Fossil Fuel Subsidies & Climate Change

World leaders hailed that the climate change agreement, agreed on Saturday 12 December, was important and significant in terms of setting the framework for government action in the coming years. In this blog, the Global Subsidies Initiative (GSI) examines both the text of the agreement as well as the events and activities that took place throughout COP21 in Paris with regards to fossil fuel subsidy reform and the phased removal of around US$600 billion of government subsidies to fossil fuels. In summary, there was much momentum on the side-lines of the negotiating process. The content of the agreement itself, from the perspective of moving the issue of fossil fuel subsidy reform, is also a very positive step in the right direction for setting the framework and rules of the game on climate action.

On Monday, 7th December 2015, the International Institute for Sustainable Development organized an event on Fossil Fuel Subsidies and Climate Change to put a spotlight on the scale and nature of subsidies to fossil fuels, national and international efforts to reform subsidies and the growing momentum behind the International Communiqué to phase out fossil fuel subsidies.

Subsidies for the consumption of fossil fuels were estimated at US$550 billion in 2013, according to the International Energy Agency. This report by IISD and the Nordic Council of Ministers modeled the impact of removing fossil fuel subsidies in 20 countries between 2015 and 2020. The results show that this alone would reduce national emissions, against business as usual, by an average of 11 per cent. By taking 30 per cent of subsidy savings, and investing in renewable energy and energy efficiency, national emissions are reduced further to an average of 18 per cent by 2020. The report also includes case studies of reform in the Philippines, Morocco and Jordan.

The International Energy Agency (IEA) has released a special report, Energy and Climate Change, as an input to ongoing climate negotiations, highlighting the pivotal role that fossil-fuel subsidy reform can play in reducing greenhouse gases (GHGs).

On June 2, 2014, the United States Environmental Protection Agency (EPA) released proposed regulations for regulating greenhouse gas emissions from electric utility generating units in the country. In the wake of its announcement, the EPA has been emphasizing that its proposed electricity rules will reduce emissions from the country’s most significant source of emissions—power plants. Conversely, the messaging from the Government of Canada has been that Canada took similar action on coal-fired plants in 2012, and that the percentage drop in emissions from those plants is likely to be proportionately greater than those proposed by Washington.

Phase out subsidies for fossil-fuels and agricultural inputs, and incentives for urban sprawl, to drive more efficient use of resources and release public funds for other uses, including programmes to benefit those on low incomes.