Aerial view of the city of Turin, Italy.

What the G7 Ministerial Could Have Delivered on Fossil Fuel Subsidies Reform

Fifteen years after committing to phase out “inefficient” fossil fuel subsidies, G7 ministers are still debating definitions. They need to move from talk to action by the 2025 deadline.

By Jonas Kuehl, Megan Darby, Ivetta Gerasimchuk on April 30, 2024

G7 climate, energy, and environment ministers gathered in Turin, Italy, this week. It was their first meeting since the historic UNFCCC COP 28 international agreement to transition away from fossil fuels and the penultimate one before a self-imposed 2025 deadline to eliminate “inefficient” fossil fuel subsidies.  

The Ministerial had the potential to be a success in tackling some low-hanging (though prickly) fruit on the climate change mitigation front—in particular, ending governments’ subsidies to fossil fuels that amounted to at least USD 1.5 trillion globally and USD 199 billion in the G7 countries in 2022.  

But the final Ministerial communiqué ultimately falls short when it comes to breaking the 15 years of gridlock on fossil fuel subsidies.  

Here’s how G7 leadership can use their next meetings to demonstrate measurable progress.

Fix the Loophole on “Inefficient” Subsidies 

First, the G7 governments should drop the long-standing loophole in their reform commitment that technically involves the phase-out of only “inefficient” fossil fuel subsidies. The Turin statement finally clarifies what “inefficient” subsidies are: they are those that “do not address energy poverty or just transitions.” This clarification is an improvement over the previous G7 language but demonstrates no leadership as it merely brought the G7 in line with what was agreed at UNFCCC COP 28. A better outcome would have been to drop “inefficient” altogether and require each G7 member to create a national roadmap for phasing out their fossil fuel subsidies. These would require them to justify any remaining subsidies and identify alternative policy levers to achieve the same objectives. 

Commit to Supporting People, not Fossil Fuels 

Second, G7 governments should demonstrate leadership by committing to address energy poverty, just transitions, and other social concerns like inflation under the principle “support people, not fossil fuels.” Russia’s invasion of Ukraine sent oil and gas prices soaring, and many governments introduced emergency measures to shield consumers from the impact on their fuel bills. Within the G7, the United Kingdom and Italy provided the biggest subsidies, of USD 50 billion each, in 2022.  

In Turin, ministers said any crisis measures should be “timebound, transparent, and limited to address vulnerable groups without distortion of the incentives to save energy.” They should have gone further and ruled out fossil fuel subsidies as a crisis response—instead, considering direct cash transfers to vulnerable groups or grants for heat pumps, electric vehicles, and renewable energy.

Phase out All Subsidies to New Fossil Fuel Production

Third, the G7 should prioritize phasing out any support measures to fossil fuel exploration and production. These accounted for a substantial USD 42 billion across the G7 in 2022, even as oil and gas companies posted record profits. The science is clear that there is no room for new oil and gas production under a 1.5°C-compatible pathway, and global production must decline by at least 65% by 2050. Producer subsidies do nothing to tackle energy poverty, as any cost reductions are spread across all industrial and household customers, not just the vulnerable. Removing producer subsidies helps to align demand and supply while reducing the risk of stranded assets. This should be a priority. 

Ministers in Turin stressed the need for a common definition of fossil fuel subsidies. Their statement calls on the G20 and international organizations to work together on a methodology and agree on such a definition—something the G20 has tried and failed to do for many years. It is obvious that countries’ disagreement on definitions is driven by political considerations rather than any methodological challenges, given there is a long-standing—and legally binding—definition of subsidies under the World Trade Organisation (WTO) as well as a detailed and WTO-consistent methodology outlined in Sustainable Development Goal 12.  

While the G7 consensus is frustratingly weak, help is at hand for those member governments ready to take on the challenge. Where there is a will, there is a way. Canada and nine EU countries, including France, joined a coalition launched by the Dutch government at COP 28 to tackle this issue. The rest of the G7 should follow and make every effort to deliver by the 2025 deadline.  

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