LONDON—9 October—At a lecture organized with the London School of Economics, OECD Secretary General Angel Gurría announced that fossil-fuel subsidy reform is one of the four key actions required to tackle climate change.

He emphasized that the estimated US$ 521 billion that was spent globally on subsidies in 2011, as well as an estimated US$ 55-90 billion per year among OECD countries, is an enormously inconsistent and incoherent measure in relation to the ongoing need to put a price on carbon. This is true for fossil-fuel ‘consumption’ subsidies, which reduce the cost of fuel for consumers, and so encourage higher levels of consumption. It is also true for ‘producer’ subsidies, that reduce costs for exploration and extraction, in an era when, “there are more than enough reserves to raise temperatures way above levels that even the most reluctant climate regulator would feel comfortable about.”

Gurría argued that although many fossil-fuel consumption subsidies have been used as a social welfare tool, they have been highly inefficient, at the same time as proving costly to government finances: “These subsidies are bad for the economy, bad for the environment and also bad in terms of social justice. We need systems for social redistribution that protect people from energy poverty without hard-wiring a reliance on emissions-intensive consumption.”

His lecture, timed to launch the report Climate and Carbon: Aligning Prices and Policies, was focused on the need for a “zero emissions” scenario—defined as “the complete elimination of emissions to the atmosphere from the combustion of fossil fuels in the second half of the century”. The Action Agenda for achieving this also focused in on the importance of carbon pricing, policy coherency and managing transitions.

IISD’s Global Subsidies Initiative has a research program dedicated to investigating the size, impacts and reform of fossil-fuel subsidies, including both consumer and producer subsidies, and international efforts to bring about reform. Its latest publication, A Guidebook to Fossil-Fuel Subsidy Reform, sets out how countries can put together a strategy to ensure that the transition away from subsidization does not incur serious negative economic, social or political impacts.