Fossil Fuel Subsidies & Climate Change

In their closing statement at the UNFCCC COP 23 in 2017, the world’s 47 least developed countries requested that the Talanoa Dialogue include “managing a phaseout of fossil fuels”. The 2018 Talanoa Dialogue is a crucial opportunity to increase climate mitigation ambition and effectiveness by putting fossil fuel phase-out on the international climate agenda.

Two events this September set a new bar for climate change leadership. First, over 340 non-governmental organisations from 67 countries signed the Lofoten Declaration. This document calls for an end to exploration and expansion of new oil, gas and coal reserves, a managed decline of the oil, coal, and gas industry, and a just transition to a safer climate future.

Can the international trade system be a catalyst for reforming fossil fuel subsidies (FFSs) to help relieve the burden on the public purse, reduce local and global air pollution, improve energy security and tackle climate change?

Phase-out and reallocation of fossil fuel subsidies (FFS) is a low-hanging fruit for financing and implementing SDGs. First, it has a diverse support base of both sustainable development advocates and “government downsizers.” Second, instead of requiring financing like many sustainable development policies, it could free up hundreds of billions of dollars for implementing multiple SDGs.

The combined impact of fossil fuel subsidy reform (FFSR) and an increase in gasoline and diesel fuel taxation could do three things: save and raise money for governments; reduce emissions; and provide upfront and ongoing domestic resources to fund sustainable development and the sustainable energy transition.

This working paper explains how different production subsidies currently unlock “zombie energy” from fossil fuel deposits that would not be commercially viable to produce without government support.