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

It’s been 10 years since the G20 committed to phasing out inefficient fossil fuel subsidies.  

Still, across the globe, these subsidies remain high, with spending estimated at US$526 billion in 2018.  

Our future is at stake. The world is facing a climate emergency. Maintaining and advancing fossil fuel subsidy reform is a key mechanism to meeting the Paris Agreement, and has never been more urgent. 

HELP SPREAD THE WORD ABOUT THE NEED FOR FOSSIL FUEL SUBSIDY REFORM! 

Watch these video clips and share with your network using the hashtag #stopfossilsubsidies

5 Reasons to Stop Fossil Fuel Subsidies

“Invest in our future”

“We are in a battle for our lives”

“End the free ride”

“Makes no sense”

“No more business as usual”

“It has to stop”

“The time is now” 

“Stop rewarding emissions”

“Must not destroy civilization”

New York, 10 July 2019 – High-Level Political Forum side event explored FFS reform as the missing piece of the climate change challenge. Aiming at more effective implementation of the Paris Agreement, the event highlighted how FFS contradicts the spirit of a number of SDGs, including SDG3 (Health) and SDG7 (Energy), and explained how their removal may contribute to reach SDG13 (Climate Action) and to achieve the goals of the 2030 Agenda.

Read full article here

Secretary-General’s remarks to Climate Summit Preparatory Meeting:
“(…) My message is clear. Solutions exist. First, let’s shift taxes from salaries to carbon.  We should tax pollution, not people. Second, stop subsidizing fossil fuels. Taxpayers’ money should not be used to boost hurricanes, spread drought and heat waves, and melt glaciers. Third, stop building new coal plants by 2020. We need a green economy, not a grey economy.”

Read full speech here

The Global Subsidies Initiative along with the Friends of Fossil Fuel Subsidy Reform (FFSR) and the German Ministry of the Environment, Nature Conservation and Nuclear Safety (BMU) launched a new report on greenhouse gas mitigation opportunities from fossil fuel subsidy reform at Bonn Climate Sessions. The research modelled the possible impacts by 2025 of policy changes across 26 countries. GSI–IISD 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 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.

Read full article here

Read Full Post Here

KATOWICE, December 11, 2018 – A cohort of government officials kick off a virtual, international hub today dedicated to understanding fossil fuel subsidies in order to accelerate their phase-out and meet the Paris Agreement.

Officially launched at COP 24 in Poland, the Friends’ Network – led by the Friends of Fossil Fuel Subsidy Reform – brings together 20 country representatives from around the world to share lessons, knowledge, and experiences for successfully implementing fossil fuel subsidy reform (FFSR) by encouraging innovative, tried and tested solutions. Hosted by IISD’s Global Subsidies Initiative, participants took part in five virtual round tables during the past year addressing a variety of challenges related to the reform and taxation of fossil fuels.

“Subsidies to fossil fuels still remain incredibly high at around 400$ billion. These subsidies take us in the opposite direction of the Paris Agreement,” said Kimmo Tiilikainen, Minister of Environment, Finland. “The resources used for fossil fuel subsidies should be redirected to supporting access to clean energy and enabling a fair transition”.

According to the Intergovernmental Panel on Climate Change,temperatures are on track to rise above 1.5degC – the internationally agreed threshold set by scientists to limit climate change impacts. Figures from the International Energy Agency also show an increase in fossil fuel subsidies in 2017, and a high risk of backsliding on energy sector reforms from previous years.

“We must learn from each others’ successes, to enable smooth policy changes and reforms towards adequate pricing of fossil fuels, taking into account the needs of all, with special consideration of the most disadvantaged groups,” said Marc Chardonnens,State Secretary for the Federal Office for the Environment, Switzerland. “This Network shares lessons between countries and to identify, what works, and what doesn’t.”

Eliminating fossil fuel subsidies by making finance flows consistent with low greenhouse gas emissions is a key area outlined in the Paris Agreement that could help contain global temperature rise. Emission reductions from FFSR alone represent a quarter of all countries pledged efforts towards the Agreement.

The momentum to accelerate the ongoing energy transition is clear, and as governments work to phase out fossil fuel subsidies, sharing experiences between countries is more important than ever.

“Experiencing price increases in Zambia has been tough especially for low income earners who have felt the impact through a higher cost of living,” said Kangwa Muyunda, Assistant Policy Analyst with CUTS Lusakain Zambia. Support like this helps governments to do the right thing and invest in social safety nets and low-carbon energy with the savings from reforms.”

For media inquires,please contact Ziona Eyob, Media and Communications Officer zeyob@iisd.ca

About the Friends of Fossil Fuel Subsidy Reform: Set up in June 2010, the “Friends” is an informal group of non-G20 countries aiming to build political consensus on the importance of FFSR. Members of the group include Costa Rica, Denmark, Ethiopia, Finland, New Zealand, Norway, Sweden,Switzerland and Uruguay. Learn more at www.fffsr.org

About the IISD Global Subsidies Initiative: The International Institute for Sustainable Development (IISD) is an independent think tank championing sustainable solutions to 21st century problems. The Global Subsidies Initiative supports international processes, national governments and civil society organizations to align subsidies with sustainable development. Learn more at www.iisd.org/gsi

2017 was an important year for the linkages between fossil fuel subsidies and trade. The year concluded with the presentation of a Ministerial Statement at the World Trade Organization’s (WTO) Eleventh Ministerial Conference (MC11) in Buenos Aires, endorsed by 12 members. The statement asked to “advance discussion in the World Trade Organization aimed at achieving ambitious and effective disciplines on inefficient fossil fuel subsidies that encourage wasteful consumption.”

As we look to build upon the statement in 2018 and 2019, we see that, at the centre of WTO legitimacy is the notion of “trade impacts.” Policies that have clear and adverse trade impacts find their way onto the WTO agenda, while others struggle. So far, fossil fuel subsidies have struggled to reach the WTO agenda. This is not because there are no trade impacts, nor because they might not be averse, but more because they are unidentified, complex or not easily understood.

To improve our understanding of the trade impacts of fuel subsidies, the Geneva-based Global Subsidies Initiative (GSI) of the International Institute for Sustainable Development (IISD) and the Centre for Trade and Economic Integration (CTEI) of the Graduate Institute for International and Development Studies (IHEID) convened a research workshop on October 5, 2018.

“I am not optimistic. I am not pessimistic. I am determined” – Ambassador Walker

Fossil fuel subsidies have struggled to reach the WTO agenda not only because of a lack of clarity, but also because of differentiated interests between energy importers and exporters. This has caused some pessimism about whether fuel subsidies can ever reach the WTO’s core negotiations. Ambassador Walker of New Zealand opened the workshop by communicating his and others’ determination to advance the need to address fossil fuel subsidies in the WTO. He invited research on trade impacts to facilitate this process.

The first collection of research on trade impacts was provided by both academic and institutional researchers. Researchers affiliated with the Organisation for Economic Co-operation and Development (OECD), the International Monetary Fund (IMF), the World Bank and the United Nations Framework Convention on Climate Change (UNFCCC) presented research on trade impacts, indicating their clear support for the WTO to play a more active role.

In addition, academic researchers from the Oxford Institute for Energy Studies, Victoria University, Columbia University, International Food Policy Research Institute (IFPRI) and the Graduate Institute of International and Development Studies introduced novel academic research into fuel subsidy trade impacts. They suggested the potential of using computable general equilibrium (CGE) models, input–output tables, regression analysis and spatial difference-in-difference models to better unveil clear fossil fuel subsidy trade impacts.

JUST A BEGINNING, A NEW RESEARCH COMMUNITY IS FORMED

There was a consensus among researchers that the trade impacts of fuel subsidies are prolific. The research results from this workshop will be compiled in a special issue of World Trade Review, an independent journal established at the initiative of the Secretariat of the World Trade Organization.

But this is only the beginning. The research consortium identified the need for more modelling to unravel and measure the actual effects on trade. This would include a better integration of the CGE research community. The group suggested beginning with the fossil fuel subsidies with the worst trade impact. They also indicated the desire to complement quantitative research with a political economy angle. Right now, vested interests are keeping fuel subsidies out of the WTO, so it is deemed necessary to understand these interests better.

Finally, this new research community asserts that trade impact work needs to support the SDG 12.c target of fuel subsidy reform. As such, they want to clearly distinguish fuel subsidies according to different categories (e.g., fuel, electricity) and sectors (e.g., industrial energy, producer subsidies). GSI is keen to support this new research community and will integrate their advice into an action plan to reform fossil fuel subsidies within the WTO.

The message is clear. The latest report from the Intergovernmental Panel on Climate Change (IPCC) about the current ambition under the Paris Agreement and Nationally Determined Contributions (NDCs) says the world isn’t doing enough and isn’t doing it fast enough:

Pathways reflecting these ambitions would not limit global warming to 1.5°C, even if supplemented by very challenging increases in the scale and ambition of emissions reductions after 2030 (high confidence). Avoiding overshoot and reliance on future large-scale deployment of carbon dioxide removal (CDR) can only be achieved if global CO₂ emissions start to decline well before 2030 (high confidence). (Summary for Policy Makers, p. 24)

To stand a chance of limiting warming to 1.5 degrees, we need a systems change, and we need it fast. By 2030, global emissions need to decline by about 45 per cent from 2010 levels. Waiting means we will have a high overshoot above 1.5°C, with dangerous consequences.

Limiting the risks from global warming of 1.5°C in the context of sustainable development and poverty eradication implies system transitions that can be enabled by an increase of adaptation and mitigation investments, policy instruments, the acceleration of technological innovation and behaviour changes (high confidence). (Summary for Policy Makers, p. 29)

The global energy system plays a pivotal role. In all scenarios, fossil fuels need to be dramatically reduced. Scenarios show the importance of removing emissions from fossil fuels and industry . This is much higher than the smaller contributions of bioenergy with carbon capture and storage and removals in agriculture, forestry and other land use (see p.19 of the Summary for Policy Makers).

Fiscal policies are another important piece of the puzzle. The IPCC report explains how no single policy, including carbon pricing or fossil fuel subsidy reform (FFSR), will work alone. But fiscal policies such as FFSR or taxation would create the necessary enabling environment (“lubricant”) for other low-carbon policies to take off. The IPCC report highlighted carbon pricing, fossil fuel taxation and FFSR to reduce emissions in Chapter 4, Strengthening and Implementing the Global Response. This includes shifting the finance, putting in place the policies to direct the shift and encouraging populations to respond: low-carbon energy and energy efficiency need to increase.

At the moment, we are still headed in the wrong direction on too many fronts. Research from the International Energy Agency (IEA) estimated that, in 2014, 13 per cent of energy-related carbon dioxide emissions came from subsidized fossil fuels. For these emissions, governments are paying the equivalent of USD 115 per tonne of carbon dioxide emitted in subsidies! This is the opposite of a carbon tax and the equivalent of paying people to smoke. The IPCC report included that “in 2016 only 15% of global emissions are covered by carbon pricing, three-quarters of which prices below 10 USD tCO₂^-1 (World Bank, 2016)” (p. 92). Work from the International Monetary Fund (IMF) is also cited regarding fossil fuel subsidies: “Estimated at 650 billion USD in 2015 (Coady et al., 2017), they represent 25–30% of government revenues in forty (mostly developing) countries (IEA, 2014b)”. (Chapter 4, p.92)

It’s time to turn around quickly. Removing subsidies and taxing carbon can go a long way. Research from earlier this year shows how FFSR, could deliver carbon emission reductions of between 0.5 and 2 Gt, or between 1 and 4 per cent, globally by 2030. This is around a quarter of the combined effort currently proposed by countries for emissions reductions from fossil fuels and industry as part of the Paris Agreement. Like the IMF, this research also found that, without reform, fossil fuel subsidies would reach between USD 550 billion and 970 billion in 2030, or 1 per cent of world GDP. This is a huge lost opportunity for governments. Governments can save money and reduce emissions by removing subsidies to fossil fuels.

Many countries are indeed reforming subsidies. There is an opportunity to include FFSR in the next round of NDCs to increase ambition. Currently only 9 per cent of NDCs include FFSR or energy pricing.

In the short term, there are emissions reductions and budgetary savings from removing subsidies or increasing taxes on fossil fuels. At the same time, governments need to shift energy policy and direction toward low-carbon energy pathways. Recent work by the Global Subsidies Initiative of IISD has shown how reforming subsidies to fossil fuels can enable a switch to renewable energy to get onto a different energy path. Shifting funds saved from FFSR into renewables, energy efficiency and public transport can accelerate the energy transition, for example in India (with a shift from kerosene subsidies to solar ones), Indonesia (between coal and renewables), Morocco (from gas to solar), Bangladesh (toward solar power and safety nets) and Zambia (reforms alongside industrial energy efficiency). Indeed, any country reforming subsidies to fossil fuels could make this swap.

With a big focus on shifting investments toward adaptation and mitigation, governments could start with where they have the most control and where they can benefit most from savings. Actively changing policy and directing those energy subsidies away from fossil fuels and toward sustainable energy could shift us onto energy pathways consistent with staying within 1.5°C.

The question is: what are we waiting for?

• The IPCC report is available to download here.
• More information on the climate impacts of fossil fuel subsidies is available on producer subsidies here and on consumer subsidies here.

On July 18, 2018, we presented a side event at the UN High Level Political Forum (HLPF), “Leadership on fossil fuel subsidy reform for sustainable energy access and poverty reduction”

The side event was organized by New Zealand on behalf of the Friends of Fossil Fuel Subsidy Reform (“Friends”),  with Finland, Switzerland, Sweden and Norway as co-organizers. IISD’s Global Subsidies Initiative coordinated the event.

This side event presented opportunities for financing and delivering the SDGs through fossil fuel subsidy reform, with a focus on sustainable energy access. Speakers presented replicable strategies for fossil fuel subsidy reform with high benefits for poverty reduction, gender and the SDGs. These strategies include better targeting of subsidies and subsidy “swaps,” which entail shifting fossil fuel subsidies toward sustainable energy solutions like renewable energy and energy efficiency, as well as investments in public transport. The event also saw the launch of a report on the interlinkages between energy access and fossil fuel subsidies.

IISD RS Video Coverage

• Publication: Getting on Target: Accelerating energy access through fossil fuel reform
• Guest Article on IISD SDG Knowledge Hub
• IISD RS Coverage of the Side Event on Fossil Fuel Subsidy Reform 
• SDG Knowledge Hub coverage of fossil fuel subsidy reform news and events

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.”

Self- and peer reviews of government support to oil, gas and coal are a first step and practical tool for phasing out wasteful fossil fuel subsidies (FFSs). The G7, G20, European Union and Asia-Pacific Economic Cooperation (APEC) governments have all committed “to rationalize inefficient FFS that encourage wasteful consumption.” But how can we support them? The Global Subsidies Initiative has published A Guidebook to Reviews of Fossil Fuel Subsidies. This publication unpacks how all other countries can join almost a third of G20 members and nearly half of APEC members who are at different stages of their FFS reviews. The guidebook will be shared with the participants of the 54th APEC Energy Working Group in Wellington, New Zealand on November 20–24, 2017.

Perverse Incentives

With a global value of at least USD 425 billion a year, FFSs are often fiscally burdensome, economically inefficient, socially regressive and environmentally harmful. If reformed, these vast amounts of public money can support sustainable development causes such as public health, education, and the switch to renewable energy and low-carbon infrastructure.

These subsidies incentivize the production and consumption of fossil fuels. Research estimates that the removal of global subsidies to fossil fuel consumption would lead to a global decrease in carbon emissions of between 6.4 and 8.2 per cent by 2050. In addition, a removal of global subsidies to fossil fuel production would save 37 Gt of carbon dioxide emissions over the same timeline. Thus, the elimination of all subsidies to both fossil fuel production and consumption globally will reduce emissions by roughly 10 per cent.

The economic and environmental case for FFS phase-out is obvious, and their reform is a “when” rather than an “if” question. Over 2014–2016, over 50 countries—from Saudi Arabia to Ukraine, India to Egypt—removed certain subsidies to fossil fuel consumption. These reforms have created fiscal space for repayment of debt and funding development.

Transparency Building Blocks

To inform the reform process, policy-makers and other stakeholders need a coherent and clear presentation of information on FFSs. The information on the nature of magnitude of FFSs is at least partially available through governments’ reporting on budgetary transfers, tax expenditures and other forms of support or market data (especially for price-gap estimates of subsidies). However, such information is often scattered over different documents and government agencies, without a systematic approach to subsidy identification and measurement.

That is why methodologically robust FFS reviews are important. The Guidebook to Reviews of Fossil Fuel Subsidies summarizes the practices and benefits that countries have already accumulated through self-reports and peer reviews within APEC and G20. It also draws on the time-tested methodologies of subsidy analysis developed by the Organisation for Economic Co-operation and Development (OECD), International Energy Agency (IEA) and the Global Subsidies Initiative.

FFS reviews take different forms depending on the needs of the government in question. It can be helpful to think of different FFS review elements as Lego bricks that can be assembled in various configurations. These elements are: scope of an FFS review, identifying and defining FFS, measurement and description of FFS, their evaluation and, finally, next steps on the FFS under the review.

Typically, FFS reviews go a step beyond subsidy listings and tend to focus on reform efforts. Some reviews also discuss the inefficiencies as well as sustainability and pollution issues in their energy sectors more broadly. For example, both Finland and Sweden have benefited from the broader scope of their reviews by examining FFS within the context of potentially environmentally harmful subsidies under the EU commitment to phase these out by 2020. Meanwhile, FFS reviews should specifically analyze the impact of FFSs, and their possible reform, on the poorest.

From Self-Reports to Peer Learning

Self-reports are the engine of both transparency and discussion over FFSs at the country level. They involve participation of various relevant government agencies, one of which acts as a coodinator, as well as other stakeholders such as representatives of energy producers and consumers and research institutes. Self-reports can further feed into other processes, such as trade policy reviews of the World Trade Organization and peer reviews of FFS within G20 and APEC.

Peer reviews within APEC and G20 add a further benefit of governments learning from each other’s experience. For example, China and the United States completed their peer reviews of FFSs in 2016. The reviews’ scope included both consumption and production subsidies. The review for the United States lists 17 subsidies with a total value of USD 8.2 billion. The review for China lists nine subsidies worth USD 14.5 billion. China’s peer review report is notable for also including a reform plan and timeline that identifies subsidies for phase-out in the near future. Since China and the United States are members of both G20 and APEC, these reviews under G20 also support the two countries’ commitments within the APEC.

The table below provides a complete overview of the status of FFS peer reviews under both G20 and APEC, as of  October 5, 2017. With this growing body of experience, all countries—and not just G20 and APEC members—can perform reviews, starting with self-reports and volunteering for peer reviews where expedient. For example, the Friends of Fossil Fuel Subsidy Reform is a group of nine countries (Costa Rica, Denmark, Ethiopia, Finland, New Zealand, Norway, Sweden, Switzerland and Uruguay) that advocates for self- and peer reviews of fossil fuel subsidies. While New Zealand undertook its self- and peer review within APEC, Sweden and Finland completed self-reviews independently of APEC and G20.

 

Status of FFS peer reviews within the G20 and APEC as of October 5, 2017

Context	Country	Report released	Main findings
APEC	Peru	2015, available	Three subsidy reviews focused on their efficiency, concluding that two of them had to be phased out and that the third one, the FISE (provides targeted liquefied petroleum gas subsidies to the poor), was an efficient subsidy that should be expanded to other areas.
APEC	New Zealand	2015, available	The APEC panel reviewed eight measures that are considered to support the fossil fuel sector, but none of them was identified as inefficient FFSs that led to wasteful consumption.
APEC	Philippines	2016, available	Out of the five policy measures identified, two were no longer in effect, two were not subsidies (but created market distortions) and one was a subsidy. A list of recommendations was submitted with the review.
APEC	Chinese Taipei	2017, available	Listed five subsidies of which three were related to energy use in agriculture. The peer review team concluded that all five subsidies have inefficiencies, though small in magnitude, and provided recommendations for the rationalization of these policies.
APEC	Vietnam	Expected release in 2017	Not yet available
APEC	Brunei	Pending	Not yet available
G20	China	2016, available	Listed nine subsidies worth USD 14.5 billion and included a reform plan and timeline, identifying subsidies for phase out in the near future.
G20	United States	2016, available	Identified 16 inefficient FFSs benefitting upstream activities and one subsidy for fossil fuels used in the residential sector, with a cost estimated at USD 8.2 billion per year.
G20	Mexico	Expected release in 2017	Not yet available
G20	Germany	Expected release in 2017	Not yet available
G20	Indonesia	Pending	Not yet available
G20	Italy	Pending	Not yet available

 

The Guidebook to Reviews of Fossil Fuel Subsidies is available to download from here.

A further Guidebook to Fossil-Fuel Subsidy Reform is also available to download here.

Viet Nam joined the international Fossil-Fuel Subsidy Reform Communiqué. Viet Nam joins over 40 countries and organisations representing thousands of businesses behind the international Fossil-Fuel Subsidy Reform Communiqué that calls for increased transparency, ambition and targeted support towards reform of subsidies towards fossil fuels. Vietnam has been reforming fossil fuel subsidies that totalled 3.4% of GDP in 2011 or almost 7% of the state budget in 2010. Viet Nam is also undergoing a voluntary peer review of fossil fuel subsidies and is hosting APEC Leaders in November 2017.

The reform of fossil fuel subsidies has been included as part of APEC commitments since 2010, most recently from the Peru Leaders’ summit in 2016 which reaffirms APEC’s commitment to ‘rationalizing and phasing out inefficient fossil fuel subsidies which encourage wasteful consumption, while still providing essential energy services…’ as well as expressing ‘appreciation to the economies that have volunteered to undergo a voluntary inefficient fossil fuel subsidy peer review in APEC and the G20’ with further encouragement to ‘more economies to participate in peer review.’ A Guide-book for policy makers on self and peer review of fossil fuel subsidies with examples from Friends countries such as Sweden, Finland and New Zealand is now available for download here.

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.

Video of the event is available here in English and French.

(Spanish version follows the English version below)

The representatives of Costa Rica, Denmark, Finland, New Zealand, Norway, Switzerland and Sweden show their support to Mexico in efforts to tackle current government subsidies to fossil fuels, focusing now on gasoline and diesel for transportation. While reform is never easy, Mexico has recognized that the conditions both nationally and internationally provide a favorable context for reform.

Over 40 countries, including Mexico, recognized the importance of reforming subsidies to fossil fuels by endorsing an international Communiqué launched in 2015 by a group of countries called the Friends of Fossil Fuel Subsidy Reform. It calls for a transparent, ambitious and well-supported reform of fossil fuel subsidies. The G20, including Mexico, recognized the need to reduce and reform inefficient subsidies to fossil fuels so as to improve government bank balances, provide government resources to invest in social protection schemes for the poor, and increase efficiency and investment within the energy system. The Paris Agreement which entered into force in November 2016, was adopted by consensus by 195 member countries at the United Nations Framework Convention on Climate Change and sets out a global action plan to attempt to prevent dangerous climate change by limiting global warming to below 2°C. Actions to limit global warming include the reduction or elimination of the use of fossil fuels.

Mexico is not alone in undergoing fossil fuel subsidy reform. 50 countries underwent similar reforms in the last two years, including large economies such as Indonesia and India. All of them took the opportunity of the current low oil price to link their energy prices to world prices. Countries increasingly recognize that fossil fuel subsidies are a poor social welfare policy in that the majority of benefits go to the rich, rather than to the poor. Subsidy reform needs to be undertaken alongside measures that properly protect the poor and vulnerable groups from the impact of higher energy prices.

For example, Indonesia was able to save around USD 15 billion through a combination of fossil fuel subsidy reforms (removing significant gasoline and diesel subsidies). Savings were spread across government ministries, enterprises, regions and villages and aimed at programmes linked to poverty eradication, human development and infrastructure development.

Recent pricing reforms in India, mainly to gasoline and diesel also cut the country’s subsidies bill by USD 15 billion, and subsidy reforms have enabled the parallel implementation of one of the largest cash transfer programmes in the world.

An important step to reforming subsidies to fossil fuels is to understand the scale and nature of them through a thorough review. Mexico and Germany, as G20 countries, are undergoing such a review via a peer-to-peer process. These follow on from China and the US who together, last year identified over USD 20 billion of subsidies to fossil fuels and identified plans to reform these. Peru volunteered to undergo a peer review of its fossil fuel policies by the APEC Peer Review Panel. In order to mitigate the effects on vulnerable groups, the government introduced a cook stove distribution programme (LPG and biomass), introduced an LPG voucher scheme, and expanded an existing conditional cash transfer programme.

Reform of course presents challenges. For example, the Philippines tried to reform subsidies three times in the 1990’s before eventually succeeding. Its package of measures included developing a national social safety net and investing in renewable energy. The Philippines example, and the many other experiences across the world, show that reform can be successfully undertaken using established practices. Key among these are that the poor and other vulnerable groups are safeguarded, that the pace of reform is ideally gradual and that savings are used to support national development goals.

Many countries including Mexico have understood that today’s low oil prices present an opportunity for reform of their fossil fuel subsidies. These reforms result in savings that can be used to build better social protection schemes and more efficient and cleaner energy systems.

We the undersigned country representatives strongly support Mexico’s and other countries’ efforts to reform fossil fuel subsidies and we strongly encourage these reforms to be undertaken according to the three basic principles outlined in the international Communiqué: increased transparency around fossil fuel subsidies; ambitious reform; and targeted support to ensure reforms are implemented in a manner that safeguards the poorest.

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Los representantes de Costa Rica, Dinamarca, Finlandia, Noruega, Nueva Zelanda, Suecia y Suiza muestran su apoyo a México en sus esfuerzos por abordar los actuales subsidios gubernamentales a los combustibles fósiles, centrándose en la gasolina y el diésel para el transporte. Si bien la reforma nunca es fácil, México ha reconocido que las condiciones tanto a nivel nacional como internacional proporcionan un contexto favorable para la reforma.

Más de 40 países, entre ellos México, han reconocido la importancia de reformar los subsidios a los combustibles fósiles mediante el respaldo de un Comunicado internacional (el “Communiqué”) lanzado en 2015 por un grupo de países llamado Amigos de la Reforma de Subsidios a los Combustibles Fósiles. Este grupo pide que la reforma de los subsidios a los combustibles fósiles sea transparente, ambiciosa y esté bien respaldada. El G20, entre ellos México, ha reconocido la necesidad de reducir y reformar los subsidios ineficientes a los combustibles fósiles para mejorar los saldos financieros del gobierno, proporcionar recursos gubernamentales para invertir en planes de protección social para los pobres y aumentar la eficiencia e inversión dentro del sistema energético. El Acuerdo de París, que entró en vigor en noviembre de 2016, fue adoptado por consenso por 195 países miembros de la Convención Marco de las Naciones Unidas sobre el Cambio Climático y establece un plan de acción mundial para prevenir el cambio climático peligroso, limitando el calentamiento global a menos de 2°C. Las acciones para limitar el calentamiento global incluyen la reducción o la eliminación del uso de combustibles fósiles.

México no es el único país en someterse a la reforma de los subsidios a los combustibles fósiles. 50 países experimentaron reformas similares en los últimos dos años, incluyendo grandes economías como Indonesia e India. Todos ellos aprovecharon la oportunidad del actual bajo precio del petróleo para vincular sus precios de la energía a los precios mundiales. Los países reconocen cada vez más que los subsidios a los combustibles fósiles son una política deficiente de bienestar social, ya que la mayoría de los beneficios se destinan a los ricos y no a los pobres. Es necesario emprender una reforma de la subvención acompañada de medidas que protejan adecuadamente a los grupos pobres y vulnerables del impacto causado por la subida de los precios de la energía.

Por ejemplo, Indonesia pudo ahorrar alrededor de 15 mil millones de dólares americanos a través de una serie de reformas de los subsidios a los combustibles fósiles (eliminando importantes subsidios a la gasolina y al diésel). Los ahorros se distribuyeron entre los ministerios, las empresas, las regiones y las aldeas, y se dirigieron a programas relacionados con la erradicación de la pobreza, el desarrollo humano y el desarrollo de infraestructuras.

Las recientes reformas de precios en la India, principalmente de gasolina y diésel, también redujeron la factura de subsidios del país en 15 mil millones de dólares americanos, y las reformas de subsidios han permitido la implementación paralela de uno de los mayores programas de transferencia de efectivo en el mundo.

Un paso importante para reformar los subsidios a los combustibles fósiles es entender la escala y la naturaleza de los mismos a través de una revisión exhaustiva. México y Alemania, como países del G20, están siendo sometidos a una revisión de este tipo a través de un proceso “peer-to-peer”. Estos países siguen a China y Estados Unidos, quienes el año pasado identificaron más de 20 mil millones de dólares americanos de subsidios a combustibles fósiles así como planes para reformarlos. Perú se ofreció voluntariamente a someterse a una revisión por pares de sus políticas de combustibles fósiles por el Panel de Revisión por Pares del Foro de Cooperación Económica en Asia y el Pacífico (APEC). Con el fin de mitigar los efectos sobre los grupos vulnerables, el gobierno introdujo un programa de distribución de cocinas (GLP y biomasa) y un sistema de vales GLP, y amplió un programa de transferencia de efectivo.

Es por supuesto que la reforma presenta retos. Por ejemplo, Filipinas intentó reformar las subvenciones tres veces en la década de los 90 antes de finalmente tener éxito. Su paquete de medidas incluía el desarrollo de una red nacional de seguridad social y la inversión en energía renovable. El ejemplo de Filipinas, así como el de muchas otras experiencias en todo el mundo, muestran que la reforma puede llevarse a cabo con éxito utilizando prácticas establecidas. Es fundamental que estas prácticas incluyan: la protección a los pobres y otros grupos vulnerables, un ritmo de reforma idealmente gradual y la utilización de los ahorros para apoyar a los objetivos de desarrollo nacional.

Muchos países, incluyendo a México, han comprendido que los actuales bajos precios del petróleo presentan una oportunidad para la reforma de sus subsidios a los combustibles fósiles. Estas reformas generan ahorros que pueden utilizarse para construir mejores sistemas de protección social y sistemas energéticos más eficientes y más limpios.

Nosotros, los representantes de los países abajo firmantes, apoyamos firmemente los esfuerzos llevados a cabo por México y otros países para reformar los subsidios a los combustibles fósiles, y alentamos firmemente que estas reformas se realicen de acuerdo con los tres principios básicos del Communiqué: mayor transparencia en torno a los subsidios a los combustibles fósiles; ambición en la reforma; y apoyo específico para asegurar que las reformas se implementen de una manera que proteja a los más pobres.

Cooperative, non-market and country-led—that was the order of the day when it came to fossil fuel subsidy reform (FFSR) at the UN Climate Change Conference (UNFCCC) from November 7–19 in Marrakech, Morocco. Across the two weeks, the conference attracted some 22,500 participants, and there were several side events held in English and French on the issue of FFSR (a full listing is available here). Events and discussions covering FFSR focused on early action and implementation of the phase-out of fossil fuel subsidies given the current window of opportunity afforded by low oil prices. They addressed lowering the total value of fossil fuel subsidies to consumers, reducing the cost to governments of reform, as well as efforts to phase out upstream subsidies to fossil fuel producers.

In the Agreement

The issue of FFSR also made some headway within the work plan for implementation of Article 6 of the Paris Agreement. Article 6 describes how Parties can choose “to pursue voluntary cooperation in the implementation of their nationally determined contributions to allow for higher ambition in their mitigation and adaptation actions and to promote sustainable development and environmental integrity.” There are particular opportunities for FFSR to be treated as non-market approaches, as identified under Article 6, paragraph 8 from mitigation and sustainable development perspectives. This provision recognizes the role of such approaches, and defines a framework for them and a work plan over the next few years. Indeed, the Maldives, for the Alliance of Small Island States, raised the issue outlining that “non-market mechanisms should start with fossil fuel subsidy reform and the phase-out of inefficient and polluting technologies.” New Zealand included a submission to the process by also proposing this issue, and presented on FFSR within a UNFCCC Technical Experts Meeting held in Bonn in May 2016. Many other countries have included fiscal instruments within their Nationally Determined Contributions (NDCs) (40), and fossil fuel subsidy and energy sector reform within 14 other NDCs. Champions include countries such as Morocco, who has already eliminated most subsidies to fossil fuels, which was highlighted in a brochure on the topic, Learning from Leaders. The inclusion of FFSR within the scope of Article 6, paragraph 8 activities was discussed during negotiations in Marrakech, where Parties appeared generally to view the framework for non-market approaches to be facilitative in nature, aiming to support international cooperation for such approaches, rather than regulate them at the UNFCCC level. The issues will be discussed further in Bonn, in May 2017 and submissions from Parties on the matter are welcome by March 2017. An existing voluntary effort to raise the issue on the sidelines of the UNFCCC and in other venues has been pursued by the Friends of Fossil Fuel Subsidy Reform with over 40 countries supporting phase-out via an international Communiqué.

On the Sidelines

On Thursday, November 10 an event titled Fossil Fuel Supply and Climate Policy was organized by the Stockholm Environment Institute (SEI), Oil Change International (OCI) and the Overseas Development Institute (ODI). Ivetta Gerasimchuk of GSI covered producer subsidies, explaining that “production subsidies for extraction of oil, gas and coal matter for climate and should be part of climate action.” SEI explained that two thirds of oil, gas and coal need to be left undeveloped, while OCI explained how all new development in fossil fuels needs to be halted to stay within 2 degrees. A recording can be found here.

On Tuesday, November 15 an event called FFSR and Climate Change: Early Action and Implementation took place. This event focused on the need for the Group of Twenty (G20) to agree a on a phase-out date for fossil fuel subsidies, while also shedding light on the process of peer review between China and the United States and urging countries to follow those that had phased subsidies out, such as Ethiopia.

Scott Vaughan, President of IISD, called for the phase out of fossil fuel subsidies by 2020 along with hundreds of non-governmental organizations and insurers managing over USD one trillion worth of assets. Vaughan insisted that “fossil fuels subsidy reform must be faster and pro-poor.”

Leonardo Martinez-Diaz, Deputy Assistant Secretary for Energy and Environment, U.S. Treasury, and An Qi, National Development and Reform Commission, China (NDRC), elaborated on the recent peer review process that China and the United States went through, and encouraged other countries to share information on subsidies with each other and publish it. Martinez-Diaz noted that: “We have identified 16 fossil fuel subsidies and we plan to reform all of them.” He also emphasized that the peer review process with China set the “foundation for broader, deeper debate.” Rachel Kyte, CEO, Sustainable Energy for All (SE4all) encouraged countries to phase out fossil fuel subsidies, and for the G20 to set a firm date for the phase-out. She said: “Price carbon, get rid of the subsidies and make an even playing field,” adding that “we need to do what is smart. We need effective energy prices.”

Minister Kare Chawicha, State Minister for Environment and Climate Change for Ethiopia, explained how his country had phased out fossil fuel subsidies in 2008, faced with food and fuel price spikes and a difficult choice between the two. He also called for an end to the untold billions flowing against the clean energy transition, saying that “fossil fuel subsidies hamper innovation. Ethiopia phased them out other countries should too.”

Mark Sinclair, Climate Change Ambassador for New Zealand, chaired the event and highlighted the Friends of Fossil Fuel Subsidy Reform Communiqué. The International Energy Agency’s (IEA) Paul Simons explained that “FFSR was one of five items accounting for about 10 per cent of gains” in emission reductions from the energy sector, and that progress had been significant, with reductions in subsidies “from USD 500 billion in 2014 to USD 325 billion last year.”

A recording of the full event can be found here.

On Thursday, November 17, a joint Swiss-Moroccan event was held in French in the Morocco Pavilion. It included Doris Leuthard, Vice-President of Switzerland and Head of the Department of Environment, Transport and Communications (Switzerland); Mohammed Louafa, Minister of General Affairs and Governance (Morocco); Adil Ziady, President of the Group of Oil Operators (Morocco); Andrea Liverani, Sustainable Development Program Leader (World Bank); and Laurent Michel, Director General for Energy and Climate (France). Vice President Leuthard opened the meeting and described recent reforms in Mexico and Indonesia, and encouraged countries to seek support for reform. Andrea Liverani explained how fossil fuel subsidies were bad for fiscal budgets, society and the environment through air pollution and over-abstraction of water. Laurent Michael explained the situation in France and the use of taxation.

On Wednesday, November 16 a new report was launched from the Nordic Council of Ministers titled Learning from Leaders. The report covers the link between fossil fuel subsidies and climate change, as well as best practice case studies from Morocco, Ethiopia, Peru, the Philippines and Nordic countries. The event was opened by H.E. Kimmo Tiilikainen, Minister of Agriculture and the Environment, Finland. He explained that “the energy sector is of great importance and a critical change will be national fuel switching away from carbon intensive sources and increased efforts towards energy efficiency and sustainable energy. Subsidies and support from governments to fossil fuels encourage the opposite.” Speakers at this event included Laura Merrill, Senior Researcher and GSI Operations Manager, IISD; Markku Ollikainen, Professor, University of Helsinki; Selamawit Desta Wubet, National Climate Change Negotiator, Ministry of Environment, Forest and Climate Change, Ethiopia; An Qi, Research Associate, Energy Research Institute, NDRC, China; Karthik Ganesan, Research Fellow, CEEW, India. A video recording of the event can be found here here.

The Minister of Agriculture and the Environment of Finland Kimmo Tiilikainen, Chair of the Nordic Council of Ministers for the Environment, was also in attendance. He said: “We have to work fast in order to achieve the goals set in the Paris agreement. This Nordic study shows that there are already plenty of proven low-carbon solutions available, and at an affordable cost. There is no reason to wait. The time to deliver is now.”

As John Kerry, Secretary of State for the United States, explained to the CoP, “Winston Churchill was known for his hard-nosed insight and the way that he expressed it. He once argued, tellingly: ‘It’s not always enough that we do our best; sometimes we have to do what is required.’ We know today what is required. And with all of the real-world evidence, with all of the peer-reviewed science, with all of the plain just old common sense, there isn’t anyone who can credibly argue otherwise. So we have to continue this fight, my friends.”

Experts would agree that phasing out fossil fuel subsidies makes plain old common sense too.

Please join us for this ministerial-level event to hear first-hand from countries about recent efforts to reform energy subsidy policies and share information on good practices, common challenges, and lessons learned from recent international experience.

 

The United Kingdom and the International Energy Agency have authored a joint contribution to the Communiqué Annex: “Fossil Fuel Subsidy Reform – A Global Response”. Read it here.