The Climate Story Hiding in Plain Sight in the Global Economy

The policy responses aren’t coded climate policy—and in many cases they’re actively bad for climate efforts. The most common response cited by the report is fuel price support, think of subsidies or fuel tax reductions. An IEA survey cited by the report identified 95 countries with such policies. Explicit fuel subsidies could surpass $1 trillion this year globally, according to the UNDP. But, as the report notes, such an approach isn’t sustainable. Backlash to higher prices persists even as governments spend to keep citizens happy. In a smaller group of countries, mostly those most dependent on imports, longer-term, structural changes are emerging: investments in renewable energy, energy efficiency, and electrification. Think of subsidies for electric buses or cutting tariffs on solar panels. 

But not every country can afford to remake its energy system with structural changes. Heavy indebtedness and high interest rates are key factors. So too is El Niño and broader climate shocks, which make it harder for countries to pay for new infrastructure that reduces exposure to fossil fuel volatility.