The Friends of Fossil Fuel Subsidy Reform (Costa Rica, Denmark, Ethiopia, Finland, Netherlands, New Zealand, Norway, Sweden, Switzerland, and Uruguay) 

We reflect on the urgency of phasing out inefficient fossil fuel subsidies given the current climate crisis and in an effort to limiting global average temperatures to 1.5°C above pre-industrial levels. 

We recall international commitments to Fossil Fuel Subsidy Reform (FFSR) under Sustainable Development Goal 12 of the 2030 Agenda and the WTO Statement on Fossil Fuel Subsidies of June 2022. 

We note the strong momentum on FFSR in both climate and trade negotiations through 2021 and 2022, in particular, the Glasgow Climate Pact call for parties to accelerate efforts towards the “phase-out of inefficient fossil fuel subsidies”, and the opportunity this provides for countries to use FFSR with increased focus as a tool for achieving the Paris Agreement goals.  

We are cognizant of the current global energy crisis caused by the unlawful and unprovoked aggression of Russia against Ukraine, exposing countries’ dependency on fossil fuel energy, in turn adding greater pressure to diversify energy supply and the almost doubling of global public fossil fuels subsidies last year. 

We urge all parties at COP27 to reaffirm their commitment to phasing out inefficient fossil fuel subsidies made in the Glasgow Climate Pact, and to take practical action along a clear timeline to reform fossil fuel subsidies, increase production and consumption of clean energy sources and ensure finance flows in support of lowering greenhouse gas emissions and climate resilient development. 

We also urge support for less developed countries in building their capacity to upscale green energy technologies and achieve fossil fuel subsidy reform.   

We remain committed to supporting FFSR globally, engaging through international meetings such as the Conference of the Parties to the UNFCCC to raise global efforts to eliminate inefficient fossil fuel subsidies. 

We invite governments, businesses, and civil society organisations to join us in supporting accelerated action to eliminate inefficient fossil fuel subsidies, and by doing so, play a significant part in mitigating climate change and the current energy crisis. 

[November 11, 2022] 

Geneva, December 10—In the lead-up to the 5th anniversary of the Paris Agreement, ten governments are calling on world leaders to turn their high-level commitments into urgent action and phase out inefficient fossil fuel subsidies. “We must act now,” says a joint statement from the Friends of Fossil Fuel Subsidy Reform (Costa Rica, Denmark, Ethiopia, Finland, New Zealand, Norway, Sweden, Switzerland, and Uruguay), a group of countries whose governments actively support a global reform of fossil fuel subsidies, and the incoming co-host of the UN Climate Change Conference of the Parties (COP26) – the United Kingdom. 

The statement urges countries, businesses, and other organizations to ensure their COVID-19 economic recovery is consistent with the goals of the Paris Agreement. “Without a focus on green recovery, there is a risk that fiscal stimulus packages will further entrench fossil fuel use,” the group states.

“As the COVID-19 economic recovery begins, we must set course towards a low-emissions and climate-resilient future,” said Damien O’Connor, New Zealand Minister for Trade and Export Growth, commenting on the statement.

“Every policy and every action must pull in the same direction,” said Isabella Lövin, Minister for Environment and Climate, and Deputy Prime Minister of Sweden. “I encourage more countries to support the initiative and its cause,” she added.  

The release of the statement marks the 5th anniversary of the Fossil Fuel Subsidy Reform Communiqué presented to world leaders at the historic Paris Climate Summit in November 2015. Supported by 40 governments, the Communiqué delivered a strong message on the significant contribution that eliminating fossil fuel subsidies would make to the shared objective of reducing global greenhouse gas emissions. The statement recognizes and reflects on the progress made to date and encourages leaders to continue reform. 

The initiative was welcomed by the Government of the United Kingdom who will co-host the 26th UN Climate Change Conference of the Parties (COP26) next year with Italy.

“The UK strongly supports international efforts to phase out fossil fuel subsidies, which is why we are leading international action to tackle climate change and reduce global emissions,” said the UK Minister for Energy and Clean Growth Kwasi Kwarteng. “This Communiqué highlights the importance of such action in the fight to eliminate harmful fossil fuel subsidies and to build a zero carbon, climate-resilient future that is essential for our people and our planet.”

Norway’s Minister of Climate and Environment, Sveinung Rotevatn, highlighted that reaching the goals of the Agreement will require ambitious actions in the years to come, and subsidy reform can make a “significant contribution to limiting global average temperatures to 1.5°C above pre-industrial levels.” 

“It is important to clearly identify direct and indirect fossil fuel subsidies, and raise awareness about their existence and their detrimental effects for a more sustainable future,” said Ambassador Stefan Estermann, Head of the Sectoral Foreign Policies Division, State Secretariat, Federal Department of Foreign Affairs for Switzerland. “Only then can we take informed and fact-based decisions and subsequent political action,” he added.

Formed in June 2010, the Friends of Fossil Fuel Subsidy Reform is an informal group of non-G20 countries aiming to build political consensus on the importance of fossil fuel subsidy reform. Current members of the “Friends” group are Costa Rica, Denmark, Ethiopia, Finland, New Zealand, Norway, Sweden, Switzerland, and Uruguay.

The Statement on Global Fossil Fuel Subsidy Reform on the Fifth Anniversary of the Paris Agreement and FFSR Communiqué was published on December 10, 09:01 GMT 

A wave of public investment has emerged as countries look to build back better from the global pandemic, but research shows that this has both driven a positive green recovery and entrenched fossil fuel subsidy reforms. The Global Subsidies Initiative of the International Institute for Sustainable Development (IISD) and the Switzerland Federal Department of Foreign Affairs (on behalf of the Friends of Fossil Fuel Subsidy Reform) hosted a side event at the International Emissions Trading Association (IETA) and International Carbon Action Partnership (ICAP) Carbon Markets Virtual Pavilion to examine the trends of COVID-recovery finance, areas of progress (and lack thereof) on fossil fuel subsidy reform, and opportunities for the business community resulting from stimulus investments.

Highlights

• The report Doubling Back and Doubling Down: G20 Scorecard on Fossil Fuel Funding indicates that, despite repeated pledges over the past several years to end inefficient fossil fuel subsidies, the G20 governments’ level of support to fossil fuels has dropped by only 9% since 2014–2016, hitting USD 584 billion annually over the last three years.
• Additionally, according to the latest data from the Energy Policy Tracker, G20 governments have given at least USD 243 billion in additional support through recovery measures to fossil fuel-intensive sectors since the global COVID-19 pandemic began in January 2020.
• There is a misconception that the renewable energy transition will be slow and expensive. Getting up to 80% renewable energy generation can be achieved in many jurisdictions in the short term with existing and cost-effective technologies. Directing stimulus to these green technologies can accelerate this transition even faster.
  

In light of the global pandemic and the fight against climate change, there has been increased discussion about aligning climate ambitions with socioeconomic priorities. Significant revenue will also be needed to fund a Paris Agreement-consistent COVID-19 recovery. This session highlighted the role that energy price and fossil fuel subsidy reform can have in increasing ambition on climate change, as well as building back better from the current pandemic. 

Opening the session with welcoming remarks on behalf of the Government of Switzerland and the Friends of Fossil Fuel Subsidy Reform, Ambassador Stefan Estermann, Head of the Sectoral Foreign Policies Division, Federal Department of Foreign Affairs, Switzerland, set the tone, remarking on the crucial role that fossil fuel subsidy reform can play in addressing the climate change challenge. “A quick look at the new G20 Scorecard…shows that G20 countries alone have spent an average of $584 billion annually for the consumption and production of fossil fuels. Not only do these subsidies cost a lot and counter our efforts to fight climate change, but they also slow down the development of renewable and more sustainable resources,” Estermann remarked. He encouraged everyone to think about the type of energy sector we want to build and the impact that fossil fuel subsidies will have on clean energy transition. He also noted that subsidy reform could be an effective tool for green recovery.

Presenting the recently launched report Doubling Back and Doubling Down: G20 Scorecard on Fossil Fuel Funding, IISD Associate Anna Geddes provided clarity and transparency on G20 countries’ progress in ending support for fossil fuels. While noting that some perform better than others, the overall performance across the G20 countries is mediocre. Geddes noted that the team behind the report recommends that “G20 countries need to focus their phase-out efforts on reducing support to oil and gas because it is such a huge proportion of the funding that they are putting towards fossil fuels.” She closed by noting that fossil fuel funding continues to emerge in G20 countries, with USD 233 billion in additional support added since the global pandemic began.

Looking more broadly than subsidies to focus on overall pandemic recovery spending in the sector, Angela Picciariello of the Overseas Development Institute provided an update from the Energy Policy Tracker.  Angela highlighted how the tracker is providing transparency on green and non-green public money commitments to the energy sector as part of COVID-recovery. Picciariello noted that, to a large extent, so far, we are not building back better, showing that, across all the countries covered by the tracker, 54% of public money commitments for energy worldwide is for fossil fuels and only 35% is for clean energy.  However, she also noted, “when there is a will, there’s a way.” The large amount of money on the table is a good thing for transition, and there are examples of governments being creative in coming up with new tools to support energy production and consumption beyond conventional subsidies. She is hopeful for greener recovery packages as we move forward.

Ville Rimali, Director of Growth and Development at Wartsila, brought a business perspective to the issue of green recovery stimulus. He remarked that Wartsila is driving toward 100% renewable energy and a more sustainable world. His core message was about seeing the opportunity that the COVID-19 pandemic presents for the energy sector. The Wartsila Energy Transition Lab assessed changes in demand and consumption due to the pandemic and found that systems were resilient in 2020 but adapting was costly. Wartsila has also published its own assessment of how stimulus money can accelerate green recovery, noting that “stimulus money is not really driving towards the systems we would like to see and need to see in the future to meet lower emissions.” Finally, Rimali shared their atlas of renewable energy, showing how countries can meet 100% renewable energy in the most cost-optimal way, with up to 80% of energy needs able to be delivered by solar and wind power alone.

Concluding the session, Philip Gass, Lead for Transitions with the IISD Energy Program, noted that there has been progress in some areas of fossil fuel subsidy reform and that renewable energy is more competitive than ever. However, we are also likely to continue to see public investments in fossil fuels as countries look to reignite their economies in 2021 (as exemplified by the tracker and G20 report), driving the need to continue to push for reform and transition to greener energy sources. The IISD Global Subsidies Initiative pledges to keep pushing for transparency on subsidies and recovery spending with future events, ideally in person, in 2021.

The evidence is crystal clear that fossil fuel subsidies are environmentally harmful and undermine global efforts to tackle climate change. Despite this, support for fossil fuels costs governments USD 300–600 billion every year—depending on fuel prices on the world markets—a huge sum that could otherwise be spent on global priorities such as health, education, social protection, and a just transition to a clean energy future.

As countries struggle to support their economies in the aftermath of the COVID-19 crisis, it’s more important than ever to align climate ambitions with economic priorities. Governments have the opportunity to look closely at fossil fuel subsidy reform and fuel taxation as effective tools for a green recovery as they work to maintain climate commitments while generating revenue to support pressing social needs.

The recent drop in global oil prices provides an exceptional chance for countries to reform their fossil fuel subsidies without burdening consumers, as fuel prices would remain low without government support. The drop in oil prices also opens a window of opportunity to improve fuel taxation: IISD experts have shown that a small tax on fossil fuels could generate much-needed funds to react to and recover from the COVID-19 crisis, while being fair toward—and having a moderated effect on—consumers.

Read full article here

How can trade rules and climate policy be made mutually supportive? On Tuesday 10 March, the New Zealand Embassy and SEI hosted a seminar Climate Change, Trade, and Sustainable Development: Capturing Synergies on the Road to COP 26. This discussion brought together government officials, business, academia and civil society in a dialogue on around trade, climate change and sustainable development.

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Global Subsidies Initiative, together with the Nordic Council of Ministers, hosted a side event during the 25th UN Conference of the Parties (COP 25) Climate Conference: “Raising NDC Ambition to Reach Climate Action Goals: Fossil fuel subsidies, energy pricing and swaps.”

Highlights

• The panel focused on sharing lessons and best practices on fossil fuel subsidy reform and pricing based on country experience from New Zealand, Egypt and Indonesia.
• GSI expert Lourdes Sanchez presented results on greenhouse gas emission reduction from energy modelling research over 20 countries.
• World Bank representative Stephan Hammer explained the World Bank’s Energy Subsidy Reform Facility program and technical assistance facilitating global fossil fuel subsidy reform.

On Thursday, December 5, during the UN Climate Conference COP 25, Global Subsidies Initiative experts, together with representatives from the World Bank and the governments of New Zealand, Egypt and Indonesia, discussed possible scenarios for raising ambition with second-generation Nationally Determined Contributions (NDCs) and shared best practices on fossil fuel subsidy reform and pricing to achieve the Paris Agreement goals.

IISD expert Laura Merrill opened the event with remarks on raising ambition for fossil fuel subsidy reform in second-generation NDCs.

New Zealand Climate Change Ambassador Kay Harrison reminded those present of the recent words of the UN Secretary-General, Antonio Guterres, who called on world leaders to phase out coal, put a price on carbon and stop subsidizing fossil fuels. Harrison highlighted that fossil fuel subsidy reform—when implemented carefully, inclusively and in a considered way—is a powerful tool for enhancing ambition. “There is experience and help if countries want to take on the challenge to review, reform and phase out fossil fuels,” stressed the ambassador.

Harrison also noted that New Zealand is currently working closely with Fiji, Costa Rica, Iceland and Norway to bring together interrelated elements of climate change, trade and sustainable development agendas through a new Agreement on Climate Change, Trade and Sustainability. New Zealand, Costa Rica, Denmark, Ethiopia, Finland, Switzerland, Sweden, Norway and Uruguay make up the Friends of Fossil Fuel Subsidy Reform.

Executive Director of the Indonesian Institute for Essential Services Reform Fabby Tumiwa shared Indonesia’s experience, noting that the country has been reforming fossil fuel subsidies for the last 30 years. “It’s a big and daunting task in Indonesia,” he said. Tumiwa noticed that, at the moment, the biggest challenge for Indonesia is addressing the remaining liquefied petroleum gas subsidies used by small and medium enterprises. “The government needs to take this approach carefully, considering the global economic situation,” stressed Tumiwa.

Ahmed Mohammad Mahina from the Ministry of Electricity and Renewable Energy in Egypt highlighted that “Egypt has moved from a shortage of energy production to surplus.” This progress was achieved through the Integrated and Sustainable Energy Strategy, which sets ambitious goals focused on diversifying the energy mix, maximizing the renewable energy share and improving energy efficiency by 2035. Fossil fuel subsidy reform, although postponed three years due to changes in international markets, has already implemented six of the eight planned stages. The policy change was followed by a media campaign building social awareness on energy efficiency in Egypt.

Stephan Hammer, the World Bank’s Manager of Climate Policy, explained the mechanism of the World Bank Energy Subsidy Reform Facility, which provides technical assistance to help countries reform, reduce and remove fossil fuel subsidies while protecting the poor.

The project uses the Subsidy Reform Assessment Framework, which is a comprehensive analytical toolkit and assessment framework on implementing fossil fuel subsidy reform. The framework presents recommendations on identifying and estimating the fiscal cost of subsidies from consumption and production perspectives, assessing local and global environment externalities related to greenhouse gas emissions and air pollution, and creating a citizen engagement strategy that needs to be fully integrated into any reform initiative.

Global Subsidies Initiative expert Lourdes Sanchez presented results from energy modelling research from over 20 countries. The research found that removing subsidies to fossil fuels could reduce emissions by an average of 6 per cent across the countries modelled. The reform—combined with implementing a 10 per cent energy tax from 2025 until 2030 and investing 30 per cent of the savings into clean energy—could reduce average emissions by up to an additional 13.2 per cent by 2030.

Overall, participants found that fossil fuel subsidy reforms could be delivered in a step-wise fashion when coupled with investments in social safety nets to support the poor through health, and education. The panellists discussed the co-benefits associated with reforms, including greenhouse gas emission reductions and improved efficiency. It was highlighted that governments could also consider investing savings from reforms into the shift to renewable energy and energy efficiency (a swap).

“With second-generation NDCs expected in 2020, both subsidy reform and energy taxation could form part of the fiscal instruments that governments have at their disposal to raise ambition,” said Merrill.

Highlights

• During the event, hosted on October 10 by the Permanent Mission of New Zealand to the World Trade Organization (WTO) as part of the WTO Public Forum, panellists identified venues within the international system for collaborating on fossil fuel subsidy reform (FFSR).
• The session highlighted the renewal of a Ministerial Statement on Fossil Fuel Subsidies at the next WTO Ministerial Conference (MC12) in 2020 as reflecting the strong view among many that the WTO is ultimately the right forum in which to take action on fossil fuel subsidies. 
• As reporting on the Sustainable Development Goals (SDGs) commences in 2020, the panel drew attention to an official methodology for reporting on fossil fuel subsidies (SDG Indicator 12.c.1), developed jointly by UN Environment, the Organisation for Economic Co-operation and Development (OECD) and the Global Subsidies Initiative (GSI).

Discussing issues related to climate change and trade, the speakers at this year’s WTO Public Forum had a common diagnosis: climate change and trade communities just work in separate silos. This panel was in the spirit of identifying ways of breaking down these silos.

Fossil fuel subsidies have been in the spotlight of international forums such as the G20, G7 and Asia-Pacific Economic Partnership, where countries have recognized that subsidizing coal, gas and oil is often inefficient, incentivizing wasteful consumption. As Rachel Bae, Senior Counsellor at the OECD, noted, there is a strong rationale for why countries are pursuing FFSR, as subsidies can run counter to climate, health and social objectives, and have a distortive effect on trade.

Ambassador David Walker, New Zealand’s Permanent Representative to the WTO, stressed that the WTO was the natural locus for addressing FFSR: “Just as trade rules are used in the WTO to address industrial and agricultural subsidies, we think they have an important role to play here also.” According to the Ambassador, first steps were taken with the Ministerial Statement in support of fossil fuel subsidy reform, which New Zealand, together with 11 other WTO members, endorsed at the last WTO 11th Ministerial Conference (MC11) in Argentina, in December 2017. Ambassador Walker stressed that the renewal of this statement at WTO’s MC12 in Nur Sultan in June 2020 is a new opportunity for progress on this issue and that they were looking to attract broader support for the statement, with greater regional representation

Rachel Bae represented the OECD, which together with IISD and UN Environment was involved in developing an official methodology to support countries reporting on the SDG 12 indicator on fossil fuel subsidies.  She reminded the participants that effective FFSR starts with transparency: “Our starting point is to collect data.” In addition to the need for data collection, she stressed the importance of peer reviews to bring to light inefficient and harmful subsidy programs and identify sensible starting points for reforming them.

As official reporting on SDG progress will commence in 2020, Steven Stone, Director of the Resources and Markets Branch at UN Environment, reiterated the importance of taking stock of fossil fuel subsidies: “As part of the process of formulating the Sustainable Development Goals, the global community has agreed that this piece of information is universally needed. With the agreed methodology, nothing is holding us back anymore.” He stressed that the next 10 years will be decisive to roll out reporting and tracking across all 193 UN member states.

Notwithstanding, the panel agreed that, when it comes to reform, “you cannot have a blanket prescription, but need to think about the situation of every country individually.” The audience strongly resonated with the insight that FFSR must be accompanied by social compensation programs that safeguard the energy needs of the poor and especially vulnerable populations.

The need for concerted action and collaboration was a common sentiment among the panellists. Crispin Conroy, Representative Director of the International Chamber of Commerce, reminded the panel that collaboration should not end with state actors. Contributing the perspective of the private sector, he highlighted the roles that businesses must play in helping to address the SDGs, stressing that “We are all in it together and businesses must be part of the solution.”

Recording available here

WTO Public Forum, 10 October 2019

Fossil Fuel Subsidies Reform: International collaboration and the link between sustainability objectives and global trade

Opening Remarks Delivered by Ambassador David Walker

On behalf of the New Zealand Permanent Mission to the WTO and the signatories to the Statement on Fossil Fuel Subsidy Reform at MC11, I would like to welcome you to today’s session. I would also like to welcome our panelists: Crispin Conroy from the International Chamber of Commerce; Steven Stone from UN Environment and Rachel Bae from the OECD.

Today’s panelists will explain how fossil fuel subsidies distort markets – discouraging the uptake of clean energy technologies thus contributing to climate change and holding us back from sustainable development.  A private sector perspective will be presented and the connection to sustainable development goals will be explained. Existing international collaboration and domestic reforms will also be set out.

As our Prime Minister, Jacinda Arden recently stressed in her address to the United Nations “not since the inception of the United Nations has there been a greater example of the importance of collective action and multilateralism, than climate change. It should be a rallying cry to all of us”.

Global support for reforming fossil fuel subsidies is growing as the imperative to respond to climate change increases in urgency.  The G20 and APEC members committed to action on this issue in 2009.  Since then fossil fuel subsidies have received attention in the work of various international bodies including the OECD, IEA and the IMF; and groups like the Friends of Fossil Fuel Subsidy Reform, the G20, APEC, the V20, the Pacific Island Forum Leaders, and the G7 have issued statements calling for the phase out of inefficient fossil fuel subsidies.

In 2015 Leaders from all UN countries endorsed the need for fossil fuel subsidy reform in Sustainable Development Goal 12.C and the UN Secretary General has continuously highlighted fossil fuel subsidy reform as a priority issue for addressing climate change, including at the recent Climate Summit in New York. 

In 2017, New Zealand and eleven other WTO Members delivered a statement at MC11, encouraging the rationalization and phase out of inefficient fossil fuel subsidies that encourage wasteful consumption. 

Globally, countries are subsidising fossil fuel production and consumption to the tune of over US$500 billion annually. Subsidies make greenhouse gas emitting fuels cheaper to produce and buy, acting as an incentive to use and produce more.  Just as trade rules are used in the WTO to address industrial and agricultural subsidies, we think they have an important role to play here also.

Conclusion

To recall again that in 2017, New Zealand and eleven other WTO Members delivered a statement at MC11, encouraging the rationalization and phase out of inefficient fossil fuel subsidies that encourage wasteful consumption.  The statement recognizes that reform needs to take into account the specific needs and conditions of developing countries and minimize possible adverse impacts on development in a way that helps protect poor and affected communities – it is not a ‘one size fits all’ approach.

In line with our strong view that the WTO is ultimately the right forum in which to take action on fossil fuel subsidies, we continue to urge the Membership to open discussions in Geneva. 

More generally, as leaders oversee their domestic implementation of SDG 12, we would suggest there could be common interest in a collective approach to fossil fuel subsidy reform in the WTO – to provide a supportive international context for domestic efforts, in a coordinated and coherent way – and we would like to explore this possibility together.

We are working to renew the statement that was delivered to MC11 at the twelfth WTO Ministerial Conference (MC12) next June.  Our aim is to attract broader support for the statement, with greater regional representation.

In an effort to demonstrate how trade policy can be used to support climate and environmental objectives, the leaders of five countries—Costa Rica, Fiji, Iceland, New Zealand and Norway—today launched an initiative that firmly melds these issues together, with sustainability at its core.

The planned Agreement on Climate Change, Trade and Sustainability (ACCTS) aims to generate momentum toward developing wider, globally agreed solutions to environmental challenges. Negotiations are scheduled to commence in early 2020 among the five-country group and be completed as swiftly as possible, while ensuring a high-ambition outcome.

Under the planned ACCTS, the countries involved would slash barriers to trade in environmental goods and services, phase out their fossil fuel subsidies, and encourage the promotion and application of voluntary eco-labelling programs and mechanisms. The countries envisage ACCTS to be a “living agreement” that can be updated and take on additional issues, as needed.

Environmental goods and services, according to a common definition developed in the 1990s by the Organisation for Economic Co-operation and Development  (OECD) and Eurostat (the EU’s statistical agency), are “activities which produce goods and services to measure, prevent, limit, minimise or correct environmental damage to water, air and soil, as well as problems related to waste, noise and eco-systems.”

Environmental goods include a wide range of products related to clean energy generation, such as wind turbines and solar photovoltaic cells. They can also include products designed to monitor indicators of environmental health or degradation, such as instruments for measuring air or water pollution. These goods can also involve products whose purpose is to rectify environmental harm, such as by treating effluents. Import tariffs are one of the more visible barriers to trade in environmental goods.

Over the past two decades, there have been various efforts to develop multi-country agreements aimed at slashing tariffs on environmental goods. The most recent effort was the proposed Environmental Goods Agreement, a “plurilateral” negotiation among various WTO members aimed at eliminating tariffs on a host of products, which was suspended in 2016. Environmental services, however, have received relatively little attention in major trade negotiating efforts to date, especially after related talks at the World Trade Organization (WTO) under its Doha Round stalled several years ago.

If environmental goods are the hardware for addressing climate change, environmental services are the software that ensures they work as intended. Environmental services include companies that monitor cities’ water supplies to help them identify costly leaks, or those that install solar projects and wind turbines. Barriers to international trade in services typically take the form of obstacles to foreign investment or hindrances to rapid entry. Including environmental services in ACCTS is a notable innovation, one that recognizes the importance of maintaining the synergy between environmental goods and environmental services during the process of trade liberalization.

Applied tariffs on many manufactured goods in Iceland, New Zealand and Norway are already low. However, setting binding ceilings on the potential tariffs they could levy on environmental goods imports would send an important signal: that these countries are willing to limit their policy space in exchange for giving environmental goods producers and exporters in the ACCTS countries the certainty they need to make long-term business decisions. This, in turn, could help increase the uptake of environmental technologies, reduce the cost of environmental protection and help improve the competitiveness of cleaner energy technologies vis-à-vis fossil fuels, which are generally subject to low import barriers.

Fossil fuel subsidies encourage more fossil fuels to be produced or consumed. They result in higher emissions of climate-altering greenhouse gases but also of local pollutants, such as lung-clogging airborne particulates. They also cost some countries billions of dollars that could be spent on social needs, such as healthcare or education. Ending fossil fuel subsidies would improve the competitiveness of cleaner energy technologies and free up funds that could be repurposed to help in meeting the Sustainable Development Goals.

Both the Group of Twenty (G20) and the Asia-Pacific Economic Cooperation (APEC) regional forum pledged 10 years ago to “phase out over the medium term inefficient fossil-fuel subsidies that encourage wasteful consumption.” But the medium term is upon us, and subsidies have not been phased out. There is now growing demand to move beyond these voluntary pledges to mutually binding commitments.

Voluntary eco-labels are, in a way, the flip side of the coin. They are generally seen in a positive light, as they inform consumers about the environmental credentials of products. But they are open to manipulation and can discriminate against some products on the basis of arbitrary or unfair criteria. “Food mile” labels, for example, look at the distance between production and consumption, but not the emissions generated across the product’s life cycle, including through its production, packaging and method of transport.

The WTO has established a “Code of Good Practice for the Preparation, Adoption and Application of Standards” (Annex 3 of the Agreement on Technical Barriers to Trade), which covers standards developed by both governments and private entities. Private standard-setting bodies are encouraged to notify their adherence to the code on the WTO-ISO Standards Information Gateway. To date, few non-governmental standard-setting bodies have. Collaboration across countries on their design, use and promotion could make eco-labelling programs and schemes far more effective, sending clearer signals to consumers of their environmental impact, which in turn could incentivize production of more sustainable goods.

With slow global progress on these issues, why might we be optimistic that the ACCTS will succeed? The five countries have different perspectives, come from a mix of world regions and are at different levels of economic development. However, their participation in other negotiations on trade and environmental agreements points to areas of consensus, and the ACCTS is a prime opportunity for this coalition to take a leadership role in this area and to inspire others to do the same.

Starting small, with just five countries, is a deliberate choice—although others will be welcome to sign on in future. The ACCTS countries plan to extend their concessions on environmental goods and services to all WTO members, that is to say, on a most-favoured nation (MFN) basis.

In the trade community, this approach is novel. In previous plurilateral agreements involving tariff concessions, such as the WTO’s Information Technology Agreement (ITA) and the subsequent ITA-II, the agreements were concluded only once the parties had accounted for a critical mass (e.g., 90 per cent) of global trade in the products involved. This was important for them in order to avoid the “free-rider” problem.

By contrast, the ACCTS countries have agreed to dispense with the critical-mass requirement, in a landmark move in trade rule-making that shows their commitment to achieving positive environmental outcomes and not just improving export opportunities.

In effect, the parties are saying: we are not looking at this agreement simply to boost trade flows;  we believe it is the right thing to do for the environment. To the larger group of WTO members, it also says: we are not going to just sit here and wait for you to act. We are prepared to be proactive and ambitious.

Given that other, larger trade negotiating efforts have stalled at the multilateral and plurilateral levels, we believe the world should welcome this new initiative. If the ACCTS members can deliver innovative and meaningful outcomes at the interface of trade and the environment, it could serve as a trailblazer agreement that other WTO members could work to join in the future if they are able to meet the required commitments and disciplines, with the potential for global impact that will benefit us all.

By Ronald P. Steenblik and Susanne Droege.

Ronald P. Steenblik is a Senior Fellow at the International Institute for Sustainable Development. Susanne Droege is a Senior Fellow at the German Institute for International and Security Affairs.

Laura Merrill , Franziska Funke

September 2019 marked ten years since the Group of 20 (G20) committed to “Rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption” as part of the Pittsburgh Summit in 2009. Very little has changed since then, despite urgent calls for action on climate change in the lead up to and at the 2019 UN Climate Action Summit, from voices representing the youngest advocates (Greta Thunberg explained how we spend much more on fossil subsidies than on nature based solutions) to the largest global organization (António Guterres did not mince his words when opening the Summit stating, “The biggest cost is subsidizing a dying fossil fuel industry, building more and more coal power plants, and denying what is plain as day. That we are in a deep climate hole and to get out, we must first stop digging”). G20 country action on subsidies still appears as words on the page, the absence of commitments, and certainly no clear, concrete plans to phase-out subsidies once and for all. This has got to change.

Currently, G20 countries still subsidise coal, oil and gas to the tune of around USD 150 billion annually (for both production and consumption subsidies). During the Climate Action Summit, New Zealand’s Prime Minister Jacinda Ardern did not hesitate to call it out as it is: “Despite commitments to phase out such subsidies by groups like the G20 and APEC, we are still struggling to see concrete action. It is time to do things differently.”

The pace of change is glacial, and in the meantime glaciers have melted. The process to try to move the G20 forward on this issue has been via peer review of fossil fuel subsidies. China and the US jointly set the scene by publishing peer reviews of their subsidies in 2016 – seven years after the G20 commitment was made. Since then, the heads of both countries have changed, Obama to Trump, and Jintao to Jinping. A spirit for reform of subsidies and working together on climate change has been replaced with a very different dynamic today.

In 2016, the US identified USD 8.2 billion of subsidies but did not commit to a phase-out plan, repeatedly highlighting that “the US Congress must pass enabling legislation for this proposal to become law.” Research in 2017 found that, for the US, fossil fuel subsidies and preferential tax rates are the reason why half of all new investments in oil are profitable in the first place. President Trump has made it considerably easier for fossil fuel investors to undertake new drilling projects. US tax reform has further advantaged fossil energies over renewables, by scrapping subsidies for green energies while leaving those for the fossil sectors largely untouched. Overall progress on decreasing public finance for fossil fuels within G7 countries placed France first, and the US last.

The 2016 review from China listed subsidies worth USD 14.5 billion and included a reform plan and timeline. Since then China has continued to undergo petroleum pricing reforms reducing central government outlays by 50% between 2014 and 2017. Subsidies to coal still persist: support for domestic coal plants is largely via state-owned enterprises, and amounts to USD 7.6 billion per year (2016-2017 average). However, China’s 13th Five Year Plan (2016-2020) included a USD 14.5 billion fund for employment restructuring in coal areas, and plans to reduce coal consumption to 58% of total energy consumption or below by 2020. Shale oil benefited from a resource rent break of 30% in 2018, and shale gas has also benefitted from subsidies totaling USD 1 billion, although with plans to phase these out.

In 2017, Germany and Mexico published peer reviews. Mexico identified ten subsidies worth USD 2.6 billion in 2016. Two out of these ten subsidies have already been phased out as part of the large energy reforms that the country is carrying out. Germany identified 22 measures that favor fossil fuels in the form of tax breaks and direct budgetary transfers, totalling USD 17.6 billion in 2016. Two of these 22 measures will be phased out in 2018 as part of the existing EU-wide commitment to end subsidies to hard coal.

In 2019, Indonesia and Italy published reviews. Whilst there was unanimous praise for Indonesia’s reform of its petroleum fuel and electricity pricing over the 2014-2017 period, it is also the case that subsidies have crept back with domestic prices maintained whilst global oil prices rise. For Italy’s 39 identified subsidies to fossil fuel production or consumption, accounting for more than EUR 13 billion in 2016, nearly all of the measures (35 out of 39) were preferential tax treatment.

Argentina and Canada announced reviews of subsidies in 2018, but they have yet to be published. France and India will participate in a peer review together, as was announced as part of Prime Minister Modi’s visit to the French capital last August.

A few notable reforms have taken place since the G20 decision ten years ago. In December 2015, Saudi Arabia significantly increased prices for nearly all fossil fuels (although prices remain low in comparison to global levels), with plans to phase-out fossil fuel subsidies entirely by 2020. However, this date has now been postponed until 2025. Between 2014 and 2017, India cut subsidies to oil and gas by 76 %, from USD 26.1 billion to USD 5.5 billion, thanks to reform efforts combined with a decrease in international oil prices. Indonesia completed its reform of gasoline and diesel subsidies, saving up to USD 15.5 billion in 2015. But prices were last locked in 2019 in the leadup to recent presidential elections, and the country has continued to invest in coal power plants. Increasing oil prices are now testing the governments’ abilities to maintain their earlier reforms.

Civil society groups, including IISD, have consistently called on the G20 to “urgently set a timeline for the complete and equitable phase-out of FFS, leading with the phase-out of fossil fuel production subsidies by 2020, as a minimum”; and “establish a timeline and clear guidance for the completion of peer review of FFS by all G20 members to enable equitable phase out of all FFS.” At the current pace of change, however, it would take until 2025 for the completion of reviews.

While countries inch forward under the G20 decision, the international community has also nudged itself forward through decisions taken in other processes. More ambitious reform timelines for the actual phase out of subsidies exist for both the EU (2020) and the G7 (2025). The SDGs include target 12.c to “Rationalize inefficient fossil-fuel subsidies that encourage wasteful consumption by removing market distortions,” by 2030 at the latest. And, under the Paris Agreement on climate change, countries are to develop increasingly ambitious Nationally Determined Contributions (NDCs), for which fossil fuel subsidy reform could be a key component.

Reviews only matter when followed by actions. And the need for action has never been more urgent. The Intergovernmental Panel on Climate Change (IPCC) and climate scientists warn that we must act now in order to keep global warming below 1.5°C above preindustrial levels. Subsidy reform is estimated to be able to reduce 6-8% of global greenhouse gas (GHG) emissions by 2050. At the same time, subsidy reforms could free up significant resources that could be channeled back into government programmes, which would be necessary to mitigate the impacts of rising energy prices on vulnerable parts of the population and to help smooth reforms, but that could also be spent on accelerating a clean energy transition (such as through swaps).

In the lead up to the Climate Action Summit and throughout UN Summits Week 2019, the Global Subsidies Initiative of IISD along with the Friends of Fossil Fuel Subsidy Reform supported a campaign to raise the issue on the agenda with high-level champions from business, such as the CEO of Aviva, and government, such as Prime Minister of New Zealand. The time to review fossil fuel subsidies and to reform them is now. Find out more here and help spread the word.

This article was originally published by SDG Knowledge Hub