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Defining Fossil-Fuel Subsidies for the G-20: Which Approach is Best?

In September 2009, leaders of the Group of Twenty (G-20) largest industrialized and developing economies made a groundbreaking commitment to reform their fossil-fuel subsidies, in a bid to advance their energy security and climate change agendas. In doing so, leaders called upon their finance and energy Ministers to prepare implementation plans and timelines and asked international organizations to prepare an analytical background paper; both are to report back to the next Leaders' Summit, to be held 26-27 June 2010, in Toronto, Canada.

The concept of subsidy can be rather murky and the reform process can easily become bogged down in the attempt to find a suitable definition. As part of their efforts to progress fossil-fuel subsidy reform, G-20 energy and finance officials, along with the international community, have revived a debate to agree on a definition of "subsidy." This is by no means a new debate--subsidies have been negotiated multilaterally since the 1947 General Agreement on Tariffs and Trade. But because the very nature of subsidies goes to the heart of sensitive issues such as government spending, sovereignty of governments to use natural resources as they see fit, trade competition and poverty alleviation, finding a commonly agreed-upon definition and scope has proven difficult. Resolution of the debate within the G-20 will set the parameters for national reform actions and could determine whether the leaders' commitment will courageously advance or merely pay lip service to development, climate change and energy security goals.

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