BONN – 11 May 2017 – A new report from the Nordic Council of Ministers finds that redirecting fossil fuel subsidies toward the clean energy transition could help climate vulnerable countries reap major savings while slashing greenhouse gas emissions. The report was launched at an event hosted by the Friends of Fossil Fuel Subsidy Reform and held at the Bonn Climate Change Conference.
The study by the International Institute of Sustainable Development (IISD) Global Subsidies Initiative (GSI) and Gaia Consulting is entitled “Making the Switch: From Fossil Fuel Subsidies to Sustainable Energy.” Based on this study, countries already undergoing energy reforms (like Bangladesh, Indonesia, Morocco and Zambia) would especially benefit from SWAPs—the transfer of funds that normally go towards fossil fuel subsidies into sustainable energy investment, such as renewable energy and energy efficiency. The report includes examples of how Nordic countries have managed this switch.
Fossil fuel subsidies are a cost that governments can no longer afford to ignore from both economic and social perspectives. Global subsidies to both consumers and producers of fossil fuels are reported at USD 425 billion in 2015. Research estimates suggest that removing all consumer fossil fuel subsidies would decrease global carbon emissions anywhere between 6.4–8.2 per cent by 2050. By reinvesting these savings into renewable energy, energy efficiency, education, health care, and targeted social protection schemes for adaptation to climate change, countries have major opportunities to support the delivery of the both the Paris Agreement and the Sustainable Development Goals
The event to launch the report was moderated by Karoliina Anttonen, Ministry of Environment, Finland, and focused on how governments can scale up investments in green energy by “making the switch” from fossil fuel subsidies to sustainable energy subsidies.
Highlighting the climate change mitigation, clean air and health benefits of fossil fuel subsidy reform, Hans Jakob Eriksen, Ministry of Energy, Utilities and Climate, Denmark, launched the report ‘Making the Switch from Fossil Fuel Subsidies to Sustainable Energy,’ funded by the NCM. He underlined that, in an “ideal world,” fossil fuel subsidies would be removed and reallocated to renewable energy and energy efficiency measures. He noted the feasibility of introducing reforms now, while oil prices are low.
Kindy Syahrir, Ministry of Finance, Indonesia, noted that fossil fuel subsidies in his country currently represent just one tenth of what they used to be before reforms began in 2015. He underscored how the relevant funding is better spent on renewable energy, green infrastructure, health, education and other social programmes.
(L-R): Oras Tynkkynen, Sitra; Mikko Halonen, Gaia Consulting; Hans Jakob Eriksen, Ministry of Energy, Utilities and Climate, Denmark; Laura Merrill, GSI, IISD; Kindy Syahrir, Ministry of Finance, Indonesia; and Karoliina Anttonen, Ministry of Environment, Finland Photo IISD ENB
Laura Merrill, Senior Researcher and Operations Manager with IISD explained how “Current subsidies to fossil fuel subsidies from governments are worth around half the funding needed to bridge the global energy access gap, double renewable energy and energy efficiency rates by 2030,” said. “These subsidies are also three times higher than current global renewable energy subsidies, and continue to distort energy markets. Reform would create a level energy playing field for renewable energy takeoff and for energy efficiency to add up. Savings made by governments from removing subsidies to fossil fuels can be redirected or swapped to help fund a clean and just energy transition.”
Oras Tynkkynen, Sitra, outlined findings by the Finnish innovation fund that scaling up existing solutions in both the global North and South could dramatically cut global greenhouse gas emissions. He said that the necessary investments could be financed by diverting “a fraction” of fossil fuel subsidies and invited interested countries to get in touch to explore the potential of existing climate solutions in their national contexts.
Noting that public finance needs to be used very efficiently, Mikko Halonen, Gaia Consulting, noted efforts by Nordic countries to operationalize and mobilize climate finance by facilitating investments through de-risking and enhancing the bankability of climate projects.
In the ensuing discussion, participants raised, inter alia: the relevance of fossil fuel subsidy reform in the redesign of countries’ Nationally Determined Contributions (NDCs); the need for a “vocabulary shift” that does not only emphasize fossil fuel subsidy reform, but also a reallocation of funds to finance sustainable development objectives; and challenges in defining “subsidies,” and what constitutes an “inefficient” subsidy. Participants also highlighted: “rent-seeking” with regard to fossil fuel subsidy policies; “the elephant in the room” of political economy; the need for a carbon price; and the need to take into account political realities and alignments in order to achieve successful reform.
To download a copy of the report please click here.
Infographics are available here.
Full report and pictures of the event are available from IISD ENB here.