Three years after the Paris Agreement was adopted, it faces a major test: the first stocktake of collective action.
Dubbed the Talanoa Dialogue and drawing on Pacific storytelling traditions, this could be – as the Fijian organisers hope – a springboard for raising ambition. Or it could be a talking shop.
In the next two weeks in Bonn, national negotiators will meet assorted academics, campaigners and lobbyists in parallel sessions to exchange ideas. They have been asked to answer three questions – the third being the hardest and most important: Where are we? Where do we want to go? How do we get there?
More than 400 submissions have been made, which give a flavour of the discussions to come. Come the COP24 climate summit in Katowice this December, these will bubble up to the political level.
Are fossil fuel subsidies necessary to achieve the rapid progress needed for universal energy access by 2030? Can USD 360 billion spent on fossil fuel subsidies in 2016 be redirected to finance energy access? How can rural areas get support for energy access? What are the barriers for poor households to access electricity connections and cooking equipment? What do women need and want? How do politics influence fossil fuel subsidy decisions?
These questions were at the centre of the side event organized by the Friends of Fossil Fuel Subsidy Reform at the SDG 7 Conference in Bangkok, on February 21, 2018. Moderated by Hans Olav Ibrekk, Policy Director for Energy and Climate in the Norwegian Ministry of Foreign Affairs, a panel of experts and an engaged audience discussed how fossil fuel subsidy reform can benefit energy access.
Ambassador Peter Rider highlighted the international work by New Zealand and the Friends group to promote fossil fuel subsidy reform. Fossil fuel subsidy reform is supported by commitments under the G20 process and the Asia-Pacific Economic Cooperation (APEC), the SDGs and other forums. In 2017 the issue was also included in the trade debate, when 12 economies joined a Ministerial Statement calling for fossil fuel subsidy reform at the 11th Ministerial Conference of the World Trade Organization (WTO). If implemented well, fossil fuel subsidy reform can deliver a “triple win” for sustainable development, climate change and trade.
Global fossil fuel subsidies, with USD 260 billion for consumer subsidies and about USD 100 billion for subsidies to producers per year, are more than six times higher than the USD 52 billion needed per year to achieve universal energy access to electricity or the USD 61 billion needed in total for universal access to clean cooking fuels. I presented on behalf of of IISD’s Global Subsidies Initiative and highlighted how this can hold back energy access. In many countries, fossil fuel subsidies place a heavy burden on national budgets. This can be a major barrier for investments in energy infrastructure, given that 37 per cent of financing for energy access comes from developing country budgets. Subsidized electricity tariffs hold back utilities that are struggling to service their existing customers and might act as a barrier to extend the grid to rural areas. At the same time, this presents an opportunity: reforming fossil fuel subsidies can free large sums that can be reinvested in infrastructure. In Indonesia, reforms of gasoline and diesel subsidies freed USD 15 billion for reinvestments in regional development, social welfare and infrastructure.
Anna Zinecker, Global Subsidies Initiative, IISD; Hans Olav Ibrekk, Norwegian Ministry of Foreign Affairs; Peter Rider, New Zealand Ambassador to Thailand; Sheila Oparaocha, International Coordinator, Energia
On the household level, energy access has three main barriers: affordability, availability and awareness. Research has consistently shown that fossil fuel subsidies are an ineffective tool to make fuels more affordable for poor households. Most subsidies are consumed by wealthier segments of the population. For example, in Indonesia 70 per cent of liquefied petroleum gasoline (LPG) subsidy spending benefits households classified as non-poor. Subsidies mostly reach urban households, while rural households either cannot get access to the fuels or pay high mark-ups. Even massively subsidizing cooking fuels cannot compete with collected biomass, as long as women’s time is considered “free.” Fuel subsidies do not solve the issue of availability, especially in rural areas. They can even be counterproductive, as smuggling and diversion of cheap fuels can lead to constraints in supply and insufficient revenues are hampered by investments in distribution. Providing subsidies does not address awareness issues surrounding fuel options. I therefore recommended to remove and reinvest subsidies as much as possible and to target subsidies to poor households, using cash transfers and connection support rather than fuel subsidies. A “swap” to cleaner and healthier alternatives can often present a better solution.
Sheila Oparaocha, Energia, made the case for adopting a gender lens when discussing energy sector reform. Research on gender and energy sector reform supported by Energia points to the importance of both electricity and cooking fuels, especially LPG, for the health and welfare of women. Given that 3 billion people still live without access to clean cooking fuels, she made a case for reforming subsidies to benefit the poorest. Better alternatives like solar lighting instead of kerosene should be promoted. Targeting of subsidies should have women as central actors, for example through directing the support to women’s bank accounts and giving women ownership of the technical equipment. She also pointed to large gaps in awareness-raising and research, and called for investments in health and safety of equipment, as well as more convenient and better adapted technical solutions like smaller gas cylinders.
Abhishek Jain, Council on Energy, Environment & Water (CEEW) discussed how India is reforming fossil fuel subsidies to achieve its ambitious energy access strategy. India is implementing large-scale programs to accelerate the uptake of LPG for cooking. Connection subsidies have supported 30 million connections through cash transfers to women’s bank accounts. Nevertheless, LPG consumption and the subsidies linked to it are heavily skewed in favour of higher income groups and urban areas. Ongoing efforts are targeting fuel subsidies to lower-income households. In 2014/15, the subsidy shifted from the fuel price to cash transfers to reduce leaking. After a “nudging” approach through the Give It Up campaign, the next step is to refine the list of entitled households through matching with other databases. India is also a frontrunner in exploring opportunities to replace kerosene by solar lighting, an option that is financially viable. The financial health of distribution companies was mentioned as a third issue that prevents investment in extending the grid to rural areas.
The ensuing discussion centred around the political difficulties in reforming and targeting subsidies once they are established and the need to take into account the political economy of subsidies. Viable solutions proposed include solar lighting solutions, investments in social safety nets and choosing the right timing for reforms. A combination of good strategies on the technical level and political leadership was seen as essential for successful and long-lasting change. The need to be “fuel-agnostic” was also raised: choice is important, and support schemes should embrace the variety of technologies for energy access, including sustainable biomass solutions and emerging technologies.
At the High-Level Political Forum in July 2018, SDG 7 on energy and SDG 12 on sustainable consumption and production will be up for their first review under the heading “Transformation towards sustainable and resilient societies.” Fossil fuel subsidy reform is included as a means of implementation in SDG 12. There is great opportunity, but also great need, for bringing these topics together to reach universal energy access faster, and to finance and accelerate the transition to sustainable energy systems.
For the first time ever, the reform of fossil fuel subsides (FFS) was officially brought into the World Trade Organization (WTO) with the Ministerial Statement WT/MIN(17)/54 presented at the WTO’s Eleventh Ministerial Conference (MC11) in Buenos Aires on December 11 2017.
The statement, presented by a group of 12 WTO Members, called on the WTO to “achieve ambitious and effective disciplines on inefficient fossil fuel subsidies that encourage wasteful consumption including through enhanced WTO transparency and reporting that will enable the evaluation of the trade and resource effects of fossil fuel subsidies programmes.” The endorsing members were Chile; Costa Rica; Iceland; Liechtenstein; Mexico; The Republic of Moldova; New Zealand; Norway; Samoa; Switzerland; The Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu; and Uruguay.
The Ministerial Statement was presented at an event by the Friends of Fossil Fuel Subsidy Reform, which was attended by a considerable number of ministers and high-level officials and addressed the linkages between FFS and trade. The event included interventions from Kai Mykkänen, Minister of Trade and Development from Finland; Vangelis Vitalis, Deputy Secretary Trade and Economic from New Zealand; Jean Baptiste Lemoyne, French State Secretary at Ministry of Foreign Affairs; Oscar Stenström, Swedish State Secretary to the Minister of EU Affairs and Trade; Alvaro Cedeño Molinari, Costa Rica Ambassador to the WTO in Geneva; Peter Wooders, Director of the Energy Program at IISD; and David Laborde, Senior Research Fellow at IFPRI. The panel was moderated by Soledad Aguilar, Director of Climate Change at the Argentinian Ministry of Environment and Sustainable Development.
The presentation of the Ministerial Statement also included words from David Parker, New Zealand’s Minister for Trade and Export Growth; Hon. Lautafi Purcell, Samoa’s Minister for Public Enterprises; John Fonseca, Costa Rica’s Vice-Minister of Foreign Trade; Ambassador Markus Schlagenhof from Switzerland; and WTO Deputy Director General Alan Wolff. Delegations from the endorsing economies took part in the presentation.
Why should the WTO consider FFS?
FFS encourage wasteful consumption, aggravate local pollution, contribute to climate change, disadvantage clean energy technologies and drain scarce public resources that could be better directed to other sustainable development goals. As Ambassador Cedeño from Costa Rica indicated in the panel: by subsidizing fossil fuels, “we are subsidizing the [climate change] crisis.”
In addition to the negative environmental and economic effects of FFS, by lowering the price of the production and consumption of fossil fuels, FFS distort global markets, create illicit trade flows and affect technology transfer, which are classic trade issues.
Deputy Secretary Vitalis from New Zealand discussed three main reasons of why the WTO can play a very important role in addressing FFS:
First, the Preamble that established the WTO in 1995 recognized the need for “the optimal use of the world’s resources in accordance with the objective of sustainable development.”
Second, FFS have transboundary effects, affecting environment and development globally and impacting trade flows.
Third, because the WTO is “the one place where we have enforceable disciplines” that apply to all of its members and that can lead to meaningful reform.
What would it mean for trade and development?
All the panelists agreed that trade and the WTO have important roles in FFS reform and insisted that trade should not be considered a disabler of sustainable development. On the contrary, “it is possible to have growth and CO2 emissions reductions at the same time,” as Secretary Stenström indicated, pointing to the successful Swedish example. Sweden demonstrated that social and economic development is possible with a combination of trade, FFS reform and innovation, as well as the engagement of the local communities.
New Zealand Trade Minister David Parker said that “phasing out fossil fuel subsidies will offer huge opportunities for promotion of sustainable development, renewable energy, removal of trade distortions and the reduction of global warming.”
And what is next?
The presentation of the Ministerial Statement was a very important first step to address FFS at the WTO, and opened the need to think further on how to use WTO’s existing mechanisms. Research shows some opportunities that range from promoting technical assistance and capacity building to including FFS in the Agreement on Subsidies and Countervailing Measures as prohibited subsidies.
Furthermore, bilateral and plurilateral trade agreements are important tools to address FFS reform. Economies can push concrete articles and demands in trade agreements, as Minister Mykkänen emphasized. In the same line, Secretary Lemoyne reminded of the French initiative at the European Union proposing to support multilateral efforts in the discussion of disciplines related to FFS in trade. The initiative was part of the broader Action Plan launched on October 25 to support the Comprehensive Economic and Trade Agreement between Canada and the European Union from an environmental perspective.
Which way to follow depends on several factors. Peter Wooders (IISD) indicated: “We need more complete data but also debate as to what constitutes a producer subsidy, taking into account countries’ legitimate concerns on competitiveness.” Regarding subsidies to the consumption, he added: “speeding up consumer subsidy reform is more a question of WTO playing a role in a wider, more mature debate and support structure.”
Fossil fuel subsidy reform was high on the agenda at the UN Climate Change Conference of the Parties (COP 23). At several events, experts and political leaders sent a clear signal to move fast to reform fossil fuel subsidies, which stood at over USD 425 billion in 2015.
Photo credit: ENB
Countries also reported on ongoing reforms around the world that confer substantial benefits to the population. Countries with successful reforms are investing billions of savings into more productive sectors like infrastructure, health, renewable energy or education. At the same time, it was also clear how pervasive subsidies still are, and how much tenacity and political will is needed to deliver reform.
The Friends of Fossil Fuel Subsidy Reform organized a ministerial-level side event on November 13 that highlighted the opportunities that reforming subsidies and taxing fossil fuels offer for attaining the Sustainable Development Goals (SDGs) and implementing the Paris Agreement.
Photo credit: ENB
Kimmo Tiilikainen, Minister of Energy and the Environment, Finland, pointed to existing domestic taxes based on fossil fuels as well as legislative efforts to phase out coal in energy production and incentivize the use of electric vehicles.
Photo credit: ENB
Eva Svedling, State Secretary for Climate in the Swedish Ministry of Foreign Affairs, highlighted Sweden’s efforts to become one of the first fossil fuel-free welfare countries putting a price on carbon and redirecting investment flows. She emphasized how international cooperation can provide support for these processes.
Dr. Edgar E. Gutiérrez-Espeleta, Minister of Environment and Energy, presented Costa Rica’s country-driven reform processes for going fossil fuel-free that free up fiscal space for green national development. For example, a carbon tax on fuels to compensate forest owners for climate mitigation and biodiversity yields USD 25 million annually. As the country’spower sector is almost 100 per cent renewable-based, Costa Rica is now starting to transform the transportation sector. Dr. Monica Araya, climate advocate and founder of Costa Rica Limpia, pointed to the need to make subsidy reforms work for people and win the popular support that is needed to overcome resistance from entrenched economic interests.
Thorsten Herdan, Director General for Energy Policy, Ministry for Economic Affairs and Energy, Germany, made a strong case for putting a price on carbon as the only way to implement the Paris Agreement. Carbon pricing can create a market “where the price tells the truth” in order to redirect investment flows. He also pointed to the need for comprehensive approaches that take into account groups and industries that stand to lose from a transition.
Aupito William Sio, Minister for Pacific Peoples, New Zealand, closed the event with a plea to use the momentum from initiatives like the Fossil Fuel Subsidy Reform Communiqué, peer-reviews under Asia-Pacific Economic Cooperation (APEC) and G20, and initiatives at the next World Trade Organization (WTO) Ministerial Conference in Buenos Aires. He invited everyone to join the canoe and paddle in the same direction.
A video of the side event is available here. The full event can be watched here.
On November 9 Laura Merrill, IISD’s Global Subsidies Initiative (GSI), supported a side event entitled Supporting Implementation of the NDCs: The role of carbon pricing and fiscal policies hosted by UN Environment and the Green Fiscal Policy Network. She presented GSI research on the inclusion of fiscal policies within Nationally Determined Contributions (NDCs), the climate and fiscal benefits of fossil fuel subsidy reform and opportunities to finance sustainable development. The event included a presentation from Parjiono Ciptowidarto, Director for Climate Finance and Multilateral Policy, Ministry of Finance, Indonesia, on the huge investments Indonesia has made into infrastructure and poverty reduction post-reforms. The event was chaired by Joy Kim of UN Environment.
Facilitative approaches and national reform efforts for fossil fuel subsidy reform were discussed at the German Pavillon on November 15. Moderated by Peter Wooders of GSI, speakers from the German Ministry of the Environment, as well as the Ministry of Economy and Energy, Ministries of Finance in both Indonesia and Mexico, World Bank and the OECD pointed out how peer review can shine a light on existing subsidies and open up an internal discussion between ministries that can engender important steps for reform. They also pointed to the need to work with groups that stand to lose from reforms and use the fiscal space to invest to reinforce the social impact.
The Climate and Health Summit, organized by the Global Health Alliance, WHO, and Health and Environment Alliance (HEAL) on November 11, put a spotlight on how reforming fossil fuel subsidies can benefit our health. Anna Zinecker of GSI and Vijoleta Gordeljevic from HEAL led two roundtables that discussed the health impacts of fossil fuel subsidies and how the medical community can contribute to build momentum for reform and reallocate funds to the health sector.
Switzerland, a member of the Friends of Fossil Fuel Subsidy Reform, hosted an informal dinner for Francophone speakers prior to COP 23 to discuss how fossil fuel subsidies could be reformed to benefit their economies. This was followed up on November 11 with a joint side event with Energies 2050, where Gabrielle Siegrist from Switzerland and Anna Zinecker from GSI presented how fossil fuel subsidy reforms can simultaneously meet environmental, economic and social goals.
On November 15 Peter Wooders launched a new report on fossil fuel subsidies and gender in Indonesia as part of an IISD side event on gender. The report finds that subsidies and reform efforts for women who use LPG for cooking and the poor need to be better targeted. The panel also included Sheila Oparaocha of ENERGIA who is working with GSI on this research across four countries.
Further reporting and photos of the Friends of Fossil Fuel Subsidy Reform event on November 13 can be found here. Reporting and photos of the November 15 IISD event from IISD Reporting Service’s Energy Negotiations Bulletin can be found here.
A video on Financing Paris and the SDGs through fossil fuel subsidy reform and taxation can be found here.
The report on fossil fuel subsidies and gender in Indonesia available here.
