Removing a Fossil Fuel Subsidy is a Means, Not an End—The Transition is the Point

Fossil fuel subsidy reform is one of the hardest policies for any government to act on—yet it’s also one of the most rewarding when done right. This is why the Netherlands has undertaken this work, and helped build a coalition to take the effort global. Kim Solberg, manager at the Dutch Ministry of Economic Affairs and Climate, was part of the team that founded the Coalition on Phasing Out Fossil Fuel Incentives Including Subsidies (COFFIS). She sat down with us to explain what made it possible—and why, in her view, a subsidy can only be removed as part of the wider transition it's meant to serve.

Fossil fuel subsidy reform has been a notoriously difficult policy to act on. Take us back to the conversation inside the Dutch government that convinced you a coalition was needed, rather than just national action.

When I took on this job about three and a half years ago, fossil fuel subsidies were already a live issue in the Netherlands, with years of mounting pressure from civil society to take real political action.

The odd thing is that for several governments in a row, the main discussion had been simply defining what a fossil fuel subsidy meant for us. We have no direct subsidies—unlike countries where a subsidy keeps the consumption price below the market price, that wasn't the case here. But as the pressure grew, and with parliament pushing us to be far more transparent about what we had and what we were doing about it, it was clear the government had to respond.

We started with a national inventory, and the discussion moved quickly from there: transparency on fossil fuel subsidies had to go hand in hand with phasing them out. Working with our Ministry of Finance colleagues, we began tracing where these subsidies came from. A lot of them originate in international agreements—we'd agreed, for instance, to a tax exemption on fuels used by international aviation and shipping. So in many cases, progress means changing those agreements. And because Dutch climate and energy policy is so interlinked with Europe's, we knew from the start that much of the movement would have to come from the European and international level.

Then parliament passed a motion calling on us to step up our international efforts. So with Minister Jetten—now our Prime Minister—we started asking what we could actually do. There were already initiatives out there, like the Beyond Oil and Gas Alliance and work led by New Zealand, and it was becoming a hot topic, including at the OECD. So we thought: what if we start a coalition of countries willing to work on this topic and see who wants to join?

Was there a moment when you realized others were ready to join—and what did it take to turn that into a launch?

Minister Jetten played a big part in this personally, and we worked closely with our climate colleagues throughout. The Netherlands was very active in the high-ambition coalition, and that's where we tapped in first—reaching out early to test whether countries would be willing to join. We already knew there was a handful that positioned themselves very similarly on climate and energy policy, and were naturally like-minded, so there was support there to build on.

But the thing that really gave it momentum was the European Commission coming to our launch event in Dubai—even though the European Union as a whole is not part of COFFIS. That sent quite a strong message, and behind the scenes a lot of people had worked hard in the run-up to make it happen. 

And you have to see it against the backdrop of that moment. The COP 28 agreement to transition away from fossil fuels was historic. So these two pieces came together really nicely at that point in time: a global signal to move away from fossil fuels, and a coalition ready to act on the subsidies that keep them in place.

Looking back from here: what has changed in the politics of fossil fuel subsidies since you started, and what hasn't?

Let me start with what hasn't changed. The case for transparency still holds and a lot of countries recognize it. So does the economic argument: subsidizing fossil fuels means incentivizing their use, and it opens a gap in the budget that must be filled some other way. That framing still resonates—all the more so as renewables become more efficient and the sustainable alternative becomes more viable. In the Netherlands we've had three different governments in the space of a few years and that argument has stayed consistent across all of them.

What has clearly changed is the political will to set a direction—to say, this is where we're going. It's become a question of when, not if. That was true of the government in place when we launched the coalition, and it's very much the narrative of the current one.  You see the same shift globally: compared with a few years ago, the political story is different.

But it isn't a linear process—some countries are moving the other way. These are hard decisions that can't be taken at the level of the civil service; they need political will. So the thing to do is prepare the ground, so that when the political narrative does shift, the evidence is already there and the decision can be taken rather than the discussion starting from scratch. That's exactly why we built transparency into the coalition as a stepping stone: a country can join by committing to transparency first, and work towards a phase-out plan from there.

The Netherlands is often held up as the country that has gone furthest on this. You have produced your subsidy inventory and developed a phase-out action plan. What actually made it possible?

It goes beyond political will—it's the structure we've built around it. Alongside the annual inventory in our budget, every year our environmental assessment agency looks at the level of carbon pricing across different sectors and compares it against the expected costs of climate change. In other words, they assess whether we're pricing fossil fuels highly enough not to harm the climate. They break it down sector by sector, weigh up all the relevant policy instruments, and tell us each year where the gaps are—where pricing is too low, and where it's already high enough that there's no real risk of a fossil fuel subsidy.

This analysis is enormously useful—it's the main lens through which we look at fossil fuel subsidies, because ultimately what we want is for fossil fuels not to be priced more favourably than the sustainable alternative.

And once that structure exists, it becomes self-reinforcing. It's very hard for a government to suddenly decide it won't report to parliament this year. So short of a major shift in political will, every government keeps reporting—and there's genuine public support for moving the transition along, even if people do have real concerns about the economic impact, or what it means for individual consumers. That structure helps enormously.

Even with political will, the road from commitment to implementation is not short. What does it actually take to get a single subsidy removed—and what surprised you most along the way?

It starts with being clear on what the transition should look like in each sector—because removing a subsidy is a means, not an end. It's a way of reaching your climate and energy objectives. Once those goals are set, the question becomes which subsidies stand in the way of them. In our case, that's shaped by both national and European policy.

What surprised me was that even when the direction is clear and you know what you want to incentivize, removing a single subsidy can still be extraordinarily hard. That's where it gets most complicated, and it's quite country-specific. For us, the eye-opener was that the sustainable markets simply aren't moving fast enough. If you remove a subsidy in one go, before the greener investment can realistically be made, you can end up making it very hard for companies to stay in the Netherlands and go green at the same time.

Take coal. We used to have a tax exemption for using coal in certain production processes—but coal is carbon-heavy, so the aim is to move companies onto cleaner fuels. That only works if those options are actually available and affordable to them, which comes down to whether the cost of renewables and other clean fuels has fallen far enough to make switching viable. When it hasn't, pulling the subsidy simply pushes production abroad rather than making it cleaner.

We're living through another energy crisis—the first real test of these reforms. What did the Netherlands do, and how did you decide who to protect and who to stop protecting?

The situation was different this time. After the war in Ukraine began, we saw prices rise very fast; this time the increase has been far less steep. That gave us room to step back and ask what the appropriate response actually was. Last time, we'd provided broad support right across the economy—to companies and households alike—to keep energy affordable. This time we could be more deliberate.

The risk we wanted to avoid was propping up fossil fuel use. Cushioning a price rise across the board also gives people a reason to keep burning fossil fuels—when the goal is to move them onto the alternative. Even in the last crisis, that shift was visible: people installing solar panels, insulating their homes, exactly the behaviour a transition depends on.

This time, the support package was much more targeted towards the transition itself. Rather than compensating for high fossil fuel prices, we rewarded the move to cleaner options and directed support to those who find that move hardest: higher tax incentives for companies, and direct help for households with fewer means to make their homes more sustainable.

Many governments say they want to move on subsidies but fear the backlash. What would you tell them to do first—and where do you think the biggest opportunity is currently being missed, whether or not a country has joined COFFIS?

The single most useful thing, in my experience, is to approach it broadly. In the Netherlands we don't frame this as a question of removing subsidies in industry, or in households, or in any one sector. We frame it as a broader discussion about how to move the transition along. That matters, because the moment the conversation narrows to a specific sector or group, it gets stuck—there's always a particular interest to contend with, and from any single vantage point, industry or consumer, the incentive is always to keep prices as low as possible. That's simply how it works economically. But keep prices low and nothing shifts, because the whole point is to move towards the sustainable alternative. So it has to be a whole-of-society discussion: how you spread both the benefits and the costs across the economy.

The other part is treating fossil fuel subsidy reform as transition policy—one piece of a much broader package, not a standalone measure. That's the advice I'd give to policy advisors elsewhere, and it's demanding, because it usually means working across government.

That's exactly what works for us: we can move incrementally because the Ministry of Finance, who are responsible for the tax policy, are in the room with us. That whole-of-government approach is what makes the reform actually happen.

 

And where the opportunity is most often missed, I think, is communication. We're quite transparent—about the annual process, but also about each specific case: whenever we look at removing a subsidy, we run the full analysis and publish it. So when pushback comes, and it does, because sometimes it simply isn't in a particular group's interest, the government can point to that work and explain why the decision is a sensible one. That's where it starts: being open about why you're doing something, what you've weighed, and what the effects might be—including, honestly, that costs could rise for a time. Without that transparency, public support is very hard to win.