Fossil fuel subsidies (FS) represent a critical challenge for the climate justice movement. Phasing out FS is a key step toward reducing fossil fuel use and mitigating climate change, however, there has been a lack of progress since the 2009 Pittsburgh Declaration, not least because of fossil fuel interests and policy inertia. Here are other barriers and opportunities to address:
Inadequate tracking of fossil subsidies
The exact amount spent on FS remains unclear because there is no universally agreed definition of what constitutes a fossil subsidy. This lack of clarity presents challenges in the development of national and international FS inventories to design an effective phase-out.
Fossil’s ripple effects
FS are deeply integrated into various parts of the economy. Phasing them out has ripple effects, some of which may not be immediately climate-positive. Moreover, a phase-out needs to be comprehensive to address potential negative consequences, particularly for low-income households. A phase-out plan cannot simply entail the removal of FS, but needs to be in the form of a well-studied policy package.
Difficult international dimension
Phasing out FS may increase costs for energy-intensive industries. Countries worry about losing competitive industries to nations with less stringent policies, making it not economically attractive to act unilaterally on the topic. This results in governments being involved in long and often inconclusive international negotiations to find consensus on FS reform. It should also be remarked that in many Global South countries, FS tend to support households rather than businesses, so the challenges of FS reform vary significantly across countries.
Suggestions for moving forward
To civil society:
- Bring transparency where there is none: If governments are not willing to be transparent, it is up to civil society to bring transparency. This can be done by commissioning ad-hoc studies on national FS or directly requesting information from governments. For example, the Stop Fossil Subsidies campaign made a transparency request to the European Commission on this matter, obtaining the publication of a dataset of all energy subsidies in the EU.
- Integrate responsible public spending into your narrative: Within a political landscape shifting towards a predominance of the conservative center-right, the additional argument of fiscal responsibility may add sway to the phase out of fossil subsidies. However, the fiscal responsibility argument can only be valid when the dangers of climate change are acknowledged. Therefore, the realities and dangers of climate change must be reinforced within civil and political discourse. Furthermore, fiscal responsibility should be framed within a greater public investment framework with a future-facing orientation, such as what has been proposed in the Draghi report for Europe, as budgetary rebalancing alone is already known to be insufficient to tackle the climate crisis.
- Find allies in the key transition industries: Many businesses, in particular in the renewable energy sector, have all to gain from FS phase-out. It is essential to find allied industry voices to make the case for a FS phase-out even stronger.
- Consider legal challenges: As the FS landscape becomes more transparent, civil society organizations may consider launching legal challenges to governments, arguing that FS do not comply with the climate targets of the country.
To governments:
Integrate FS reform in international trade agreements: To overcome carbon leakage, consider integrating provisions on FS reform in international trade agreements, such as the Agreement on Climate Change, Trade and Sustainability, signed by Costa Rica, Iceland, New Zealand, and Switzerland.
Adopt a definition: The definition should align to the WTO definition of subsidy. At the first stage it does not really matter that the amount of FS is reflected accurately, but rather that the bulk of FS is in the inventory. Without a list of FS, governments cannot start developing a phase-out plan.
Make the economy more resilient with sustainable public infrastructure: Investing in renewable energy and social infrastructure is an investment into the future economy, making the country more competitive and resilient. FS can be redirected towards these investments.
Have a holistic approach: FS reform must be part of a policy package addressing all the negative consequences of the phase-out of FS and strengthening its positive outcomes. Of particular importance are policies targeting energy poverty that may be caused by the removal of consumption subsidies.
Communicate, communicate, communicate: The carbon-intensive industries and the general public need to be aware of the FS reform plans and of the compensatory measures put in place. Before implementation, discussions with civil society and businesses are essential.
Join international coalitions: International coalitions and initiatives, such as Coalition on Phasing Out Fossil Fuel Incentives Including Subsidies and the Friends of Fossil Fuel Subsidy Reform, to share best practices and promote international accountability and transparency.