Measuring fossil fuel subsidies in the context of the Sustainable Development Goals

Environment ministers from around the world are meeting in New York this week to review the progress of several Sustainable Development Goals (SDGs). One of the goals to be reviewed is SDG12 – ‘Ensure sustainable consumption and production’, which includes a target to rationalize inefficient fossil fuel subsidies that encourage wasteful consumption. Understanding the size of existing fossil fuel subsidies is an important first step to achieving this target. [box type=”bio”] Joy Aeree Kim, PhD is a Senior Economic Affairs Officer at UN Environment. She has been working in the area of macro-economic and environmental policies for nearly 20 years. She is currently leading a ‘green fiscal policy’ project in the Economy Division of UN Environment and served as a co-chair of the Fiscal Instruments Research Committee of the Green Growth Knowledge Platform (GGKP). Before joining UN Environment, she worked as a senior policy analyst at the Organisation for Economic Cooperation and Development (OECD) in Paris. She holds a doctoral degree from the University of East Anglia in the UK.[/box]   The meeting of the High-level Political Forum on Sustainable Development will be held from 9-18 July 2018. Under the theme of “Transformation towards sustainable and resilient societies”, several Sustainable Development Goals (SDGs) will be reviewed in- depth to measure the progress of countries in achieving these SDGs. Among others, SDG 12 includes a target to rationalize inefficient fossil fuel subsidies that encourage wasteful consumption (SDG12c). In many countries the production and use of fossil fuels continues to be encouraged through large subsidies.

What is the value of fossil fuel subsidies?

Currently, there are several estimates of the value of fossil fuel subsidies in the absence of an internationally agreed methodology for monitoring fossil fuel subsidies. The most recent estimates of the annual value of these subsidies range from USD 160 billion to as much as USD 5.3 trillion when the value of combustion-related externalities are included. Such disparity in available estimates is attributable to the coverage of countries, the type of fuel included, the scope of subsidies defined, as well as the estimation methods used.[1] Figure 1: Overview of current estimates of the value of fossil fuel subsidies Source: ‘Measuring Fossil Fuel Subsidies in the context of the Sustainable Development Goals’, UN Environment, Forthcoming.

How to measure fossil fuel subsidies

To measure countries’ progress against the SDG12c target, a first step is to develop an internationally agreed methodology by which fossil fuel subsidies at the global, regional and national level could be monitored. UN Environment as the custodian agency for the SDG 12c1 indicator, is responsible for developing such a methodology and collecting national data on this indicator from 193 UN member countries. The data collection on this indicator will start in 2020 and continue until 2030, feeding into the SDG Global database maintained by the UN Statistics Division.[2] Currently, the available data, the scope of subsidies monitored and the monitoring system, let alone methodology for measuring fossil fuel subsidies, at the country level vary greatly between countries. Given such disparity between countries, data collection will be a gradual process, initially relying on globally available data and progressing to national data as countries build their capacities to collect data based on the methodological guidance provided. To facilitate reporting by national governments, countries would need support in terms of practical guidance notes on how to measure and monitor specific types of subsidies within existing statistical frameworks.[3] The development of an internationally agreed methodology to measure fossil fuel subsidies could also accelerate efforts to discipline fossil fuel subsidies in the trade community. One of the key bottlenecks in advancing the removal of fossil fuel subsidies at the WTO is the question of how to measure them, which is vital to provide more effective disciplines for fossil fuel subsidies under WTO rules.^[4] While under the WTO Agreement on Subsidies and Countervailing Measures, members are obliged to notify subsidies, enforcement is currently weak resulting in partial compliance with this obligation.[5] However, voices within the trade community supporting fossil fuel subsidy reform through existing WTO rules are growing. At the last WTO ministerial conference in Buenos Aires, 12 WTO member countries issued a declaration supporting ambitious and effective disciplines on inefficient fossil fuel subsidies and pushing this agenda at the WTO.

Way forward

Efforts to monitor fossil fuel subsidies have been made in multiple forums. For example, several peer-review processes are underway among G20 and Asia-Pacific Economic Cooperation member countries. Also, periodic international monitoring is being carried out by several international organisations. Nonetheless, the reporting under the SDG12c indicator will be the first attempt to systemically monitor fossil fuel subsidies to both consumption and production sides, based on national data of 193 UN member countries and collected by an internationally agreed methodology. If sufficient guidance and support are provided to countries to facilitate their reporting, the SDG process could improve transparency on fossil fuel subsidies, and provide an impetus for reform by informing decision-making, increasing awareness and building support among stakeholders.  

Further reading

[1] SDG 12c1 indicator is considered a Tier III indicator under the SDG Framework which implies that there is no internationally agreed methodology for its measurement. [2] The proposed methodology is currently under review by the Inter-Agency Expert Group on SDGs for approval. The methodology was prepared in consultation with an international expert group on fossil fuel subsidies. The Expert Group included a series of online consultations and a meeting in Italy on 29 September 2017 which was hosted by the Italian Government. The Expert Group subsequently peer reviewed and endorsed the methodology in early 2018. [3] Measuring Fossil Fuel Subsidies in the context of the Sustainable Development Goals’, UN Environment, Forthcoming. [4] See more details in op-ed by James Bacchus on ‘WTO negotiations on fossil fuel subsidy reform begin now’ at https://www.ictsd.org/opinion/wto-negotiations-on-fossil-fuel-subsidy-reform-must-begin-now [5] In 2015, 83 WTO members (out of 164) had failed to submit a notification; another 17 had submitted a “nill” notification.