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Fossil Fuel Subsidy Reform

The Corporate Leaders Group (CLG) was the first business group to work with the Friends of Fossil Fuel Subsidy Reform (FFFSR) and lend its support to the Communiqué. Now business groups representing hundreds of businesses have joined over 40 countries and a number of key international organisations in a growing voice of support for this critical issue. 

Read the background to eliminating fossil fuel subsidies.

Fossil fuel subsidy reform has the potential to free up wasted resources, improve economic efficiency and make a major contribution to reducing global greenhouse gas emissions. For many countries there are real short term drivers for such subsidies, so reform will be dependent on particular national circumstances and changing market conditions. However this is an issue that should see significantly increased progress.

The CLG has been a long term support of carbon pricing – arguing that business needs a clear economic signal so it can adjust its investments and the market can deliver an efficient and effective response to climate change. Without fossil fuel subsidy reform, carbon pricing is weakened and significantly undermined. 

The CLG announced its support for FFFSR at Climate Week in New York in September 2015. In November 2015, in Paris, at the COP21 meeting, business leaders from the CLG, joined Prime Ministers and Presidents of the FFFSR countries and over 500 participants to present the FFSR Communiqué to the UNFCCC Executive Secretary Christiana Figueres. The Communiqué catalysed a domino effect of official statements on fossil fuel subsidy reform during the entire COP coming from the US, Moroccan and UK governments and many others.

Three reasons why reform needs to happen now

We have a window of opportunity to eliminate direct subsidies and raise energy taxes now as international energy prices are low. This means reforms are less likely to be opposed and their impact will be gentler on consumers.

Quick action would:

1. Keep the two degrees goal alive

The IEA advised that accelerating the phase-out of fossil-fuel subsidies could reduce CO2 emissions by 360 million tonnes in 2020 and, alongside three other ‘no economic cost’ measures, would keep the two degrees global goal alive whilst international negotiations continue. Furthermore, including a commitment to phase out fossil fuel subsidies within a specific time frame in National INDCs will contribute to a robust and credible global climate deal in Paris at the end of 2015.

"This is the missing piece in the climate change jigsaw. More than one-third of global carbon emissions between 1980 and 2010 are estimated to have been driven by subsidies for fossil fuels. Their elimination would make a significant contribution to the goal of keeping average temperatures from rising to no more than two degrees Celsius."

Tim Groser, Former New Zealand Minister of Climate Change and now New Zealand’s ambassador to the USA in Washington

2. Unleash renewables

Fossil fuels receive six times more subsidies than renewables even before the environmental and health impacts are costed. This uneven playing ground is holding renewables back, and makes the rapid deployment and falling costs of solar and wind power all the more remarkable. Furthermore, reform can be used to increase investment in renewables whilst still reducing overall public expenditure. It is estimated that renewable energy targets until 2020 in the Middle East and North Africa could cost up to $200 billion, less than one year’s worth of fossil-fuel subsidies in the region.

"Today, the most important roadblock for renewable energy implementation is the world’s fossil fuel subsidies. You say you want to have a higher share of renewables then you protect and foster fossil fuels by giving substantial subsidies – it doesn’t work."

Fatih Birol, chief economist of the influential International Energy Agency (IEA)

3. Put us on the path to affordable and sustainable energy for all

Fossil fuel subsidies are an immense burden on Government resources, particularly in developing countries. In South-East Asia, fossil fuel subsidies account for 5–30 per cent of public expenditure. Many countries are spending more on them than on health care. Studies show that these subsidies are a costly approach to protecting the poor due to substantial benefit leakage to higher income groups. Phasing out subsidies and a focus on shifting support to lower carbon energy generation would be a major step towards delivering the proposed Sustainable Development Goal of access to affordable, reliable, sustainable, and modern energy for all. Climate finance from richer countries is needed to support this, and this in turn can be funded through phasing out fossil fuel subsides in these countries.

"We are subsidising fossil fuels at a rate of eight times what it would cost annually to fully implement the Millennium Development Goals."

Achim Steiner, Director-General of the United Nations Environment Programme