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Fossil Fuel Subsidies

IISD’s Bali to Copenhagen project conducted a suite of research in the area of trade, investment and climate change. IISD’s research in this area is ongoing and can be found here.

Under the Bali to Copenhagen Project, IISD conducted a suite of research in the area of fossil fuel subsidies, their potential for mitigating GHG emissions and the lessons of past practice in such reform. That work is cited below. IISD’s work in this area continues in full force under the Global Subsidies Initiative (GSI). For current and past research on other aspects of trade, investment and climate change see our Trade, Investment and Climate Change (TRI–CC) suite of work.

Bali to Copenhagen Publications:

• Increasing the Momentum of Fossil-Fuel Subsidy Reform: A Roadmap for international cooperation (PDF – 1 MB)
  (Kerryn Lang, Peter Wooders, Kati Kulovesi, 2010). This study, prepared in collaboration with, and with the support of, the Economics and Trade Branch of the United Nations Environment Programme, takes a detailed look at the opportunities, strengths and weaknesses of progressing fossil fuel subsidy reform within the World Trade Organization, at the United Nations Framework Convention on Climate Change and under the G-20's political leadership. It concludes that a collaborative approach between a range of organizations is needed, with country champions driving the process. A roadmap is provided for the next 12 months, 1 to 3 years and the longer term for increasing international cooperation, and preparing the path to a multilateral agreement on fossil fuel subsidy reform.

• Lessons Learned from Indonesia's Attempts to Reform Fossil-Fuel Subsidies (PDF – 1.5 MB)
  (Christopher Beaton and Lucky Lontoh, 2010) This report examines Indonesia's attempts to reform fossil fuel subsidies. It reviews the history of fossil fuel subsidies in the country and focuses on the performance of two policies that have been used to support reform. The first is the Bantuan Langsun Tunai, an unconditional cash transfer program used to help cushion low-income households from price increases in 2005 and 2008. The second program, begun in 2007, aims to make low-income households use liquified petroleum gas (LPG) instead of kerosene, as it is cheaper to subsdize, cleaner and more efficient. The report concludes that both these policies appear to have achieved the Indonesian government's objectives.

• Lessons Learned from Attempts to Reform India's Kerosene Subsidy (PDF – 969 KB)
  (Dr. Bhamy V. Shenoy, 2010). This report examines attempts to reform India's long-standing subsidy on residential kerosene. At least one third of the subsidized kerosene is diverted to the black market for use as a transport fuel—a lucrative business for corrupt fuel distributors who, in turn, bribe government officials to obtain licenses to distribute or blend the fuel and to maintain the subsidy. India has tried to reform the subsidy but failed because of strong political pressure by the poor and black market participants to maintain the subsidy. Dr. Shenoy looks at the main lessons learned from the reform process.

• Lessons Learned from Brazil’s Experience with Fossil-Fuel Subsidies and their Reform (PDF – 1 MB)
  (Tara Laan and Adilson de Oliveira, 2010). The report examines the rationale used by Brazilian governments to justify consumer fossil fuel subsidies and the interest groups which benefitted from them. Government policy during the 1980s, prior to the eventual liberalization of energy markets during the 1990s, involved complex cross subsidization between energy sectors. The Brazilian experience is useful for understanding the rationale for subsidies in countries with large regional and social disparities. Changes in subsidy policy often produced an uneven economic and social impact on different regions of Brazil and Brazilian society, depending on wealth and access to alternative energy sources. The report on the lessons learned from liberalizing Brazil's energy market focuses on government attempts to address the rationale used by interest groups to continue the use of existing fossil fuel subsidies.

• Measuring Energy Subsidies Using the Price-Gap Approach: What does it leave out? (PDF – 504 KB)
  (Doug Koplow, 2009). The OECD and the IEA have produced estimates of global subsidies to fossil fuels that make the case for action on both environmental and economic grounds. But the methodologies most often used may significantly underestimate the size of the problem. This paper explains why this is so and explores ways to come to a more accurate picture.

The Bali to Copenhagen project was made possible by generous support from the governments of Norway, Sweden, Denmark and Finland.

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