Week in Oil & Gas: G20 Axes Subsidies, Obama-Hu Climate Rhetoric, and Chevron Sues

Last Updated Sep 27, 2009 1:16 PM EDT

The week ended with a muffled bang as the Group of 20 nations agreed to phase out government subsidies for fossil fuels.

Ending fossil fuel subsidies would have an impact -- positive or negative, depending on whose talking. But the agreement is viewed largely symbolic since G20 leaders did not set a timeline, nor did they outline what would count as a subsidy.

What is a fossil fuel subsidy? It depends on where you live. Subsidies in industrialized countries including the U.S. come in the form of tax breaks for traditional "fossil fuel" energy companies. Developing nations often use subsidies to help consumers by keeping prices artificially low.

Here's what the G20 did agree to:

Rationalize and phase out over the medium term inefficient fossil fuel subsidiesthat encourage wasteful consumption. As we do that, we recognize the importance of providing those in need with essential energy services, including through the use of targeted cash transfers and other appropriate mechanisms, this reform will not apply to our support for clean energy, renewables and technologies that dramatically reduce greenhouse gas emissions.
The Organization for Economic Cooperation and Development and the International Energy Agency found that eliminating fossil fuel subsidies by 2020 would reduce greenhouse gas emissions in 2050 by 10 percent, according to the G20 communique.

Environmentalists were pleased with the step. But the cheers were short-lived. Activists were clearly disappointed the G20 did not tackle larger climate change issues including an agreement on providing financial aid to help poor nations pay for cutting emissions.

The American Petroleum Institute was not pleased with the agreement and in a statement by its president Jack Gerard, urged the Obama administration not to use this commitment as an excuse to raise energy taxes on American consumers and businesses. More words from Gerard:

Does the president really think it wise to eliminate tax provisions that encourage investment in technology and exploration and development and would likely constrict future energy supplies, raise energy costs and kill jobs?
Obama kicked off his week with a speech at the United Nations summit on climate change. It was here, the president called on all countries -- rich and poor, developed and emerging -- to share the burden of climate change.

Obama's speech, while important, was outshined a bit by the world's new global warming darling: China.

Chinese premier Hu Jintao also detailed his country's vision of responsibility, which amounts to developed, and therefore wealthier nations, like the U.S. should take on a greater share of the financial burden than say, still developing nations, such as, China.

Hu outlined a commitment to reduce greenhouse gas emissions-- viewed as a major step forward for the country. Hu offered up few details beyond, pledge "to cut carbon dioxide emissions per unit of GDP by a notable margin by 2020 from the 2005 level." He also said China would increase energy efficiency, increase forest coverage by 40 million hectares and pursue renewable and nuclear energy.

It wouldn't be a week in oil and gas without another dramatic twist in Chevron's 16-year legal battle over allegations of environmental pollution in the Amazon region of Ecuador.

The energy giant filed a claim against the government of Ecuador for violating international trade law. The plaintiffs are calling it an act of desperation. Chevron has said the corrupt judiciary system in Ecuador has left it with no other option than to pursue international arbitration.

Chevron spokesman Kent Robertson updated BNET on what happens next.

Three arbitrators will be appointed to the case. One from Chevron, one from Ecuador and the third decided by the other two. Ecuador has 30 days to respond to the claim and nominate an arbitrator to the claim, Robertson said.

The arbitrators will review the claim and determine whether it has enough merit to proceed to trial.

The current lawsuit, known as the Lago Agrio case, will continue.

"We don't believe the U.S. should intervene in the Lago Agrio case," Robertson said in a phone interview earlier this week. "But the treatment of Chevron by Ecuador should be considered during its [annual trade agreement] review."