GSI/UNEP conference report finds fossil-fuel subsidy reform “complex” and challenges “sobering”; ~1% of global GDP spent on fossil-fuel subsidies
Although momentum behind reforming subsidies for fossil fuels (for both consumers and producers) worldwide has gained significant momentum during the past few years, and although the benefits of subsidy reform seem evident, countries’ experience of reform and the challenges involved are “sobering”, according to a recently published report from a conference convened on the subject last year by the Global Subsidies Initiative (GSI) and the United Nations Environment Programme (UNEP).
In 2008, a report by UNEP called for the elimination of fossil-fuel subsidies, concluding that such subsidies often lead to increased levels of consumption and waste; place a heavy burden on government finances; can undermine private and public investment in the energy sector; and do not always end up helping the people who need them most. (Earlier post.) In September 2009, the G-20 announced a commitment to phase out inefficient fossil-fuel subsidies that encourage wasteful consumption. Following that announcement, G-20 Leaders agreed to national plans to implement subsidy reform (June 2010) and have asked international organizations to review and assess members’ progress against their commitments (November 2010), according to the conference report.
The two-day conference, “Increasing the Momentum of Fossil-Fuel Subsidy Reform: Developments and Opportunities” brought together country delegates and experts from international organizations, NGOs, universities and the industrial sector. The event featured representatives from international organizations such as the OECD, UNEP, World Bank, WTO and OPEC, as well as international forums such as G-20, APEC and the Friends group of countries that support reforming fossil-fuel subsidies, who shared and reviewed their perspectives and activities. The discussions focused on five key themes:
- Latest research on the scale and impacts of fossil-fuel subsidies
- Recent international political developments
- Issues and options for overcoming the political obstacles to reform
- Necessary elements of effective reform strategies
- Opportunities for international collaboration
The conference report summarizes the presentations and discussions of the two-day conference and includes a resource list of relevant documents and research reports.
In conclusions based on the closing remarks of Mark Halle, Director of Trade and Investment, IISD, the report notes that while the conference provided a rich and complete debate on the complex issue, “some aspects of fossil-fuel subsidy reform are more complicated than they look on the surface.” Some of the main lessons drawn from the report include:
Fossil-fuel subsidies absorb serious amounts of money. For example, at peak oil price in 2008, Indonesia was spending 40% of its budget on transport fuel—more than health, education and infrastructure development combined.
When Sir Nicolas Stern said that governments would need to spend 1 per cent of global gross domestic product (GDP) to stabilize greenhouse gas emissions at 450 parts per million, people balked at the amount. And yet 1 per cent of global GDP is what we are spending on fossil-fuel subsidies.
Subsidies may be well-intended, but often do not meet those objectives. Broad-based consumer subsidies are not well targeted to benefit the poor, and the longer the subsidy is in place, the worse it becomes, as other interest groups divert or misuse the subsidy. For other subsidy types, the report noted, there is usually very poor alignment between the policy purpose and the way the subsidy is spent.
Understanding the impacts of subsidies is somewhat of a new field for many countries. It can have a steep learning curve, but despite mistakes, identifying the challenges and overcoming them will improve with experience. Fossil-fuel subsidy reform is such an extraordinarily important issue, that subsidy reformers need to move beyond the challenges.
The way in which reform is sold politically is absolutely crucial for success. Politicians need to be shown that reform will not only save their countries money but can also give them a political boost.
There is no a single way forward for subsidy reform. Governments and organizations need to cooperate, share information and build coalitions. The impact as a group will be much bigger than working individually.
And yet now, subsidy reform is recognized as critical for addressing the policy challenges of our future: (i) the need to rethink how our economies are organized and transition to a green economy; and (ii) the need to reduce greenhouse gas emissions and move to cleaner forms of energy to address climate change. These two challenges provide a fantastic opportunity to build subsidy reform into the public policy agenda that cannot be missed.