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Fossil fuels are the primary cause of human-induced climate change, causing pollution and premature deaths and leading to other negative externalities, such as urban congestion and biodiversity loss. Fossil fuel subsidies are often intended to protect the poor, but most subsidy benefits tend to be captured by higher-income households, exacerbating inequality. Governments may also be constrained by subsidies afforded to the electricity sector that have similar fiscal and economic impacts but deter investments in renewable energy sources, which can be a significant growth dampener.

Due to the current geopolitical and energy crisis, many countries have stalled progress on fossil fuel subsidy reform or even reimplemented fossil fuel subsidies. Despite fossil fuel subsidies undermining the credibility of public climate commitments, reducing perceived energy transition risks and limiting financial sector action, governments are using tax breaks, price caps, and other measures to help consumers cope with the surging energy prices.

As coal and natural gas-fired generation determine peak electricity prices, power costs are also reaching new heights in many parts of the world. These developments call for prompt action to mitigate immediate impacts while adapting to climate-resilient, sustainable energy systems.

At COP 27, the United Nations Development Programme is convening a dialogue with the International Institute for Sustainable Development and the Friends of Fossil Fuel Subsidy Reform. Currently, there is “no single recipe” for successful subsidy reform. This side event will bring together governments and experts to discuss avenues for collective action and consider strategies for addressing the energy price crisis while also working toward the long-term fossil fuel subsidy reform and clean energy transition goals that will strengthen the global resolve for the Paris Agreement.