Fit for Purpose? Toward trade rules that support fossil fuel subsidy reform and the clean energy transition

Estimated at USD 478 billion in 2019, fossil fuel subsidies strain the public purse, contribute to climate change, slow the uptake of renewable energy, and lead to local air pollution and associated impacts on public health. Their reform could thus lead to a wide range of socioeconomic and environmental benefits.

As the only global institution with binding rules to regulate subsidies, the World Trade Organization (WTO) would seem well positioned to support such reform. For this to happen, however, something would need to change. In contrast with measures to support renewable energy, fossil fuel subsidies have so far remained largely unchallenged under the global trade body’s dispute settlement mechanism.

Against this backdrop, this report explores whether WTO rules and practices are fit for purpose in addressing fossil fuel subsidies and encouraging the clean energy transition. While some fossil fuel support measures could be challenged under the WTO’s existing subsidy rules, the report highlights that there are important strategic, political, and legal–evidentiary hurdles that limit this possibility. It also emphasizes that the WTO’s disciplines are squarely focused on the trade effects of subsidies, leaving environmental concerns unaddressed.

The report suggests ways to strengthen the WTO’s role in supporting fossil fuel subsidy reform and the clean energy transition. In particular, WTO members should: (1) boost transparency around public support to fossil fuels, (2) better enforce the WTO’s existing subsidy rules, and (3) start an informal dialogue with a view to establishing new, stronger rules on fossil fuel subsidies. More research would also be needed on the trade impacts and legality of fossil fuel support measures, as well as on how new rules could best be crafted.