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Analysis

G20 Finance Conclusions on Energy, 1999-2009

Drawn from G20 finance communiqués
Anton Malkin, G20 Research Group, August 2009

See also G20 Leaders Conclusions on Energy

Summary of Conclusions on Energy in G20 Finance Communiqués

Notes: *emergency meetings

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Definition

In the context of the G20, the definition of energy is consistent with its treatment by the G8, with four components. The first consists of the supply, price, transportation and consumption of traditional hydrocarbon energy sources such as oil, natural gas and coal. The second, a close companion, consists of alternative and renewable energy sources, as well as demand-side measures such as energy efficiency and conservation. The third is nuclear safety, including the safe operation of civilian nuclear reactors and the transfer and use of nuclear materials. The fourth is energy trade, including Russian gas trade with Europe and Japan, Russia’s energy-pricing policies (in pursuit of accession to the World Trade Organization) and the role of markets in global energy trade. In all cases, the G8’s strong link from the start between energy and the natural environment is taken fully into account. This analysis is adopted to analyze the G20’s work on energy. 

Criteria

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Conclusions on Energy in G20 Finance Communiqués

Berlin, Germany, November 20-21, 2004
Communiqué

2. We welcomed the favourable macroeconomic environment in the world economy with high growth at low inflation rates. We expect that the macroeconomic environment will remain favourable in the next year. Many countries are implementing structural reforms to foster sustainable growth and financial stability. However, downside risks have increased due to oil price volatility, persisting external imbalances and geo-political concerns. Co-operation between oil producers and consumers to ensure adequate supply, investment to expand oil production capacity, improvements in oil market transparency, greater energy efficiency and wider use of alternative sources of energy will contribute to improving the resilience and sustainability of the international economy and to more moderate oil prices in the medium term. We also discussed the impact of current macro-economic conditions, in particular oil prices, on many of the poorest countries and the adverse effects on their development prospects. We underscored the importance of medium-term fiscal consolidation in the United States, continued structural reforms to boost growth in Europe and Japan, and, in emerging Asia, steps towards greater exchange rate flexibility, supported by continued financial sector reform, as appropriate.

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Xianghe, China, October 15-16, 2005
Communiqué

2. We welcomed the ongoing expansion of the world economy, while recognizing low growth and increasing poverty in some developing countries. We also emphasized that the risks – long lasting high and volatile oil price, widening global imbalances and rising protectionist sentiments – are to the downside and could exacerbate uncertainties and aggravate global economic and financial vulnerabilities. We agreed addressing them must be done in a way that sustains strong global economic growth and takes account of shared responsibilities. Bearing in mind our shared responsibilities, we are determined to implement the necessary fiscal, monetary and exchange rate policies, and accelerate structural adjustments to resolve these imbalances and overcome these risks.

3. We are concerned that long lasting high and volatile oil prices could increase inflationary pressures, slow down growth, and cause instability in the global economy. We agree to strengthen our cooperation on these issues and stress the need to increase investment, production, and refining capacities, and to enhance dialogue between oil suppliers and consumers through the relevant fora, such as International Energy Forum (IEF). We also need to strengthen oil market transparency to improve market efficiency. We stress the importance of promoting energy conservation and efficiency, including adopting and transferring new technologies, developing alternative and renewable energy sources, and reducing subsidies on oil products. We welcome the work launched by the World Bank and partners on the creation of a long-term investment framework for clean energy and sustainable development and the upcoming creation by the IMF of a new window in the Poverty Reduction and Growth Facility (PRGF) to help poor countries respond to commodity shocks, including oil price hikes.

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Xianghe, China, October 15-16, 2005
G20 Reform Agenda 2005:
Agreed Actions to Implement the G20 Accord for Sustained Growth

2. The United States has seen important developments in tax, trade, corporate governance, education, and energy policies to enhance growth. Future tax, health, and pension policies could further support growth. Proposed reforms in pension funding include improvements in calculating and disclosing pension liabilities and restricting benefit increases. Healthcare reforms have also been proposed. Canada is focused on jobs, economic growth, and prosperity. It is committed to maintaining balanced budgets and sound monetary policy, building a highly-skilled, adaptable and inclusive workforce, encouraging greater private sector involvement in research and development, making the regulatory system more transparent, accountable and adaptable and maintaining a fair, efficient and competitive tax system. Argentina is emphasizing the need to correct imbalances as evidenced by capital flow instability and foreign exchange crises, and distortions of free international commerce through taxes and subsidies. Brazil will continue to strengthen its sound macroeconomic framework, which has already resulted in higher growth, sustained price stability and significant job creation, while improving the quality of public expenditure. For Mexico high priority is placed on achieving the equilibrium between public revenue and expenditure. Mexico is also determined to invest in physical and human capital, reduce poverty and inequality, including through public expenditure that emphasizes social development and infrastructure.

3. Members of the European Union are committed to further reforming labour markets, to consolidating public finances and pension systems, to enhancing innovation and to completing the single market. Germany will continue to make its tax system more competitive, fully implement labour market reform, push forward the reform of the health and pension system, and ensure fiscal sustainability. France is implementing further major structural reforms aimed at increasing labour market participation through an enhanced income tax credit, strengthening the labour market through making more flexible labour contracts available to small firms, creating incentives for better public-private partnerships for R&D investments, and consolidating fiscal sustainability. To enhance productivity and competitiveness, Italy plans to prioritize simplification of administrative procedures, further liberalization in the energy market, investment in research and innovation and scientific and technical education. The United Kingdom is committed to entrenching stability and to building a flexible, enterprising economy with a highly skilled workforce and a strong science and innovation sector. It is determined to ensure fairness alongside flexibility, providing security and support for those that need it. It is also delivering lasting improvements in public services through sustained investment and reform.

5. South Africa is focusing on infrastructure investment and human capital development. It also regards enhancing the efficiency of the public service and bridging the “two economy” divide as key goals. Saudi Arabia places high priority on diversifying the economy, reducing dependence on oil and improving the investment-friendly environment for both domestic and foreign investors. Another high priority is placed on maintaining monetary and financial stability, and enhancing employment opportunities. Efforts are also being made to develop the tourism sector to enhance its contribution to GDP and to seek larger markets through enhanced competition, trade agreements, regional integration and acceding to the WTO.

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Melbourne, Australia, November 18-19, 2006
Communiqué

G20 members noted that the world economy continues to expand at a solid pace, with growth above its long-term average for the fourth consecutive year. The outlook remains positive. Global economic growth is expected to slow slightly from the rapid pace of the past few years. Growth in industrialised countries is expected to moderate slightly from its recent strong pace. Among emerging market countries, output growth is expected to remain strong, with key economies like China and India continuing their rapid expansion. Above average growth in the global economy has seen spare capacity decline which, combined with buoyant energy and mineral prices, has increased the risks to inflation.

Global energy and minerals markets

G20 consideration of global energy and minerals markets reflects the importance of resource consumption, production, investment and trade to the world economy. Global demand for energy and minerals commodities is set to increase significantly over coming decades driven by a strong world economy, rising incomes, and ongoing industrialisation and urbanisation in many economies. While physical stocks exist to meet demand and investment is increasing, the expansion of supply to date has struggled to keep pace with demand growth, resulting in significant increases in prices. We agreed that enhancing global trade by strengthening markets, and ensuring sustainability by promoting investment and encouraging efficiency, are the best ways to deliver lasting resource security.

We discussed the challenges to macroeconomic policy presented by energy and minerals price cycles. Monetary authorities remain vigilant in keeping inflation low and stable and stand ready to contain second-round price effects. Flexible domestic economies and exchange rates help facilitate adjustment to large movements in traded goods prices. Finance ministers are also focused on key fiscal challenges such as managing revenue surges and the appropriate level of energy subsidies. We agreed that further reform of energy subsidies is a priority in order to improve fiscal sustainability, better target poverty, and ensure that price signals work to expand supply and induce efficiency.

We reaffirmed the commitment we made in the G20 Accord for Sustained Growth in 2004 to direct domestic policies toward creating a favourable overall investment climate and enhancing domestic and international competition. We discussed how the current resources boom can be harnessed for growth and development, highlighting the importance of sound domestic policy and effective governance for boosting investment. We welcomed further work on principles for the efficient and effective governance of extractive firms, both private and state-owned. We noted the benefits of the Extractive Industries Transparency Initiative (EITI), a voluntary initiative to strengthen transparency, governance and investment-led development in resource-rich countries, and encourage governments and firms to support the initiative. We support continued progress on the World Bank-led Clean Energy Investment framework.

Long-term resource security and dealing with key global challenges, such as climate change, require effective international policy frameworks and actions. Well-functioning markets-characterised by clear price signals, open trade and investment, market transparency, good governance, and effective competition among firms-will support investment in new supply, bring forth efficiencies and new technologies, encourage the use of alternative and renewable energy sources, and allow knowledge and resources to flow across borders. We note the International Energy Agency's World Energy Outlook and its recommendations.

We support the Joint Oil Data Initiative and see value in it being extended to other energy sectors, like gas, and incorporating a common definition of energy reserves. We encourage the development of clear principles to guide trade and investment for extractive industries. We agreed that the G20 will work toward articulating these principles. We discussed the links between energy and climate change policy, including the role of market-based mechanisms, and agreed that the G20 would monitor this issue.

We recognised the need for continued and enhanced dialogue between producers and consumers. We also met in a working lunch with global business leaders to discuss ways to strengthen energy and minerals markets.

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Melbourne, Australia, November 18-19, 2006
G20 Reform Agenda 2006

5. In South Africa, the government is committed to a number of interventions, given the fiscal space created on the basis of sound public finances over the last decade. The basis of the reforms will be done under the framework of the Accelerated and Shared Growth Initiative for SA (AsgiSA), which focuses on increasing public investment; enhancing the efficiency of parastatal firms; skills development; improving public service delivery; expanding the social security system; reducing the interest cost of government debt; and reforming tax policy and administration. Saudi Arabia places high priority on diversifying the economy, reducing dependence on oil, enhancing the investment-friendly environment, maintaining monetary and financial stability and expanding employment opportunities. To achieve these objectives, wide-ranging economic and structural reforms have been undertaken, including encouragement of the private sector, further strengthening and expansion of the financial system and labour market reforms.

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Kleinmond, South Africa, November 17-18, 2007
Communiqué

2. G20 members welcomed the continued strong growth of the global economy in the first half of 2007 but noted that downside risks to the near-term outlook have increased as a consequence of recent financial market disturbances. We were pleased to note the resilience of emerging market and other developing countries during the recent turbulence. While the likely slowdown in global economic growth is expected to be modest, its extent and duration remains difficult to predict. While the slower pace of growth is expected to moderate pressures on capacity and resources, rising energy and food prices will remain an important source of price pressures. Monetary authorities in G20 countries will need to assess carefully the inflation outlook in light of both tight conditions in commodity markets and the downside risks to growth. We also agreed that an orderly unwinding of global imbalances, while sustaining global growth, is a shared responsibility involving: steps to boost national saving in the United States, including continued fiscal consolidation; further progress on growth-enhancing reforms in Europe; further structural reforms and fiscal consolidation in Japan; reforms to boost domestic demand in emerging Asia, together with greater exchange rate flexibility in a number of surplus countries; and increased spending consistent with absorptive capacity and macroeconomic stability in oil-producing countries. The need to address rising pressures on health and social security spending and infrastructure was also stressed.

4. We noted the medium-term challenges which need to be addressed to ensure future global prosperity, including climate change, energy security and protectionism. We reaffirmed our commitment to maintain open trade and investment regimes and to resist protectionist pressures. We committed to working with our trade authorities to reach a rapid and successful conclusion to Doha, to promote open and rules-based trade and investment regimes, improve productivity, create jobs, alleviate poverty and spur competition. We noted the critical importance of trade liberalisation and Aid for Trade for global poverty reduction.

Commodity Cycles and Financial Stability

9. We discussed a range of policy issues related to commodity cycles and financial stability, concentrating on the recent market developments, especially for energy. We reiterated our agreement from 2006 that well-functioning markets will support investment in new supply, bring forth efficiencies and new technologies, encourage the use of economically efficient renewable energy sources, and allow knowledge and resources to flow across borders. We recognized the need for continued and enhanced dialogue between producers and consumers; and noted the International Energy Agency’s recent World Energy Outlook. Commodity prices have increased remarkably in the current decade. Commodities have also developed as a new and important asset class. There is substantial room to develop new markets in additional commodities and with new instruments that should increase market liquidity, particularly as participation grows and broadens. Commodities markets have seen a dramatic rise in participation by non-commercial investors, which has improved the depth and liquidity of markets and contributed to improved price discovery.

10. Commodity price volatility can generate large terms of trade shocks, with widespread implications for the macroeconomic performance of affected countries including on the balance of payments, budgetary positions, liquidity management, asset prices, and monetary policy. We emphasised the importance of sound macroeconomic policies in moderating and managing the effects of such volatility and noted that volatility can also have implications for the stability of the financial system. We looked forward to the IMF examining best practices on fossil fuel subsidies. We also noted the importance of well-functioning commodities markets, underpinned by good governance and transparency, in managing resource booms. Appropriate institutional frameworks and policy guidelines for managing extractive industries can play an important role in improving the fiscal and investment response to commodity price volatility. For example, we encouraged broad participation in the Extractive Industries Transparency Initiative (EITI), on a voluntary basis. We reiterated our support for the Joint Oil Data Initiative (JODI) and look forward to extended, deeper coverage.

13. We also discussed the economic potential of biofuels and clean technology and their linkages with GDP growth, income and employment generation, emissions reduction and food prices and noted the benefit of further exploring these linkages, in the period ahead.

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