Reforming Fossil-Fuel Subsidies to Reduce Waste and Limit CO2 Emissions while Protecting the Poor

Asia-Pacific Economic Cooperation (APEC) economies are estimated to have spent at least US$105 billion subsidizing fossil-fuel consumption in 2010.

This estimate excludes subsidies for fossil-fuel production, which the GSI estimates could be worth more than US$100 billion per year worldwide. Some APEC economies are spending up to 2.8 per cent of national gross domestic product (GDP) or as much as US$840 per capita, despite evidence that fossil-fuel subsidies tend to be regressive, with only around 8 per cent of the benefits reaching the poorest 20 per cent of the population. These subsidies incentivize fossil-fuel production and consumption, increasing energy demand and exacerbating harmful emissions, undermining APEC's sustainable green growth agenda.

In November 2009 APEC Leaders agreed to "rationalise and phase out over the medium term fossil-fuel subsidies that encourage wasteful consumption, while recognising the importance of providing those in need with essential energy services." The APEC Secretariat commissioned the GSI to prepare this report as part of the Energy Working Group's program to implement the APEC Leaders' commitment over the medium term.

The report is divided into three parts:

1. It draws on existing literature to provide an overview of the types and magnitude of fossil-fuel subsidies in APEC economies; their economic, environmental and social impacts; and issues raised by the private sector and political economy challenges (Sections 1-7).
2. It provides new case examples of reform efforts in seven APEC economies that illustrate key elements of a subsidy reform strategy and draws lessons that can be shared with other policy-makers (Section 9).
3. It outlines a framework for planning and implementing subsidy reform, along with policy options and suggestions for capacity building (Sections 8 and 10).