Subsidizing Fossil Fuels in Times of High Energy Prices: Fossil fuel subsidy reform in trade and climate discussions

Effectively addressing fossil fuel subsidies is key to reducing greenhouse gas emissions and limiting climate change, thus allowing member states to achieve global goals. Fossil fuel subsidy reform (FFSR) will deliver trade, economic, social, and environmental benefits and release government funds to support green and climate-resilient investments. This event was co-organized by the Friends of Fossil Fuel Subsidy Reform (FFFSR), the International Institute for Sustainable Development (IISD), and the Geneva Environment Network (GEN) ahead of pivotal Stockholm+50, United Nations Framework Convention on Climate Change (UNFCCC), and World Trade Organization (WTO) meetings this June.

About Fossil Fuel Subsidy Reform

Formed in June 2010, the FFFSR 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.

At the WTO Eleventh Ministerial Conference (MC11) in 2017, a coalition of 12 WTO members signed the FFFSR’s first Ministerial Statement, calling 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 Ministerial Statement also noted that any efforts to phase out fossil fuels must consider the needs of the poor.

Building on that effort, the initiative renewed its statement in December 2021 and is now supported by 45 WTO members. The renewed statement seeks the rationalization and phase-out, along a clear timeline, of inefficient fossil fuel subsidies that encourage wasteful consumption and calls on WTO members to join those efforts. The statement recognizes that reforming fossil fuel subsidies must consider the specific needs and circumstances of developing countries and minimize the possible adverse impacts it may have on their development. The statement also identifies the WTO as a forum to advance discussions for ambitious and effective disciplines on fossil fuel subsidies, in part by using enhanced transparency and reporting to enable the evaluation of the trade and resource effects of fossil fuel subsidy programs.

About this Session

With strong momentum on FFSR in both climate and trade negotiations in 2021, negotiators looked ahead to 2022 with a lot of promise for progress. This included expectations of progress within the WTO after delays of in-person meetings due to COVID-19 in 2020 and 2021. Additionally, the inclusion of fossil fuel subsidy reform as a key part of the Glasgow Climate Pact symbolized a turning point where countries could use FFSR with increased focus as a tool to assist in achieving the Paris Agreement goals.

This was, of course, turned on its head in February with the invasion of Ukraine and the associated crises and instability in global energy markets. Within their energy sectors, many countries are facing pressure to diversify their energy supply. In the short and medium terms, this includes increasing the production and consumption of clean energy sources while also managing immediate pressure to mitigate the impacts of high energy prices on consumers. The pressure and allure of subsidizing fuel prices has been very high; in some cases, we have already seen governments agreeing to price relief, for example, instating "holidays" for the collection of motor vehicle fuel taxes while oil prices are high.

In 1972, the United Nations Conference on the Human Environment made the link between environment and poverty and placed it at the forefront of the international agenda. Now, five decades later, with the international community gathering for the “Stockholm+50: A healthy planet for the prosperity of all – our responsibility, our opportunity” conference, and pivotal meetings of both the UNFCCC and WTO also looming in June, this hybrid in-person and virtual event comes at a timely moment. The event brings together trade and climate experts to outline how they look to address the energy pricing crisis strategically through various forums and collectively work to avoid the pressure to subsidize fossil fuels in the immediate term, while still maintaining momentum on FFSR and the clean energy transition in the longer term.

Speakers

Clare Kelly, Permanent Representative to the World Trade Organization, New Zealand Ministry of Foreign Affairs and Trade

Joy Kim, Senior Economic Affairs Officer, United Nations Environment Programme

Aik Hoe Lim, Director, Trade and Environment Division, World Trade Organization

Ana Laura Lizano, Counsellor, Permanent Mission of Costa Rica to the World Trade Organization

Laurie van der Burg, Global Public Finance Campaign Co-Manager, Oil Change International

Peter Wooders, Senior Director, Energy, IISD