Panelists noted that government support going to fossil fuels, including COVID-19 recovery packages, is much higher than support for other energy sources.
Among recommendations to better address fossil fuel subsidies, Peter Wooders, Senior Director, Energy, IISD, highlighted enhancing transparency, better enforcing existing WTO subsidy rules, and launching a dialogue on new subsidy disciplines focused on fossil fuel subsidies.
Speakers at a virtual session on the role of fossil fuel subsidy reform in the context of recovery from the COVID-19 pandemic highlighted that if world governments are to succeed in rebuilding better and greener economies, reforming government support to fossil fuels should be a key policy priority.
The 18 November event, which was held as part of the World Trade Organization (WTO) Trade and Environment Week, focused on the theme, ‘Fossil Fuel Subsidy Reform as Part of a Green COVID-19 Recovery.’ It was organised by the Government of New Zealand on behalf of the signatories to the Ministerial Statement on Fossil Fuel Subsidy Reform, which was issued in 2017 at the WTO’s Eleventh Ministerial Conference (MC11) in Buenos Aires, Argentina. Alison Hamilton, Lead Adviser, New Zealand Ministry of Foreign Affairs and Trade, moderated the discussion.
Fossil fuel subsidies and their impacts
Looking at the current landscape of subsidies to the energy sector, Michael Taylor, Senior Analyst, International Renewable Energy Agency (IRENA), emphasised that government support going to fossil fuel is much higher than support for other energy sources. In particular, direct fossil fuel subsidies are over three times higher than subsidies for renewable energy. If the external costs of fossil fuels are included, this ratio rises to 19 times.
For the world to manage its necessary transition to cleaner energy systems, Taylor noted, a rebalancing of public support away from fossil fuels to renewables and energy efficiency will be crucial. “Energy sector subsidies are one part of the energy transition puzzle, but they are an important one,” he said.
Peter Wooders, Senior Director, Energy, International Institute for Sustainable Development (IISD), highlighted that on top of their well-known negative environmental impacts, fossil fuel subsidies can significantly distort international markets and trade. Based on recent research by IISD, he explained that there are various pathways through which such trade impacts can materialise all the way through supply chains. They can affect fossil fuel products, energy-intensive industries using fossil fuels as input, as well as potential alternatives such as goods related to renewable energy, which is a challenge from the energy transition perspective.
Reflecting on whether policymakers know enough about fossil fuel subsidies and their effects to advance reform, Wooders indicated his answer would be a clear “yes.” “We have enough information to know we need to act,” Taylor concurred.
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