The zero draft of the outcome document of the Fourth International Conference on Financing for Development (FfD4) recognizes taxation’s crucial role in financing development as part of a robust public financial management system, and emphasizes international tax cooperation. However, the current text overlooks an important area: the taxation of natural resources.

For many developing nations, natural resource revenues, including mineral resources, are a key source of government income. The sector is also a major driver of illicit financial flows. This issue was clearly identified in the Addis Ababa Action Agenda, the outcome of the previous FfD conference. Failing to address resource taxation at FfD4 would represent a significant setback in tackling domestic resource mobilization challenges.

Why Is It Crucial for FfD4 to Address Resource Taxation?

Many developing economies depend on natural resource extraction. According to World Bank data, in 2021, natural resource rents represented more than 10% of gross domestic product (GDP) in 20 lower- and middle-income countries, and more than 4% of GDP in over 40 countries. The International Monetary Fund (IMF) 2024 Regional Economic Outlook describes 15 sub-Saharan Africa economies as resource intensive.

The sector is an important contributor to government revenue. In the mining sector, 24 of the largest companies, members of the International Council on Mining and Metals, reported paying USD 42 billion in 2024 and USD 54 billion in 2023 in taxes and royalties to host countries. Economies like Australia, Brazil, Canada, Chile, Indonesia, Norway or Saudi Arabia show that extractive industries can be leveraged to fund domestic development priorities.

However, revenue contribution from natural resources could be higher in developing economies. Among the notorious obstacles to optimal revenue collection from the sector are generous tax incentives, weak governance, poorly constructed contracts, aggressive tax planning by multinationals, and inadequate fiscal policies. The Addis Ababa Action Agenda already recognized the need to address “excessive tax incentives” and strive for “fair and transparent concession, revenue and royalty agreements, and for monitoring the implementation of contracts”.

Since 2015, we have seen more evidence of base erosion and profit shifting in the mining sector. IMF research shows that African countries are losing between USD 470 million and  USD 730 million per year in corporate income tax on average from multinational enterprise tax avoidance. A single transfer pricing audit of a large mining company by the Mongolian tax administration led to an assessment of USD 228 million and a denial of USD 1.5 billion in carried forward losses.

Seizing the Moment for Reform at FfD4

Many countries have a unique opportunity to address these obstacles and rethink resource taxation according to their national priorities. With the race for energy transition minerals, and global competition for raw materials, many countries are now being given a chance to rethink how best to maximize the financial benefits of their natural resources.

There is strong international support for greater benefit sharing from critical minerals. The United Nations Secretary-General’s Panel on Critical Energy Transition Minerals 2024 report recommends to “accelerate greater benefit-sharing, value addition and economic diversification in critical energy transition minerals value chains as well as responsible and fair trade, investment, finance, and taxation”. South Africa’s G20 presidency aims to “work together to harness critical minerals for inclusive growth and sustainable development” and is promoting an “Initiative on critical minerals”. The African Development Bank recommends to “harness value addition in critical and rare earth minerals so as to mobilize additional domestic resources for complementing tax revenue in Africa”.

What Is Currently Missing in FfD4’s Approach to Resource Taxation?

The zero draft of the FfD4 outcome document emphasizes several important approaches to improve tax and domestic resource mobilization, such as a consistent approach to public financial management, a focus on broadening the tax base, subnational taxes, improving tax administration, ensuring fairness, equity, gender-based budgeting, environmental and climate considerations. It also supports international tax cooperation. However, unlike the Addis Ababa Action Agenda, it does not explicitly mention the contribution of natural resources to domestic resource mobilization.

Critical minerals are mentioned in the section of the draft outcome document dedicated to trade and value chains. Encouraging domestic value addition is important in the development agenda of many resource-rich countries, but equally important is the need to ensure fair fiscal terms and reliable government revenues.

How the FfD4 Draft Can Address Resource Taxation: A Call to Action

We suggest that a subparagraph be added to the section on “Fiscal systems and alignment with sustainable development”, paragraph 29:

• Natural resources such as minerals and metals should be an engine of economic development and domestic revenue generation. We support strong resource governance, equitable sharing of financial benefits, domestic value addition and effective government oversight.

We also suggest emphasizing the revenue potential of critical minerals in the section on “Trade in critical minerals and commodities”, paragraph 46, and removing “stability” which may be erroneously interpreted as supporting unflexible stability clauses in mining contracts – “predictability” is a more acceptable proposition for investors and hosts governments alike:

• d) We stress the importance of providing support to developing countries to negotiate commodity contracts with terms that provide predictability and stability for investment, while also providing adequate and reliable revenues for governments and flexibility to respond to changes in economic and market conditions.

The Fourth Financing for Development Conference should explicitly highlight the role of natural resources in domestic resource mobilization. Its section on fiscal systems must include resource taxation, a key factor in boosting revenues and driving sustainable growth in developing countries.

Developing countries are in urgent need of debt relief. As of end of the 2024, 35 low-income countries were either in debt distress or at high risk of it. But even countries that are not in debt distress face mounting pressures, with rising debt service costs exacerbated due to the effects of the pandemic, the invasion of Ukraine, and the tightening of monetary policy that followed. The UN Trade and Development reports that many developing nations spend significantly more on debt repayment than on essential services like healthcare or education. The main reason is that they borrow at interest rates 2–4 times higher than those in developed countries, like the United States, and 6–12 times higher than in Germany. Such high rates severely constrain their ability to invest in development projects.  

The international financial architecture further exacerbates this issue because it is highly asymmetrical and not fit for purpose–captured by and working in the interests of a narrow set of players.  

The FfD4 negotiations present a critical opportunity to reform this system. The outcome of this process should include concrete commitments, clear language, and an implementation strategy that directly addresses the needs for urgent debt relief for low-income countries. 

How does the current FfD4 draft address the issue of sovereign debt? 

The Zero Draft of the FfD4 Outcome Document has relevant content that addresses several critical areas of debt and debt sustainability. The proposals are structured under four main sub-sections: 

1. Sustainable and responsible borrowing and lending, as well as debt crisis prevention: This part focuses on the early stages of the debt cycle. 

2. Immediate provision of debt relief: This section stresses the urgent need to provide debt relief and of providing the fiscal space necessary for countries facing debt challenges to invest. 

3. Improving debt restructuring processes in the absence of sovereign debt restructuring mechanisms: This part looks at debt architecture for debt crisis resolution. 

4. Reform of Debt Sustainability Analysis (DSA) and Credit Ratings of Sovereigns: This section looks at revising both the International Monetary Fund’s and World Bank’s DSA methodologies and sovereign ratings. 

Throughout the debt and debt sustainability section, the Zero Draft of the Outcome Document distinguishes two sets of countries facing debt challenges: those that are highly indebted (measured by debt-to-GDP ratios) and are facing solvency problems, and those that face high debt servicing costs and liquidity constraints. The draft also calls for DSA reforms, specifically to "more accurately distinguish between solvency and liquidity" . 

What gaps remain in the FfD4 approach to sovereign debt? 

First, distinguishing between insolvent and illiquid countries in a binary way makes little sense in the sovereign realm. Upholding this distinction creates a conceptual issue and has important practical implications: The language seems to suggest that a debt relief initiative should be focused exclusively on countries facing liquidity challenges (item 49a). Meanwhile, countries facing debt distress seem to be “covered” under the third heading, on the reform of debt architecture. Yet, both groups require urgent debt relief.  

Second, while it is encouraging to see support for expanding and operationalizing an initiative like the Debt Sustainability Support Service (DSSS), it is unclear whether the DSSS is the best initiative for other developing countries, aside from the Small Island Developing States (SIDS) for which it was specifically designed. Considering the extensive political bargaining required to adopt any debt initiative–the Common Framework for Debt Treatment being a prime example–and the challenging geopolitical context, it’s difficult to foresee this endorsement  withstanding the upcoming drafting negotiations.  

Third, the call for support lacks expressions of firm commitments. Merely stating that the FfD4 “supports” certain objectives is not enough – the document must contain concrete language on what this support entails in practice. A good example is the call for increased capacity building for developing countries to better manage their public debt (item 48b). To address this, the language used needs to make it explicit that more bilateral and multilateral grants will be provided to deliver such capacity building.  

Finally, the draft seems, at times, to reinvent the wheel, proposing new initiatives rather than focusing on the implementation of existing ones. An example is the call for new principles for sovereign lending and borrowing (item 48a). Such principles already exist. New principles are not needed; rather the existing ones must be enforced.  

How can these gaps be addressed?  

Endorsing the development of an ambitious debt relief initiative for developing countries is paramount. However, it is unrealistic to expect consensus on the technical design of such an initiative during the FfD4 negotiations. Thus, the draft should include the following four elements:  

1. Strong language calling for establishing an ambitious G20-approved debt relief initiative for countries unable to invest in development due to debt distress, or because of high debt servicing costs and liquidity constraints. 

2. A call for the establishment of an independent expert group to the G20, with representation from debtors, Paris and non-Paris Club creditors, and other relevant stakeholders, to propose and build consensus towards a debt relief initiative, under consideration of the Debt Sustainability Support Service, and analogous initiatives. This independent expert group should also conduct a broader stakeholder process and be transparent about its recommendations to the G20.  

3. The expression of "support" should accompany funding commitments, such as capacity building initiatives for greater parliamentary oversight. 

4. Greater focus on implementing, operationalizing, and enforcing proposals, such as the principles for sovereign lending and borrowing, rather than reinventing the wheel. 

The Financing for Development conference is a chance to rethink how the international financial architecture can address sovereign debt challenges and how countries can borrow responsibly to finance development. But to make it happen, the outcome document must go beyond acknowledging the problem. Concrete and actionable commitments are essential to ensure meaningful progress on the debt relief countries urgently need. 

Banner photo: Credit to IISD/ENB | Mike Muzurakis

This article was published in full on Devex on January 20, 2025, and an excerpt republished with permission.

Donald Trump will be sworn in Monday as president of the United States for a second time.

Trump campaigned on the slogan "drill, baby, drill" and this month made an impromptu pledge to ban new wind turbines.

While deadly fires raged in the nation’s second-largest city, fueled by global warming, Trump misleadingly blamed California’s water infrastructure policies.

Read the article in full.

Canada has repeatedly pledged to phase out subsidies for the fossil fuel industry, going back to G7 and G20 commitments in 2009 and reiterated several times since then. Canada’s G7 Presidency is a pivotal opportunity to push the G7 to deliver on its commitment. 

While some progress has been made, including policies to end “inefficient” fossil fuel subsidies and stop financing overseas fossil fuel projects, significant gaps remain. Canada continues to commit billions of public dollars to fossil fuels through subsidies such as direct transfers and tax breaks, as well as public financing mechanisms, such as loans, insurance, and bonds. 

The full extent of this funding is unclear due to the lack of transparency. Canada committed to publishing an inventory of its direct and indirect fossil fuel subsidies by December 2024 but failed to deliver. Without a comprehensive and regularly updated inventory of measures, it remains unclear how the “inefficient” subsidies policy is being applied and which—if any—fossil fuel subsidies have actually been phased out. After nearly 18 months since this policy was put in place, transparent reporting is key to ensuring its credibility.  

In a promising move in 2023, Canada joined its international peers in the Coalition on Phasing Out Fossil Fuel Incentives Including Subsidies and the High Ambition Coalition, which are shifting away from the qualifying term “inefficient” and instead focusing on eliminating all fossil fuel subsidies. To align with these efforts and be a leader in fossil fuel subsidy reform as the G7 president in 2025, Canada must work quickly to end the vast majority of its fossil fuel subsidies, allowing only narrow exemptions for exceptional circumstances, such as providing support for remote communities that rely on diesel.  

Here are five areas that must be prioritized to ensure transparency, reform existing fossil fuel subsidies and guarantee no further public funds flow as subsidies to fossil fuels.

Top Five Subsidy Reform Priorities 

1. Major Tax Credits and Reductions From Established Benchmarks 

One way that governments subsidize the fossil fuel industry is by offering tax credits and reductions from normally established benchmarks that reduce public revenue. For example, if most sectors pay a tax rate of 15%, and sector Y pays a tax rate of only 5%, sector Y receives a 10% tax subsidy. Or, if a certain sector receives a disproportionate amount of the benefit of a certain tax reduction, that would be a subsidy. In the government’s own framework, it defines “disproportionate benefit” as “more than 10% of the Measure's expenditures or foregone revenues is received by the Fossil Fuel Sector; or the Fossil Fuel Sector is specifically targeted to benefit from the Measure.” 

While Canada has made important progress in phasing out some tax benefits for the fossil fuel industry, significant tax reductions still exist that must be addressed. These include: 

• Canadian Exploration Expense Deductions (CEE)—This provision allows mining, oil, and gas companies to deduct costs incurred while exploring for resources in Canada. These expenses include activities to determine the presence, location, size, or quality of mineral deposits, petroleum, or natural gas.  
• Accelerated Investment Incentive—This measure lets companies quickly deduct the cost of newly acquired capital assets. While it applies across all sectors, it includes a special first-year benefit for faster deductions on Canadian development expenses (CDE) and Canadian oil and gas property expenses (COGPE), with a phase-out period from 2024 to 2028. 
• Foreign Resource Expense Deductions (FRE)—This provision allows Canadian mining companies to deduct costs related to exploration and development activities conducted outside of Canada. 
• Carbon Capture, Utilization, and Storage (CCUS) investment tax credit—This tax credit applies to capital investments in eligible CCUS projects made since January 2022. While the credit is not exclusive to the fossil fuel sector, the majority of CCUS projects in Canada are tied to fossil fuel operations.  
• Steel tariff exemption for liquefied natural gas (LNG)—In 2019, the government announced an exemption on tariffs for imported steel used in the LNG industry in British Columbia.  
• Tariff exemption for mobile offshore drilling units—Tariffs on these units, used for offshore oil and gas exploration and development, were first exempted in 2004. In 2014, the tariffs were permanently eliminated, costing the government an estimated CAD 13 million annually. 
• Capital cost allowance (CCA)—Most mining and oil and gas companies’ capital assets qualify for a 25% depreciation rate on a declining basis.  Whether this constitutes a subsidy depends on the capital costs in the fossil fuel sector compared to those in other sectors and if more benefit is received by the fossil fuel sector due to higher capital costs. 

Currently, a lack of transparency prevents us from knowing the full value of these subsidies and how, if at all, the “inefficient” subsidies policy framework is being applied to them. However, the Parliamentary Budget Officer estimates that four tax exemptions—CEEs, CDEs, COGPEs, and FREs—resulted in CAD 1.8 billion in foregone revenue in 2021 alone.  

Canadians for Tax Fairness also found that the oil and gas sector receives a disproportionate amount of CCAs. The oil and gas sector had an excess CCA rate of 36% from 2010 to 2022, meaning that the allowed tax deduction was in excess of the actual depreciation. Comparatively, the excess rate for non-fossil fuel sectors was close to zero.  More transparent reporting is needed on these tax measures, including on the portion of the benefit that is received by the fossil fuel industry compared to other industries.  

2. Trans Mountain Pipeline Expansion and Operations 

The Trans Mountain Pipeline expansion (TMX) is perhaps the biggest commitment of the current federal government when it comes to public spending on the fossil fuel industry. In a vacuum of interest from the private sector, the government bought the pipeline in 2018, and construction costs have since more than quadrupled from initial expectations.   

With oil companies currently paying lower tolls than would be required to recover the capital costs over the expected lifespan of the project, the government is operating the pipeline at a loss. To recover the full cost of the project, companies should be paying CAD 25.53 per barrel of oil shipped, but instead are currently paying only CAD 11.37 per barrel. Continuing to give the industry this discount would result in a subsidy of up to CAD 18.8 billion. 

Since the pipeline became operational in May 2024, there has already been an estimated CAD 1.2–1.3 billion subsidy from discounted tolls on TMX; that’s over CAD 5 million per day. IISD’s recent report by Professor Tom Gunton proposes a production levy on western oil shipments to recover this subsidy and ensure the industry pays the full cost of the project. 

3. Carbon Capture and Storage 

The federal government has committed over CAD 9 billion to carbon capture and storage by 2030, the vast majority of which would be used by the fossil fuel sector. This support is primarily through the carbon capture and storage (CCS) investment tax credit, which covers 50%+ of the capital costs of new projects. The Parliamentary Budget Officer estimates this credit will cost taxpayers CAD 491 million in the 2024–2025 fiscal year. 

The federal CCS tax credit can be stacked with provincial subsidies such as Alberta’s Carbon Capture Incentive Program, which provides an additional 12% grant on capital expenditures for CCS. Despite these heavy subsidies covering over 60% of upfront CCS costs, the industry is advocating for additional support. Oilsands companies of the Pathways Alliance are seeking public funds to cover 75% of the cost of their CCS network. 

In addition to this generous tax credit for CCS, the federal government continues to provide more support. The Canada Growth Fund, which is mandated to invest public funds and attract private capital to build a low-carbon economy, has put a disproportionate amount of support behind CCS, with its CEO stating, “Canada is the best place in the world to build a CCS industry.” In just over a year since its first investment, Canada Growth Fund has put CAD 200 million into Entropy CCS (which could lead to a 20% ownership stake in the company), CAD 500 million in Strathcona Resources oilsands CCS (which could increase up to CAD 1 billion), and CAD 100 million in Svante Technologies CCS, in addition to a potential 40% ownership stake in a waste-to-energy project with CCS. The Canada Growth Fund has also proposed funding support for the Pathways Alliance CCS network. 

The government needs to stop subsidizing carbon capture and storage in the fossil fuel sector—it is not a net-zero solution, and investing public funds in this technology comes with huge opportunity costs. Instead of investing CAD 10 billion in CCS, the government could have funded energy-efficient housing, renewable energy expansion, clean drinking water, and other critical infrastructure gaps for Indigenous communities across Canada. 

4. LNG  

There is also significant federal support for expanding LNG export infrastructure in western Canada, including through subsidies for the substantial amount of electricity required to electrify LNG infrastructure. Internal government documents show that the British Columbia (BC) government has asked the federal government for CAD 1.5 billion to build the transmission infrastructure required to transport electricity to northern LNG sites. This would primarily serve LNG Canada, a project that received CAD 275 million of direct investments from the federal government in 2019, in addition to an estimated CAD 1 billion in steel tariff exemptions.  

Though the Minister of Natural Resources has suggested the federal government is “not interested” in funding LNG projects, the government’s fossil fuel subsidies policy does leave the door open for subsidies to LNG under the pretense that LNG exports could displace more carbon-intensive fuels abroad. However, IISD research has shown these sorts of international carbon credits are not credible and should not provide a basis for permitting or subsidizing LNG exports. 

The federal government is also supporting LNG expansion through public financing, such as the recent financing of CAD 100 million–200 million for the Coastal Gaslink Pipeline and CAD 400 million–500 million for Cedar LNG. These loans are not covered under Canada’s subsidy policy but must be tackled under Canada’s forthcoming policy to end domestic public finance for fossil fuels.

5. Low-Carbon Funds and Incentives 

The federal government has committed substantial investments and subsidies to advance decarbonization and grow the low-carbon industries Canada needs. It is crucial to ensure that these funds flow to the workers, communities, and institutions that need them—not to the fossil fuel industry. 

Additionally, while it is essential to reform existing subsidies, the overall elimination of fossil fuel subsidies requires the government to ensure that any future financial support for decarbonization, clean technologies, economic reconciliation, and low-carbon infrastructure does not go to fossil fuel companies or companies solely supporting the fossil fuel sector.  The reform and elimination of current subsidies have to go along with the assurance that new subsidies will not be created in their place. This includes funds such as the Strategic Innovation Fund, the Low Carbon Economy Fund, the Canada Growth Fund, the Canada Innovation Corporation, and the Energy Innovation Program, as well as new investment tax credits for clean electricity, clean technology, clean hydrogen, and clean technology manufacturing. 

There has been an increase in subsidies for the fossil fuel industry to support decarbonization. However, any funds invested in the fossil fuel sector, even for reducing emissions or methane leakage, ultimately save companies money or enhance operations and thus contribute to profits. These subsidies also carry significant opportunity costs, diverting limited public funds away from critical investments in renewable energy, electrification, and energy efficiency needed for the transition to a cleaner economy. 

Provinces Have a Role to Play 

Alongside these federal supports, many provinces also subsidize the production or consumption of fossil fuels and have a key role to play in redirecting those resources toward solutions. The Organisation for Economic Co-operation and Development estimates that Canadian provinces and territories provided CAD 4.6 billion in fossil fuel subsidies in 2023. Provincial subsidies include support for infrastructure related to fossil fuel extraction, transportation, and export, such as the estimated CAD 5.4 billion provided by the BC government to LNG Canada through various tax breaks and hydro rate reductions. They also include governments shouldering the burden of cleaning up fossil fuel industry liabilities, such as Alberta’s subsidies to oil and gas companies to clean up abandoned oil and gas wells.  

As well, there is an increasing trend of cutting provincial gasoline taxes, thus incentivizing the use of more fuel, with governments in Ontario, Manitoba, and Alberta enacting such measures in recent years, and the Saskatchewan opposition party proposing to do the same. The Ontario gas tax and fuel tax rate cuts are expected to cost CAD 620 million this fiscal year, while the Manitoba fuel tax cut was estimated to cost CAD 340 million annually prior to being removed in January 2025. Various fuel tax exemptions in Alberta cost an estimated CAD 295 million in 2024. Manitoba has also recently announced a freeze on natural gas rates for 2025, while BC has a tax exemption on residential energy from natural gas and fuel oil that costs around CAD 130 million per year. Saskatchewan has implemented a carbon tax exemption on natural gas, foregoing tens of millions in revenue, which the government vowed to extend in its recent throne speech. It is critical to acknowledge that many Canadians are struggling with increased energy, food, and other product and service costs in times of high inflation, but the default measure to reduce pressure should not be to reduce costs for polluting fuels. There are other avenues to provide support for consumers that are not tied to reducing the cost of fossil fuels that drive climate change. 

There has been some provincial progress, such as BC’s recent decision to exclude oil and gas expenditures from its mining exploration tax credit. However, much more needs to be done. During the compounding affordability and climate crises, governments should focus on directly supporting people rather than subsidizing fossil fuel consumption.  

Canada Needs to Comply With Its International Commitments 

To fully eliminate fossil fuel subsidies, Canada must start by publishing a comprehensive inventory of all financial supports to the sector—whether or not they are labelled as "efficient"—and update it regularly. This should include clear timelines for phasing out existing supports, such as those highlighted above. Canada should also move beyond qualifying terms and address all forms of financial support to the fossil fuel industry. 

This should go hand-in-hand with tackling domestic public finance for fossil fuels from Canadian crown corporations, amounting to at least CAD 7.6 billion to CAD 13.5 billion annually in recent years. Moreover, Canada can support a wider shift in financial flows to drive the energy transition, such as through strong, sustainable finance regulations for the private sector and encouraging pension funds to align their portfolios with credible net-zero scenarios.  

Creating the existing policy framework to tackle fossil fuel supports is a good start but much more work is needed to finish the job. 

1. Climate Negotiations Glossary

Do you know your ABUs from your WEOGs? Our Earth Negotiations Bulletin team is on hand with a timely climate negotiations glossary compiling clear, concise definitions of the key terms and acronyms used in UNFCCC talks and beyond.

2. UNFCCC Submissions Tracker

The United Nations Framework Convention on Climate Change (UNFCCC) is the mechanism through which countries coordinate the global response to climate change. It is also the process that led to the adoption of the Paris Agreement, which aims to limit the global average temperature rise to well below 2°C and preferably 1.5°C above pre-industrial levels. Our article raising awareness about opportunities to provide input into this process was the second-most popular on our site this year. 

3. What Is the UAE Framework for Global Climate Resilience, and How Can Countries Move It Forward?

With the introduction of the new framework for the Global Goal on Adaptation (GGA), COP 28 marked a milestone for adaptation. Emilie Beauchamp unpacks key outputs and set out how countries can move forward by strengthening their national monitoring, evaluation, and learning (MEL) systems.

4. Why Liquefied Natural Gas Expansion in Canada Is Not Worth the Risk

Canada produces more natural gas than is necessary for domestic demand, with over 40% of production exported between January 2020 and July 2023. Our experts explain why new liquefied natural gas (LNG) facilities will undermine Canada’s domestic and international climate commitments through increased upstream and midstream emissions and—more critically—by diverting scarce financial and clean energy resources toward fossil fuel production and away from more cost-efficient decarbonization efforts. 

5. The Critical Next Step: What you need to know about Canada’s 2030 climate target

At the close of 2023, Environment and Climate Change Canada released the first official Progress Report on its 2022 Emissions Reduction Plan. Our expert Steven Haig defines Canada's climate targets, explains why they're critical for keeping global temperature rise to 1.5°C, and maps out what more can be done to meet them.

6. How Fossil Fuels Drive Inflation and Make Life Less Affordable for Canadians

Price spikes for oil and gas are nothing new, but as climate change worsens, risks to fossil fuel assets and supply chains increase. As global demand for fossil fuels declines, market responses, geopolitics, and possible imbalances in supply and demand could all potentially increase oil and gas price volatility. Jessica Kelly explains that transitioning energy systems away from fossil fuels can not only insulate against volatile fossil fuel prices and energy-driven inflation, but also reduce energy use and overall emissions.

7. COP 16 in Cali Delivers Key Outcomes for Nature but Questions Remain on Funding

Delegates departed from the United Nations Biodiversity Conference (CBD COP 16) after two weeks of negotiations in Cali, Colombia. The talks, which comprised the biggest biodiversity COP to date, focused in large part on how to implement and finance the Global Biodiversity Framework (GBF), adopted two years ago, as well as how to measure progress. Alec Crawford unpacks the wins and marks out areas for concern.

8. COP 16 Will Hinge on Who Benefits from Nature’s DNA

Ahead of the UN Biodiversity Conference in Cali, IISD’s Earth Negotiations Bulletin Team Lead Dr. Elsa Tsioumani breaks down key issues driving the negotiations of the Convention on Biological Diversity. A pillar of the talks is benefit-sharing from digital sequence information (DSI) on genetic resources—in other words, determining who profits from the digitization of the world’s genetic diversity and how much is given back to its stewards.

9. What Will Happen at COP 29?

Talks at the 2024 UN Climate Change Conference (COP 29) were expected to range from defining a way forward on finance through a new collective quantified goal (NCQG) to mitigation, and loss and damage. Ahead of negotiations in Baku, IISD’s Earth Negotiations Bulletin Team Lead Jennifer Bansard examined the agenda and broke down what to watch as eyes turned to Azerbaijan.

10. COP 29 Outcome Moves Needle on Finance

COP 29 concluded with a set of decisions including a widely anticipated agreement on climate finance. In the last hours of negotiations, concerted pressure from the most vulnerable developing countries resulted in an improved outcome on the finance target, with a decision to set a goal of at least USD 300 billion per year by 2035 for developing countries to advance their climate action. Nevertheless there was considerable and justified disappointment on the part of developing countries given the gap that remains with their identified financing needs for climate adaptation and mitigation. Our experts dive into the detail.

1. State of Global Environmental Governance

The year saw the last of the COVID pandemic-delayed milestones completed. Countries adopted major decisions to improve global chemicals management and protect marine life in international waters. But most of the year was about making all these rules work. Join the globetrotting Earth Negotiations Bulletin team as they review 2023's sustainable development negotiations, draw links between the talks, and look down the road to what the coming months hold for environmental multilateralism.

2. Transitioning Away From Oil and Gas

At the COP 28 climate summit in Dubai, 198 governments agreed to transition away from fossil fuels. That means phasing out oil and gas, as well as coal. Yet most oil and gas producers plan to drill more, not less. Some countries are dependent on revenues from oil and gas, or politically entangled with the industry. An unmanaged transition could get ugly. So how do we deliver a fast, fair, and orderly phase-out?

3. Global Market Report: Tea prices and sustainability

After water, tea is the most consumed beverage in the world. Drinking tea is a daily ritual for half of the world’s population. From its origins in China, tea has spread across trade routes over centuries, becoming a key global cash crop and providing livelihoods for millions of smallholder farmers This report explores recent market trends in the tea sector and explains why sustainability standards and other value chain actors need to get better at recognizing the social and environmental costs of tea production.

4. Mapping India's Energy Policy 2023

Global resurgence of fossil fuel subsidies affects India too, and it may delay progress on clean energy goals and unwind decade of hard-won reforms. Over the past decade, India has made meaningful progress on fossil fuel subsidy reform, with fossil fuel subsidies declining by 59% since 2014—an accomplishment that many other large economies have failed to achieve. How has government support for energy in India evolved over the last decade? As India strives to become a USD 5 trillion economy over the next 3 years, what will its energy mix be? Is government support and taxation aligned with its long-term net-zero commitment?

5. Out With the Old, Slow With the New

At the United Nations Climate Change Conference (COP) in November 2021, 39 countries and public finance institutions signed the Clean Energy Transition Partnership (CETP), a joint commitment to end international public finance for fossil fuels by the end of 2022 and prioritize international public finance for clean energy. This report analyzes CETP signatories' finance for fossil fuels and clean energy, a year after the implementation deadline.

6. Global Market Report: Soybean prices and sustainability

Known as the “king of beans,” soybeans account for a large portion of direct and indirect protein consumed around the world.  Since the 1950s, soy production has increased 15-fold and shifted from Asia to the United States, Brazil, and Argentina, which now account for 80% of global soybean production. Less than 3% of soybeans are produced in compliance with sustainability standards. This report unpacks what needs to change to make soybeans a food that protects rather than harms the natural environment.

7. Decarbonization of the Mining Sector

The urgency to decarbonize our societies to limit global GHG emissions is driven by global climate goals and commitments under the Paris Agreement. The mining sector's energy-intensive nature makes it a significant source of GHG emissions, necessitating strategic management to reduce its own GHG emissions and prevent exacerbating other major planetary crises, such as pollution and biodiversity loss. Recognizing the urgent need to decarbonize to address climate change, this scoping study provides an in-depth analysis of the mining industry's current status, challenges, and opportunities in participating in the global effort to curb greenhouse gas (GHG) emissions.

8. Monitoring Progress in Green Public Procurement

Public procurement is responsible for approximately 15% of worldwide greenhouse gas (GHG) emissions, according to recent research from the World Economic Forum. “Greening” public procurement is therefore a critical strategy to support the reduction of GHG emissions related to government activities. Effective Green Public Procurement (GPP) monitoring is key for countries to track progress toward their climate goals. We outline the importance of monitoring GPP and highlight the various methodologies, challenges and recommendations for improved monitoring practices.

9. Measures to Enhance Forest Conservation and Reduce Deforestation

Forests sustain and protect us in a myriad of ways. They absorb carbon dioxide and provide us with oxygen, they harbour more than three quarters of terrestrial biodiversity, and they support the livelihoods of millions of people worldwide. But the world has lost 420 million hectares of forest since 1990. This report outlines and compares various policy measures that Costa Rica, Gabon, Indonesia, Peru, and Rwanda have put in place to address deforestation and explores the role of voluntary sustainability standards (VSSs) in complementing them.

10. Investment Facilitation for Development Agreement: A reader's guide

After three years of informal talks and three years of formal negotiations, a group of more than 115 WTO members announced a major milestone on July 6, 2023: the finalization of the legal text of a new global agreement on investment facilitation. This reader's guide provides an overview of the Investment Facilitation for Development Agreement. It describes the rules and legal provisions that have been agreed and succinctly explains what the disciplines require. It has been designed to provide all interested stakeholders with a short and clear summary of the treaty.

Government support for fossil fuels reached at least USD 1.5 trillion in 2023. This is the second-highest annual total on record after 2022, when Russia’s invasion of Ukraine triggered a global fossil fuel price crisis.

The latest data on fossil fuel subsidies, capital investment by state-owned energy companies, and international public finance shows financial flows are far from aligned with low-carbon and resilient development (Figures 1–3).

There is a huge opportunity to redirect this money for the benefit of people and the planet.

• Fossil fuel subsidies to consumers, producers, and general services: Data for 2023 covers 83 economies, as estimated by the International Energy Agency (IEA) and the Organisation for Economic Co-operation and Development (OECD). Until 2022, this data was complemented by International Monetary Fund (IMF) estimates of fossil fuel subsidies in the rest of the world. The 2022 figure has been revised up from the previously estimated USD 1.5 trillion to USD 1.7 trillion in real terms, based on more precise data from IEA and the OECD. 
• State-owned enterprise (SOE) investment: USD 368 billion in 2023, as estimated by IISD.
• International public finance: Estimated at USD 29 billion in 2023, based on the average of 2020–2022 figures from Oil Change International, as published on EnergyFinance.org.

Regulated consumer prices

The largest component of support to fossil fuels was subsidies for consumption, at USD 1 trillion. Despite falling oil and gas prices, many measures that were put in place to ease the impact of high fuel costs on households and businesses in 2021 and 2022 continued into 2023.

It can be challenging to remove subsidies when people rely on fossil fuels to get around or heat their homes. However, untargeted fuel subsidies mainly benefit wealthy individuals, who use more energy. Ending these subsidies and redirecting funds to targeted social protection can reduce poverty and inequality, cut air pollution, and level the playing field for clean technology. 

Ultimately, clean energy can cut household bills and reduce exposure to fossil fuel price swings, but this depends on upfront investment reaching those who need it.

Fossil fuel lock-in

Alarmingly, around one third (USD 447 billion) of the support locks in new fossil fuel production through subsidies (USD 36 billion), capital spending by SOEs (USD 368 billion), and international public finance (USD 29 billion). This is likely to be an underestimate for two reasons. First, domestic public finance is not included. Second, while the dataset includes producer support estimates for such large producers as Argentina, Australia, Brazil, Canada, China, Norway, the United Kingdom, and the United States, it has blind spots for others, such as Iraq, Iran, Kuwait, Russia, the United Arab Emirates, and Venezuela.

The science is clear: there is no room for new fossil fuel projects under a 1.5°C global warming limit. Existing oil and gas fields, if fully exploited, would burn through the entire carbon budget for a 50% chance of limiting warming to 1.5°C.

No government can claim to be a climate leader while backing fossil fuel expansion through public subsidies and investments. Instead, they should make the industry pay its fair share of taxes and channel investment into accelerating the rollout of clean energy.

Unmet pledges

Countries have agreed at the G7, the G20, and UN climate talks to phase out “inefficient” fossil fuel subsidies. While there have been pockets of progress, we have not seen a downward trend in the sums involved.

The onus is on wealthy countries to lead the way with reforms because of their historic responsibility for climate pollution and greater resources to invest in the transition.

Accordingly, the G7 set a deadline for its fossil fuel subsidy phase-out commitment: 2025. The updated Fossil Fuel Subsidy Tracker shows that they are far from meeting it. G7 countries provided at least USD 282 billion of fossil fuel subsidies in 2023, nearly three times the amount in 2020. Subsidies continued to rise last year despite a decrease in the international oil price.

Germany’s measures to shield industries and households from high international gas prices explain much of that increase. Its fossil fuel subsidies grew by USD 64 billion from 2022 to 2023 to become the second highest in the world, after Russia and before Iran.

Japan, the Netherlands, and France were also among the top 10 subsidizers of 2023.

More broadly, the 23 developed countries responsible under the UN climate convention for providing climate finance to the developing world spent USD 378 billion supporting fossil fuels. When other countries the World Bank classifies as “high income” are included, the figure is USD 508 billion (Figure 4).

This puts into context the pact at last month’s COP 29 summit to mobilize USD 300 billion a year in climate finance by 2035. It shows that public money is available but flowing in the wrong direction. Some of the fiscal space freed up by fossil fuel subsidy reform could be used to meet those climate finance commitments.

Walking the talk

There are initiatives to turn high-level pledges into action. For example, the Coalition on Phasing Out Fossil Fuel Incentives Including Subsidies launched at the 2023 climate conference in Dubai with 12 countries (later joined by four more) promising to publish national inventories of fossil fuel subsidies, create domestic subsidy phase-out implementation plans, and work together to overcome international barriers to reform. The Agreement on Climate Change, Trade and Sustainability signed by four countries last month advances the issue through legally binding trade disciplines. Such initiatives need to deliver and inspire more countries to join.

Emerging markets and developing economies also provide large amounts of government support for fossil fuels, mostly by capping retail prices below international prices.

Subsidy reform offers a tremendous opportunity for these governments to free up budget lines for other priorities. India, for instance, cut subsidies to oil and gas by 76% between fiscal years 2014 and 2017, thanks to reforms coupled with decreasing international oil prices. During the same period, government support to renewable energy grew almost sixfold, from INR 2,608 crore (USD 431 million) in FY 2014 to INR 15,040 crore (USD 2.2 billion). Fuel taxes were also ramped up, creating the fiscal space for India to connect every household to electricity, among other development actions.

At the international level, shifting financial flows from fossil fuels to clean energy is set to come under focus in 2025. Talks under “Article 2.1(c)” are mandated to reach a decision at COP 30 climate talks in Belem, Brazil, potentially paving the way for a substantive agreement on the issue. This should include agreeing to immediately stop subsidies for fossil fuel expansion, end public finance to fossil fuels, pivot SOEs to clean energy, and support people, not fuels.

COP 28 delivered several breakthroughs for food systems and agriculture, including the first leaders’ level declaration on food and agriculture at a COP and the inclusion of food in the global stocktake and Global Goal on Adaptation. In contrast to the spotlight on the intersection between food and climate at COP 29, food systems, biodiversity, and ecosystems barely featured in the COP 29 final outcomes. Indigenous representation was similarly limited, and we witnessed pushback on the use of inclusive language.

However, it wasn’t all doom and gloom for food systems and land use at COP 29. A number of positive developments emerged that the food systems community can continue to foster and grow ahead of COP 30 next year in Belem.

1. We saw an increased focus on the need to mitigate non-CO2 greenhouse gas emissions in food systems. The COP 29 Declaration on Reducing Methane from Organic Waste, signed by over 30 countries representing almost 50% of global methane emissions from organic waste, shone a spotlight on the importance of reducing food loss and waste for methane abatement, including the need to leverage funding and build synergies with related objectives on issues such as food security, soil health, and energy. At the United States, China, and Azerbaijan Summit on Methane and non-CO2 GHGs, donors announced new finance for tackling methane mitigation, including in the agriculture sector, as well as new policy commitments and research covering both methane and nitrous oxide emissions.  
    
2. There was continued momentum from a coordinated food systems community and around a range of existing initiatives. The Alliance of Champions for Food Systems Transformation, launched at COP 28 in Dubai, shared a progress update and welcomed two new members to the Alliance: Tanzania and Vietnam. Although progress toward the Emirates Declaration on Sustainable Food and Agriculture has been slow to date, parties did emphasize the need to mainstream food systems into nationally determined contributions (NDCs) and national adaptation plans, as well as for additional finance for food systems transformation.
    
3. Brazil and the United Arab Emirates (UAE) announced updated NDCs at COP 29, including emissions relating to food systems, land use, and nature. Brazil pledged to reduce emissions by 59%–67% by 2035, with a strong emphasis on reducing deforestation as well as reference to existing measures to support sustainable agricultural practices, such as the ABC+ Plan. The UAE pledged to cut emissions by 47% by 2035, including a commitment to cut emissions from agriculture by 39% and to address emissions from energy use in the sector.

As the year draws to a close and policy-makers look ahead to the coming year, work remains to be done ahead of COP 30 in Brazil. Ambitious outcomes across a range of agenda items are critical for food systems transformation; however, enhancing synergies between food systems and climate is similarly critical for mitigating emissions from food systems and building their resilience to climate impacts:

1. Developing countries need financial support to transform their food systems. Therefore, the commitment from developed countries to raise USD 300 billion per year in climate finance should be viewed as a floor, not a ceiling. Developed countries must deliver on their promise and mobilize climate finance to support developing countries. With an estimated annual investment of USD 1.1 trillion needed to align food systems alone with climate goals, it is vital for our food systems that the Baku to Belem Roadmap identifies new and innovative sources to rapidly scale climate finance and match the annual USD 1.1 trillion need. Emphasis must also be placed on the accessibility of finance to vulnerable and marginalized groups, such as women, youth, Indigenous Peoples, and smallholder farmers.
    
2. Efforts must be taken to strengthen the commitment made at COP 28 to “transition away from fossil fuels” and to underscore the role food systems play in this transition. Energy systems and food systems are inextricably linked, with an estimated 15% of annual global fossil fuel use driven by our food systems. Food systems are also highly vulnerable to the climate impacts driven by emissions from a continued reliance on fossil fuels across all sectors of our economies. Policy-makers need to address these interlinkages and develop integrated approaches to transitioning both our food and energy systems away from fossil fuels, including in progressing outcomes from the global stocktake.
    
3. Ambitious food systems- and nature-related targets are needed in countries’ 2035 NDCs. Updated NDCs must recognize the interlinkages between food systems, climate, and biodiversity and be well integrated with national biodiversity strategies and action plans. They should include actionable, measurable targets across the whole food system—harnessing the potential of both production- and consumption-side measures.  Additionally, they should cover issues including, but not limited to, food loss and waste, soil health, habitat restoration, and deforestation-free supply chains.  The COP Presidencies’ Troika of the UAE, Azerbaijan, and Brazil must step up their commitment to cooperate and build a coalition to support parties on the path to ambitious NDCs.

COP 29 made little progress on the foundations laid at COP 28 and failed to make any substantial headway on commitments recognizing the critical role food systems play in climate action. However, progress did not backslide. In Baku, an increasingly well-coordinated, motivated food systems community cooperated to keep moving forward. Much remains to be done ahead of COP 30, however, and this community will be critical in continuing to build momentum.

The road from Baku to Belem starts now.

A consistent theme at the climate talks in Baku, Azerbaijan, was extreme frustration from the poorest and most vulnerable countries at the inadequate finance offered by developed countries—finance they sorely need to address the ravages of climate change on their economies and communities.

This frustration, building from one climate conference to the next, is not only because poor countries are bearing the brunt of climate change while having done little to cause it—it is because of the hypocrisy they see on the part of rich countries who claim they are unable to provide more to developing countries while continuing to subsidize the fossil fuels causing climate change.

The deal reached in Baku to mobilize USD 300 billion a year by 2035 is a progression on previous commitments but falls short of developing countries’ assessed needs. It also falls short of the estimated amount of public money that developed countries are providing to fossil fuels.

Despite the commitment to make “finance flows consistent with a pathway towards low greenhouse gas emissions and climate resilient development pathways,” domestic fossil fuel subsidies in 23 developed countries—those who are responsible for providing climate finance under the Paris Agreement—totalled at least USD 378 billion in 2023. And outside of national borders, rich countries still provide export credit finance of USD 41 billion per year to oil and gas, following their earlier agreement to end export credit support for coal.

Members of the Organisation of Petroleum Exporting Countries (OECD) have a critical and immediate opportunity to address at least the export credit finance element of public finance for fossil fuels to show they are serious about shifting funds from fuels that are exacerbating climate change to solutions that will protect planet and people, especially those in the poorest countries.

For a year now, OECD governments have been negotiating an agreement that could put an end to oil and gas export finance. Originally put forward by the United Kingdom, the European Union, and Canada, the proposal is now backed by nearly all OECD countries. If the few holdouts can be persuaded, this deal could only be reversed if all negotiating countries agreed to undo it.

Following the acrimony in Baku, this would be a very real way for the mostly rich countries of the OECD to show policy coherence, respond to calls from the poorest countries to stop subsidizing the fuels that are causing the climate crisis, and shift public finance to solutions.

A restriction on export credit support to oil and gas is also pro-development in another way. To the extent that these credits are being offered for projects in the developing world, they are placing these economies at increased risk. The International Energy Agency projects that oil and gas demand will both peak before 2030, even if no new climate policies are rolled out. New oil and gas infrastructure, such as gas-fired power plants, are at risk of becoming stranded assets unable to recover the original investment costs.

Public financing for fossil fuels has an outsized impact compared to private finance. Since it is government-backed and often provided at preferential below-market rates and longer time horizons, it helps leverage additional investment for proposed projects. It makes viable polluting projects that might not otherwise be financially feasible.

We have seen the potential of multilateral leadership in export finance before. In 2021, the OECD ended coal-fired power export credit financing, a key milestone in the phase-out of international public finance for coal. Now OECD countries have the opportunity to replicate this success for oil and gas. This could free up much-needed public finance to accelerate the uptake of clean energy.

This article originally appeared on the SDG Knowledge Hub on 27 November 2024

The ENB summary report of COP 29 notes that the NCQG decision “calls on all actors to work together to scale up financing to developing countries for climate action from all public and private sources to at least USD 1.3 trillion per year by 2035.” It sets a goal of at least USD 300 billion per year by 2035 for developing countries’ climate action. This money is to come from a wide variety of sources, including public and private, bilateral and multilateral, as well as alternative sources, with developed countries taking the lead. “Developing countries are encouraged to make contributions on a voluntary basis,” ENB writes.

Also in the context of the NCQG, countries agreed “to pursue efforts to at least triple annual outflows from the key climate funds from 2022 levels by 2030 at the latest.” “The decision also acknowledges the need for public and grant-based resources and highly concessional finance, particularly for adaptation and responding to loss and damage,” especially for the least developed countries (LDCs) and small island developing States (SIDS), among other vulnerable countries with significant capacity constraints, ENB notes.

The NCQG is an extension of the USD 100 billion per year by 2020 goal, and negotiations towards it were difficult. According to ENB, developed countries wanted to expand the contributor base to include “other parties in a position to contribute,” while developing countries called for a higher quantum. Some called for specific targets on the provision of public finance and finance mobilization. LDCs and SIDS called for minimum allocation floors for their groups.

The Baku Climate Change Conference saw the many years of negotiations on the modalities for setting up the Paris Agreement’s carbon markets come to conclusion. “The Article 6.2 decision will allow the Secretariat to provide registry services to countries that request it, allowing them to issue mitigation outcomes as units, and these services would be interoperable with the international registry,” the ENB analysis of the meeting explains. The Article 6.4 methodologies and removals requirements were also adopted, and “[t]he first Article 6.4 issuances can roll out as early as 2025.”

Countries also:

• Extended the work programme on gender;
• Provided further guidance on defining indicators for assessing progress toward the Global Goal on Adaptation (GGA);
• Adopted arrangements with the new Loss and Damage Fund; and
• Extended the mandate of the working group facilitating the implementation of the Local Communities and Indigenous Peoples Platform.

Parties could not reach agreement on, inter alia:

• The dialogue on the implementation of the outcomes of the Global Stocktake (GST);
• The just transition work programme;
• Review of the progress, effectiveness, and performance of the Adaptation Committee;
• Second review of the functions of the Standing Committee on Finance;
• Seventh review of the Financial Mechanism;
• Linkages between the Technology Mechanism and the Financial Mechanism;
• Further guidance on features of nationally determined contributions (NDCs);
• The report on the annual dialogue on the GST informing NDC preparation; and
• Procedural and logistical elements of the overall GST process.

According to ENB, many were disappointed about the lack of agreement in Baku on whether and how to take forward the GST outcomes, especially considering the importance of the next round of NDCs, to be submitted in 2025, to avoid overshooting the 1.5°C goal.

The Baku Climate Change Conference convened from 11-22 November 2024 in Baku, Azerbaijan. It consisted of the 29th session of the Conference of the Parties (COP) to the UNFCCC, the 19th meeting of the Conference of the Parties serving as the Meeting of the Parties to the Kyoto Protocol (CMP 19), the sixth meeting of the Conference of the Parties serving as the Meeting of the Parties to the Paris Agreement (CMA 6), and the 61st sessions of the Subsidiary Body for Scientific and Technological Advice (SBSTA 61) and the Subsidiary Body for Implementation (SBI 61). [ENB Coverage of Baku Climate Change Conference]