be incentivised because it takes looking at the problem from different perspectives.

It reminds me of the work we do for corporates on embedding sustainability. Most corporates are siloed, and when I was in BP it was the same case there. We are working for Tesco at the moment, and these corporates are very siloed and they don’t really talk between the silos. The role of a consultant in that situation is to try to cut across the silos to show the costs and benefits of a new model. We talk about sustainable business models that are more circular in nature than linear, which is the old business mantra. When I was at business school we were taught linear business models not circular business models.

I think the current times demand a different way of thinking and a different approach. In the corporate world it is the circular model approach, which we know in the public world as well as the circular economy. Although, for a corporate like Tesco, what is a circular business model is a real challenge. Likewise, coming back to the issue here between Government Departments, what would a new approach look like that has new benefits in a time of crisis? Difficult times demand new, innovative, creative approaches, so it would mean sitting down between the Treasury and other Government Departments and thinking about how this could work, not calling it something like hypothecation because I don’t think one needs to open that can of worms. It would just send people running about in different directions.

Here one is trying to encourage a collective solution rather than an individual department solution-this whole idea of looking at best practice models and trying to embrace some of the learnings from Norway, Denmark, Germany and other areas. If Germany’s economy is so far ahead in many ways on the energy side-they can be seen to be at least 10 years ahead of us-what radical new model should we embrace in order to mobilise and catch up with them? It is something like a new approach that is based around making the polluter pay, taking those revenues from the polluter and incentivising in a way that meets all the objectives of the different Government Departments.

Q75 Dr Whitehead: Norway, for example, effectively created a sovereign wealth fund that mediated between the tax take and the-

Charles Perry: That is exactly the sort of thing, absolutely.

Q76 Chair: That has been particularly difficult in the UK because of this silo mentality. Do you see any way in which there could be some kind of a catalyst for getting the kind of collaboration and co-operation you are referring to that is needed in a time of austerity and crisis?

Charles Perry: Exactly what your Committee is doing right here is, first of all, taking on the challenge of an inquiry into an area that a lot of people are not going to thank you for inquiring into, because it is a very political and pretty difficult area to get to the bottom of-taking on the inquiry and getting engagement from other stakeholders into the value of what you are trying to do. Some people will say you are wasting your time and you should move on to some other topic and others will say, "This what we have been waiting for for a long time".

As I say, Tim Yeo was very supportive of the fact that your Committee had taken it on. He would have liked to, but he said to me that the Energy and Climate Change Select Committee couldn’t take it on for the foreseeable future. You have taken the step of taking on this inquiry and I will try to get as much support and engagement in what you learn from this inquiry, both within Whitehall and outside in the corporate world, because the corporate world is certainly very interested in this topic. I spend most of my time in and out of corporates consulting to them and they are extremely interested in this topic.

Q77 Chair: If you had to list the people we should be engaging with to advance this thinking, who would you say should be around this table?

Charles Perry: The very first person on my list would be John Browne, formerly BP who is now head of Riverstone. He has been quite public about this topic. Since he left BP he has been calling for the phasing out of fossil fuel subsidies. I think he is expecting an invitation from you, to be honest. Lord John Browne would definitely be one of the first on my list. Vivienne Cox, previously BP, has been very outspoken about this as well. She is on the board of Rio Tinto, etc. I think you should ask Vivienne Cox. We have already talked about more public sector people, IEA, IMF, World Bank and so on, but lots more in the private sector from both the incumbent side of the equation as well as the emerging side of the equation. I think people who run renewable energy businesses, like Dale Vince from Ecotricity and Eddie O’Connor from Mainstream, would be delighted to come and give evidence, but at the same time some of the big energy and oil and gas company bosses should be invited to give evidence.

Q78 Dr Whitehead: I have a slight rider on the previous point. One of the problems of the carbon floor price, as it presently stands, is because it is or has been linked-arguably as of next week it will not be linked-to ETS then it was not particularly of concern that the carbon floor price did not actually save any carbon. It was because people would offset allowances elsewhere if you wanted to spend the same amount of allowances. If you completely de-couple one from the other, which is effectively what has now happened, then that part of the process has been completely lost and you are entirely dependent on supposed parallel mechanisms that react to that floor price. Then you are in the process of patching up people who are disadvantaged by that mechanism, such as giving free money to energy intensive industries to deal with the consequence of what you have done even though you are not saving any carbon. Probably the effect of that is actually you are allowing more carbon to be produced. Do you see that as an impediment to the particular national route that has been suggested for floor price arrangements, or with a combination of, say, not hypothecation but actually tax foregone or wealth funds or some such, and then linking that to carbon reductions by the consequence of what it is you are doing with those funds, i.e. you are actually doing something with that incentive investment that really can be calibrated against carbon saving? Is that the sort of direction you are thinking about?

Charles Perry: I would say it would be quite a welcome development, ironically, to de-couple the two. I think then it gives more independence to how to use the revenues from the carbon floor price in incentivising that sort of technological development for the UK as a benefit. In terms of the UK’s competitiveness it could be quite a welcome development to de-couple them.

Dr Whitehead: Provided you do something with it.

Charles Perry: Exactly. Provided you do something, so quid pro quo. In a sense I think Australia is a very interesting model. Don’t forget that Australia was one of the countries that did not sign up to Kyoto, who was the laggard under the previous Government on this, in the same position as the United States saying, "Well, this is going to hurt our economy and we’re not up for being part of Kyoto", to now with Julia Gillard introducing a carbon tax. Of course that has been a very political thing in Australia but I think it is going to make Australia much more competitive because it is going to drive efficiency and it is going to drive low-carbon technological advancements. I think that is the sort of thing that the UK should be doing.

Peter Wooders: I would agree with that very much as well. You can generate quite a lot of revenue from a floor price, carbon tax, whatever it might be. If we look back to the subsidy analysis, this is about impact analysis as well; who would be adversely impacted by a high carbon floor price and how much? You find when you go through that analysis that it is very few particular industries or companies. It tends to be those energy intensive industries. Steel is a big one, often because of their electricity, aluminium and some of the other non-ferrous metals, a bit of cement and not much else. You can put in a scheme here with a lot more revenue coming in. You can use some of those savings for general Government revenue, some to reduce taxes on labour, or whatever you might want to do-a general benefit again-and a bit, if you need to, to help those industries become part of a lower-carbon economy. There seems to be a way forward there and I think it is-

Q79 Dr Whitehead: It makes your own economy more energy efficient perhaps?

Peter Wooders: Exactly. It will have the impact of making your economy more energy efficient.

Q80 Dr Whitehead: I mean directly doing that rather than indirectly, taking the proceeds of a carbon floor price and using it to make permanent energy savings, for example.

Peter Wooders: Improving the building stock, as was done with many green funds and green growth and so on.

Charles Perry: We need, what, £200 billion for energy infrastructure in the country. Well, there you go.

Q81 Caroline Lucas: Does it affect the design if you are designing this carbon floor price with more of its revenue raising potential as its top line rather than its reducing carbon? Is that what you are saying?

Dr Whitehead: Yes.

Caroline Lucas: Then does it affect how you design at all or not? What is the implication of that slight change of end goal? What does that mean for what you are designing?

Q82 Dr Whitehead: If you are simply using it to raise revenue then your considerations at the end of the day will be the extent to which the pips squeak so much in raising your revenue that you can’t put it any further, as opposed to what happens subsequently with that particular area of income. The position at the moment, as far as I understand, is that the carbon floor price two years out from now is almost the whole of what was the trajectory upwards towards £30 by 2020, so it has wholly replaced any considerations in ETS but nothing whatsoever is happening with it. It simply disappears off into Treasury. There is not any carbon reduction as result of its substitution and that seems to me the fundamental problem. How do you gear one up against the other? If you are gearing one against the other, does that have a positive effect on the extent to which what you are trying to do, simply by raising revenue, is patch up those areas that were adversely affected by what you have done in the first place and give back some of the money you have raised, which seems to be a wholly negative thing?

Peter Wooders: Any price increase will encourage energy saving and the carbon floor price will support that. The other important point is we are looking here at long-term signals. If we are going to move from a higher carbon to a lower-carbon economy then investors need to know that there is going to be a carbon price or other incentives reaching out for many years ahead to encourage them to make those investments otherwise they will not. Otherwise they will say, "In five years time I don’t think the EU ETS is going to be around or it is going to have a low price or whatever. I won’t bother. I’ll stick with what I’m doing". We have to create that long-term incentive. It is very important.

Q83 Chair: If I can go back to my opening question, which was really looking at how much subsidies were globally producing carbon emissions, how much is the point that you have just made? To what extent is that factored into the estimation of what carbon reduction there would be in investment decisions that are in the pipeline for the future, not just for this year? If you look at, say, the national investment programme or whatever it is, it is going to be bringing about investment now and in five, 10, 20, 30 years’ time, which we are linked into.

Peter Wooders: It is in there but it is in there in a modelling sense. These estimates are based on models rather than observed behaviour and models tend to say that markets work well and that companies will make rational decisions and so on. In the real world, if we have a carbon price that is going all over the place, for example, then companies will not be so incentivised to make those investments. It is somewhat a theoretical construct but is a good indicator.

Charles Perry: I think it is very difficult to give you an immediate answer, sitting here right now, to your question, Joan. I think it is a very important question but I think it takes a bit of analysis and working out, to be honest. There is a potential to look into that and revisit it because I can’t answer it sitting right here right now.

Peter Wooders: Even if you do look at it in detail, it comes back to this investment decision. That is the key thing. In the short term we can make decisions about our use of energy, based on the technologies and the equipment that we have. In the long term we have the ability to make different investments. What we are trying to do here on the low carbon side is to incentivise people to take those decisions on the low carbon side not on the high carbon side.

Charles Perry: It reminds me of exactly the conversations that we have in corporations. You are looking for a win, win, win. What I mean by that is not a win, win, win across political parties but a win for the economy, a win for society and a win for the environment. That is about building a business case. If it ticks all three boxes then of course you would do it. Why wouldn’t you do it?

It is a very interesting situation because the Coalition came in promising clarity, confidence and continuity and this is about the framework in which businesses operate. Then, of course, as a businessman I have seen a lot of non-clarity, non-confidence and non-continuity. However, now if you provide something like the carbon floor price in a de-coupled way it essentially becomes what Australia has done, a carbon tax, and it gives some clarity to the future for businesses to make those investment decisions. I think that clarity is exactly what businesses are looking for. Also Government can take what is currently a very precarious situation with the carbon floor price, as a result of the rebel votes in Brussels, to its advantage from a negative to a positive by using the opportunity to take that bold step, not losing a pillar policy-which is what we have all been told the carbon floor price is-and turning it into everybody’s advantage so that it becomes a win for the economy, a win for society and a win for the environment. I think that is exactly what the carbon floor price, in a de-coupled way as a carbon tax, could actually do.

Dr Whitehead: If you don’t just nick the money in the meantime.

Charles Perry: Exactly, which takes a federal behaviour. That comes back to my other triple win as politically it would potentially tick all the boxes as well because everyone is wondering what to do with this thing called the carbon floor price now that the EU ETS is in a mess.

Q84 Dr Whitehead: Could I ask you the question I was going to ask you and that is what is the likelihood, the possibility, of any effective international agreement on eliminating fossil fuel subsidies? Bearing in mind what G20, the Rio+20 Summit has already decided-and I want to come on to that in a moment-how do you think that framework works into the possibility of any sort of real agreement?

Peter Wooders: To answer that question from the 2009 perspective, before the G20 made that political statement, the commitment that they were going to phase out, over the medium term, inefficient fossil fuel subsidies that lead to wasteful consumption, this subsidy issue was hardly on anybody’s radar at all, so the change in the politics from that has been enormous. We saw at Rio+20 last year-and we were part of this-that the civil society got together and we managed to get the public to vote it as being the most important thing that the Rio+20 leaders could do. It did not mean that they actually did that but it was very important.

I think it is a slow process but it is one that is building momentum. I was at a meeting the other day of the intergovernmental organisations who were talking about co-ordinating their plans going forward for the extra effort that they are going to put into subsidy reform over the next few years. Again, a couple of years ago that was not happening. This issue is slow but it is very much on an upwards profile. Keeping the issue on the G20 agenda, from our perspective, is incredibly important. I think the leadership for that at the moment has been largely the United States. The UK is in a very good position here. The UK is market friendly as a rule. The UK understands this issue, has important bilateral aid programmes, is very interested in low-carbon development and is very interested in renewable energy. There is a whole set of reasons why the UK should be at the forefront of this.

It will be a step-by-step process within the G20. It is still the major international forum for this but, for instance, this year there is a big discussion about peer reviewing the reports that each of the countries must do within the G20. Taking those little steps, adding on to them, keeping supporting the process, keeping it going, seems to us to be extremely important.

Shelagh Whitley: Just to add to that, this idea of template formats for reporting and support for transparency is something you could get in the nearer term. So potentially not an agreement on elimination but an agreement around definitions and agreement around reporting approaches would make a significant step forward.

Peter Wooders: We don’t envisage that suddenly countries will say, "We’re all going to eliminate our subsidies now and here is the agreement" but they will learn from each other’s experience, they will push each other to some extent, they will be held accountable by their electorates to some extent. It seems to be not necessarily an agreement that will happen but a jointly supportive set of activities.

Q85 Dr Whitehead: Do you think, however, that the wording that has gone into the declaration so far-the Rio+20 Summit talked about eliminating harmful subsidies, inefficient subsidies, wasteful subsidies, all of which would seem very conditional; people could argue, "Well, my subsidy is not wasteful and I’ve got a pretty efficient subsidy here and it is not very harmful"-gives a get-out that overcomes the trajectory that you might otherwise be thinking about?

Peter Wooders: It does. If we are thinking cynically we would say people will just use those terms like wasteful consumption, inefficiency and so on, but I think there is also a lack of capacity to deal with the issue. If we ask even well-educated and co-ordinated Departments, "Could you write down the UK’s fossil fuel subsidies and tell us which are good and which are bad?" it is very difficult to do. There is a process that needs to happen there about helping with the definition, with the measurement, with the evaluation, sharing how we measure, how we evaluate, what sort of models might we need, what sort of experiences should we compare to each other. There is a more positive agenda here about building the capacity to deal with the issue in all countries.

Shelagh Whitley: With that information there is also the possibility for civic engagement. We were talking about this outside. When you have the information you can have a public debate on the topic and then each country can make the decisions about which are efficient, which are inefficient, which are harmful, which are beneficial, which are the subsidies and incentives that meet the goals that a Government is trying to achieve and which are those that potentially undermine them.

Peter Wooders: This is where GSI has always come from. We would like to be involved in the public debate about energy pricing decisions. It is very hard to get into it because a lot of it is technical. A lot of the information is not easy to find even in developed countries. You really have to work at it.

Q86 Chair: So transparency is high on the agenda?

Peter Wooders: Absolutely.

Q87 Chair: I think we have just about reached the end of our questions. Finally, you mentioned G20 as being very important for getting it on the agenda. You did not quite give the same pre-eminence to the post-Rio+20 discussions, particularly on sustainable development goals and so on, but presumably you see that as a key process as well.

Peter Wooders: We would advocate very much multi-forum, so G20, G8, UNFCCC, WTO, CSD, discussions with the World Bank, IMF, OECD, IEA. Everybody has a role to play here. Let us spread the discussion about subsidies in all of those; not rely on any of them to actually make an international agreement or make an enforceable international agreement but all of them can help push this agenda forward.

Charles Perry: It is a really important point on this because a lot of them had this on the agenda for the last few years but not much has happened. The question is which forum is really going to make progress, which is going drive the change that we need. There are lots of get-out clauses, lots of excuses, lots of, "Well, that is not a subsidy", "Oh, we’re not doing that", "It is not classified" and so on, excuses for not doing things and not tracking the progress to eliminating them. One thing about the Montreal Protocol was there was a very clear agreement to phasing out CFCs and there was tracking as to that phasing out. In the same way with the phasing out of fossil fuel subsidies, there needs to be a forum that is going to take it seriously, it is not going to get bumped off the agenda every time and someone is going to monitor that progress is made.

Chair: That brings us to the end of our session. Each of you has been really generous with your time. Thank you for coming along and if you have further thoughts that you think will contribute to this inquiry, please by all means let us have them. Thank you very much indeed.

Prepared 24th May 2013