A new report from the New Climate Economy highlights lessons learned from 15 countries who have undertaken reforms of fossil fuel subsidy policy.
The paper, Fossil Fuel Subsidy Reform: From Rhetoric to Reality, was partly responsible for the 2015 New Climate Economy report, and now goes further in an effort to articulate “practical steps that policymakers can take to phase out fossil fuel subsidies” — a vital discussion in the lead up to the UN climate conference set to be held in Paris at the end of this month. The report examines what has worked and what hasn’t in attempts to reform fossil fuel subsidy policy, and provides “in-depth case studies of 15 countries.”
“Phasing out fossil fuel subsidies offers both economic and climate gains,” said Ngozi Okonjo-Iweala, former finance minister of Nigeria and a member of the Global Commission on the Economy and Climate. “Reform could allow for targeted spending on public services for those who need it most and boost economic efficiency. And on the climate front, it could deliver global greenhouse gas emissions reductions of as much as 13% by 2050. Undertaking subsidy reform – and getting it right – is critical for better growth and better climate.”
Over the past year we have seen numerous reports published identifying the extent to which industrialized nations around the world are supporting the fossil fuel industry with government-backed subsidies. The latest of these reports was published earlier this month by the Overseas Development Institute (ODI) and Oil Change Institute (OCI), and found that G20 nations are spending $452 billion on fossil fuel subsidies per year.
“G20 governments are paying fossil fuel producers to undermine their own policies on climate change,” said Shelagh Whitley, of the Overseas Development Institute. “Scrapping these subsidies would rebalance energy markets and allow a level playing field for clean and efficient alternatives.”
The latest report by the New Climate Economy forecasts worldwide governments will spend $650 billion funding fossil fuel subsidies in 2015.
“Fossil fuel subsidies create significant burdens on government budgets, taking up as much as 5% of GDP in as many as 40 countries, often more than is spent on health or education,” said Helen Mountford, Program Director of the New Climate Economy. “Removing these subsidies can spur a virtuous circle, freeing up scarce government funds to be spent on other critical priorities, including better targeted support for the poor.”
Specifically, in an attempt to provide clear principles for reforming fossil fuel subsidy policy, the report identifies the following steps:
- Ensure reforms take a ‘whole-of-government’ approach. In Honduras and the Dominican Republic, joint action was taken across the government, creating broad political ownership.
- Mobilize resources upfront. Indonesia prepared for reforms in the state budget ahead of time to support households through the transition.
- Provide clear and transparent public information on the scale and impacts of reform. Iran and Ghana succeeded in reform through widespread public information campaigns, while Bolivia faced demonstrations and strikes in part due to limited information among citizens.
- Reallocate the resources saved to those groups most affected by reform. In the Middle East and North Africa, 100% of the reforms that provided targeted support to households were successful, but only 17% of attempted reforms that did not provide support were successful.
- Phase-out the subsidies according to a credible and pre-planned timeframe. Angola, India, and Peru succeeded by starting first with reforming gasoline subsidies before reforming those to diesel and kerosene.
“The G20 and APEC have committed to phasing out inefficient fossil fuel subsidies, but most haven’t yet delivered,” added Shelagh Whitely, lead author of the report and a Research Fellow at the Overseas Development Institute. “They should follow the positive examples of change and scale reforms to eliminate fossil fuel subsidies by no later than 2025. In a time when low oil prices are expected to continue and many governments are looking to create fiscal space, there’s no excuse to delay phasing out fossil fuel subsidies any longer.”
The full report is available here (PDF)