New Coalition Formed at COP 28 to Tackle Fossil Fuel Subsidy Reform a Promising Sign

December 8, 2023

The International Institute for Sustainable Development (IISD) welcomes the new joint ministerial statement on fossil fuel subsidy (FFS) reform led by the Netherlands and launched today at the 28th United Nations Framework Convention on Climate Change (UNFCCC) Climate Change Conference (COP 28). The coalition commits to more transparency based on a comprehensive methodology; evaluating existing international agreements that form barriers to reform; and developing national FFS phase out strategies.

In 2022, public financial support for fossil fuels, in the form of subsidies, investments by state-owned enterprises, and lending from public financial institutions, exceeded a record USD 1.7 trillion globally. Only 16 countries have included a commitment to reform their FFS in the current round of nationally determined contributions (NDCs). This support continues contrary to multiple FFS reform commitments under the G7, G20, and Asia–Pacific Economic Cooperation (since 2009), the Sustainable Development Goals, UNFCCC COP 26, and many other related efforts, such as the Friends of Fossil Fuel Subsidy Reform, the Agreement on Climate Change, Trade and Sustainability, the ministerial statement on FFS at the World Trade Organization, and the Global Biodiversity Framework.

"With FFS reform being a high-impact issue, there is a role for a 'first-mover club' to deliver the much-needed action on FFS phase-out and make finance flows consistent with lowering greenhouse gas emissions and climate-resilient development according to Article 2.1(c) of the Paris Agreement," said Ivetta Gerasimchuk, Director, Energy Program, International Strategy at IISD. "The new coalition must raise the bar to deliver the true high ambition and impact required. Its members must convert international commitments on fossil fuel subsidies into national policy frameworks by UNFCCC COP 29."

IISD therefore recommends the following six areas for improvement to secure the impact and success of the new coalition:

  1. Changing the defaults on qualifiers and definitions for FFS. The coalition’s effort to address both "direct" and "indirect" subsidies and other forms of government support meets the call for holistic climate action. However, in practice, discussions over such definitions of "direct" and "indirect" subsidies or their qualifiers, such as "inefficient," have been delaying reform and serving as an excuse for inaction in international processes for over a decade. The Dutch initiative must push for a phase-out of all forms of support to fossil fuels unless subsidizers can credibly prove that these measures address energy poverty or a just transition better than any other readily available policy tool. The same filter should apply to any possible new subsidies in the energy sector, including subsidies to carbon capture and storage or fossil fuel-based hydrogen technologies—the social and economic cost benefits of which have not been proved.
  2. A 2025 deadline for ending FFS in Organisation for Economic Co-operation and Development (OECD) countries, with a 2030 deadline for the non-OECD member countries (reflective of the G7 commitment and SDG 12.c timelines, respectively). These membership criteria need to be backed up by converting international commitments into specific national policy frameworks. The coalition members should commit to including FFSs in their NDCs and publish concrete roadmaps and accompanying policy frameworks to phase out all fossil fuel subsidies by mid-2024.
  3. Focus on the immediate reform of the most egregious fossil fuel subsidies. The Dutch initiative’s current focus on reforming tax cuts for aviation and shipping is novel, but reference to such agreements should not serve as a distraction from the reforms that must be undertaken at the national level. For example, tax breaks and other subsidies for oil and gas exploration and production have no justification, given the scientific consensus that there is no room for new oil, gas, and coal developments in the Paris-aligned world. 
  4. Commitment to the reinvestment of FFS reform savings for the justice-oriented clean energy transition. FFS reform efforts are most effective when countries commit to reinvesting a share of saved expenditures and generated revenues. This helps build public support for reform efforts, can address the negative impacts of fossil fuel price increases on households, and is critical for a justice-oriented approach to FFS reform. Members of the new coalition should commit to reinvesting FFS reform savings and revenues generated from fossil fuel taxation to clean energy and just transition programs.
  5. A governance structure that is built to last. Political priorities in member countries can change. Ensuring that member countries commit to funding the operation of the initiative for several years, creating space for other countries to step up as co-leaders of the initiative, and creating a dedicated secretariat for the initiative can ensure that it is less vulnerable to changing domestic politics.
  6. Building off the previous international efforts on FFS reform. The new coalition should build on previous international efforts, such as the Friends of Fossil Fuel Subsidy Reform, as well as other existing initiatives addressing aspects of the FFS reform: the High Ambition Coalition within UNFCCC, the Fossil Fuel Subsidy Reform Initiative within the World Trade Organization, and FFS reform commitments under the G7, G20, Sustainable Development Goals, UNFCCC, and Global Biodiversity Framework. The Dutch initiative should tap into the decades of expertise and engagement experience on the topic accumulated within international and non-governmental organizations and engage with civil society and other stakeholders to ensure its success.