Phasing out Fossil Fuel Subsidies in the G20: Progress, Challenges and Ways Forward

Fossil fuel subsidies are prevalent around the world. Recent estimates from international organisations put the total value of global fossil fuel subsidies at between US$325 billion and US$5300 billion per year. These subsidies are widely considered to be both economically inefficient and environmentally harmful. From an economic perspective, they impose heavy burden on government budgets and crowd out public spending on other priorities, such as health and education. From an environmental perspective, they encourage the over-extraction and wasteful consumption of fossil fuels––the primary source of greenhouse gas emissions. They also impede the transition towards clean energy by undermining the competitiveness of renewable energy, and thereby diverting investment away from renewable energy sources. There is now a widespread recognition that fossil fuel subsidies constitute a major obstacle to tackling climate change and achieving sustainable development. This recognition is reflected in various intergovernmental agreements, including the Paris Agreement on climate change and the UN 2030 Agenda for Sustainable Development. The G20 is, however, the first intergovernmental forum not only to recognise the adverse economic and environmental effects of fossil fuel subsidies, but also to commit to reducing or ending those subsidies. The 2009 G20 Summit in Pittsburgh committed G20 countries to phase out inefficient fossil fuel subsidies over the medium term. Despite this landmark commitment, however, such subsidies remain significant within the group. The objective in this paper is to examine the nature and scope of the commitment, reflect on the implementation measures taken so far, and suggest some ways forward. The window of opportunity for fossil fuel subsidy reform created by recent developments––such as the adoption of Agenda 2030 (Sustainable Development Goals), the entry into force of the Paris Agreement, and the sharp drop in global oil prices––make the inquiry all the more pertinent and timely. The paper is organised around the following three questions: What is the scope of the commitment? The scope of the G20 commitment is generally limited to inefficient fossil fuel subsidies that encourage wasteful consumption. However, neither the Pittsburgh Summit nor subsequent G20 Summits clarified what constitutes an “inefficient fossil fuel subsidy” or “subsidies” in general. The ensuing ambiguity over the scope of the commitment is further complicated by the lack of clear implementation timelines. This means that individual G20 members decide for themselves not only what they consider to be inefficient fossil fuel subsidies, but also when to phase them out. What has been done so far? Ever since the Pittsburgh Summit, phasing out fossil fuel subsidies has been high on the G20 agenda. All subsequent G20 Summits have, at least, emphasised the need to implement the commitment. Some of these Summits have also taken additional steps to implement the commitment. The four major implementation measures taken thus far include: preparing national implementation strategies and timelines; establishing a self-reporting mechanism; forming a voluntary peer-review process; and commissioning studies on the scope and impacts of fossil fuel subsidies. This paper has examined the benefits and limitations of these measures and found that they are inadequate at best. What more needs to be done? Given the continued presence of fossil fuel subsidies and the shortcomings of the implementation measures taken so far, the final section of the paper focuses on policy options that would advance fossil fuel subsidy reform within the G20. In this respect, the paper presents policy options and recommendations ranging from i) clarifying the scope of the commitment by removing the vague terminology and defining fossil fuel subsidies; ii) to enhance transparency; iii) setting a clear deadline for eliminating fossil fuel subsidies; and iv) taking advantage of the G20’s position in global governance to advance fossil fuel subsidy reform in countries outside the group.