Low Hanging Fruit: Fossil Fuel Subsidies, Climate Finance, and Sustainable Development

June 12, 2012
Elizabeth Bast, Traci Romine, Stephen Kretzmann, Srinivas Krishnaswamy, Lo Sze Ping
Recent estimates of global fossil fuel subsidies for production and consumption are staggering, putting the total near US$775 billion annually or higher.  In a time of economic hardship, dangerous climate change, and growing demand for reliable and cleaner sources of energy, these fossil fuel subsidies are a reckless and irrational use of taxpayer money and government investments.

Indeed, in 2009, G20 leaders recognized this and committed to “phase out and rationalize over the medium term inefficient fossil fuel subsidies while providing targeted support for the poorest.”  A similar commitment was agreed at a subsequent Asia Pacific Economic Cooperation (APEC) Leaders meeting, which brings the total number of countries with such a commitment to more than fifty. However, progress towards meeting the goal of phasing out fossil fuel subsidies has been quite slow.

In international political discussions regarding climate finance and sustainable development, the conversation is often focused on the effectiveness and potential results of climate finance as justification for any potential financial support.  Annex II countries – those developed countries that are obligated to provide climate finance under the United Nations Framework Convention on Climate Change – often point to the responsibility their governments have to taxpayers to use scarce public funds wisely.

This same standard – responsibility to the taxpayers - must be applied to fossil fuel subsidies.  A recent Organization for Economic Cooperation and Development (OECD) study found that there were more than US$60 billion in fossil fuel subsidies in 2010 in Annex II countries.  Scarce public funding can and should be used more wisely.

The report recommends four key steps that governments should take in the near term to translate their commitments into concrete action to eliminate fossil fuel subsidies:

1) Define Plans to Phase out Fossil Fuel Subsidies by 2015
In Pittsburgh in September 2009, G20 leaders pledged to “phase out and rationalize over the medium term inefficient fossil fuel subsidies while providing targeted support for the poorest.” Progress however has been slow. In order to fulfill this historic commitment, leaders should immediately establish a time-line for this process. The G20 Summit in Los Cabos, Mexico, and the Rio+20 Summit provide key opportunities. Countries should agree to eliminate fossil fuel subsidies by 2015.

2) Increase Transparency and Consistency in Reporting of Subsidies
An obvious first step to removing subsidies is to catalog all existing fossil fuel subsidies. Reporting and reform should be separate processes. Up to now, the disclosure of producer subsidies in particular has been lacking in many countries. It is imperative that governments commit to fully and fairly disclosing the existence and value of all fossil fuel subsidies in order to inform robust plans for reform.

3) Incorporate Assistance and Safeguards to Developing Countries, as ell as Poor and Vulnerable Groups
Fossil fuel subsidy removal, particularly consumption subsidies, will only be successful by incorporating gender-aware safeguards for poor and vulnerable groups, and by assisting with financial, technical and capacity building in developing countries, where needed.

4) Establish or identify an international body to facilitate and support Fossil Fuel Subsidy Reform
An international body should be created or identified to support the global effort to phase-out fossil fuel subsidies.  This body, wherever it is housed, should be transparent, inclusive to allow for civil society participation and representation, include balanced representation from developed and developing countries, and sufficiently empowered to assess commitments by countries.


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