25 May—Bonn, Germany—Over the last two weeks, countries met in Bonn to discuss the implementation of the 2015 Paris Agreement on Climate Change. Fiscal instruments—such as fossil fuel subsidy reform, fuel duty and carbon taxation—were raised throughout the meeting, which was supported by the Global Subsidies Initiative of IISD and the Friends of Fossil Fuel Subsidy Reform (Friends of FFSR).

Last year, the Friends of FFSR, along with research from the Nordic Council of Ministers, identified the need for a Technical Experts Meeting as part of the UNFCCC process on how to utilize fossil fuel subsidy reform to finance sustainable development. It also encouraged increasing capacity building on fiscal instruments (i.e., fossil fuel subsidy reform or carbon pricing) that government policy-makers can use to create an energy policy environment that incentivizes and guides consumer and business behaviour to remain within the global 1.5° C warming target.

The need for capacity building on such fiscal instruments is necessary, not only in light of the emissions mitigation potential from these tools (a combination of both subsidy reform and correct pricing of carbon could reduce global emissions by 23 per cent by 2050 compared to BAU), but also in terms of the financing needs that are required to implement the Paris agreement.

This is particularly the case for adaptation. The Paris agreement aimed to mobilize USD 100 billion a year in climate finance by 2020. A recent report by UNEP, launched at the Bonn conference, identifies the cost of adapting to climate change could reach up to USD 280 and USD 500 billion per annum by 2050. This is well above current levels of donor adaptation funds, estimated at USD 22.5 billion in 2014. In comparison, in 2014 consumer subsidies to fossil fuels (USD 493 billion) were 22 times larger than current adaptation funding. Furthermore, revised research across 20 countries continues to find that fossil fuel subsidies are an extremely inefficient way of providing welfare and benefits to poor households.

To increase capacity on the issue, a Technical Experts Meeting was held on Friday 20 May to investigate the social and environmental costs of carbon. The issue of Fossil Fuel Subsidy Reform was explained by Rebekah Riley of New Zealand, on behalf of the Friends of FFSR. Riley noted that now was the time for phasing out fossil fuel subsidies given the low oil price and encouraged countries to join the international Communiqué on the issue. The Communiqué has been endorsed by 40 countries and around 15,000 businesses and many NGOs, calling for an end to fossil fuel subsidies. Saïd Mouline, Morocco (pictured, right) explained how the country had phased out subsidies to diesel, and switched diesel pumping systems for solar pumps with the support of national banks and the government. Morocco was the first country to include this fiscal instrument within its ambitious INDC in Bonn last year and is a supporter of the Communiqué.

On Tuesday 25 May, the Friends of FFSR and IISD hosted a side eventon the issue of financing adaptation from fossil fuel subsidy reform, including a live webcast. Around 60 participants attended from 25 countries. Ambassador Mark Sinclair of New Zealand (member of the Friends) chaired the discussion and raised the Communiqué as an opportunity for countries to show support. Ms. Andrea Meza, Director, Climate Change, Ministry of Environment and Energy, described how Costa Rica (member of the Friends) had undergone subsidy reform and ring-fenced resources from its fuel duty toward payment for ecosystem services. Costa Rica is currently considering opportunities for financing public transport from an emissions tax, both to raise finance and to discourage the use of particularly polluting heavy goods vehicles. Anne Hammill, IISD, talked about theIISD NAP network and adaptation financing in general. Laura Merrill, Global Subsidies Initiative of IISD, explained that removal of fossil fuel subsidies and the correct taxation of fossil fuels could not only reduce emissions by 23 per cent by 2050, cut air pollution deaths by 55 per cent, but also raise global revenues of USD 3 trillion or 2.6 per cent of global GDP per annum. Interventions from representatives from Nigeria, Viet Nam, Ireland and Albania enabled a broad discussion around opportunities, as well as possible approaches that countries could take for reform—proposing reform at a regional level, for example.

Tuesday evening, the Friends of FFSR hosted a meeting for the Francophonie countries on the topic, supported by the Swiss and showcasing the work of the Friends of the Communiqué. Frédéric Gagnon-Lebrun, IISD, described the situation across various French-speaking countries: fossil fuel subsidies stood at roughly USD 33 billion, or an average of 1.8 per cent of GDP in 2015. Opportunities abound for financing from savings, along with the co-benefits of emissions reduction and redirection of investment toward renewables and energy efficiency.

Subsequently, countries discussed the difficulties in phasing these subsidies out. GSI recommend a three-pillared approach drawn from the GSI guidebook to reform: getting energy prices right, communicating reforms, and mitigation of any negative impacts.

Friends of Fossil Fuel Subsidy Reform and international Communiqué: here
Video summary: here

Live UNFCCC webcast of the full side event: here
Poster and Photos from the side event: here
Further reading: Tackling Fossil Fuel Subsidies and Climate Change: Levelling the Energy Playing Field

All photos are credited to IISD Reporting Services.