Fossil-Fuel Subsidies and Climate Change

This 2015 research paper argues that removing fossil-fuel subsidies could reduce global GHG emissions by 6-13% by 2050, though this potential is maximized when combined with binding emission caps and investments in low-carbon infrastructure. It provides a roadmap for countries to integrate subsidy reform into their Intended Nationally Determined Contributions (INDCs) and other UNFCCC processes to unlock government savings and accelerate the energy transition.

• Global estimates suggest that phasing out consumer fossil-fuel subsidies could reduce global greenhouse gas (GHG) emissions by between 6 and 13 per cent by 2050. These figures are likely underestimates because they typically exclude producer subsidies and only account for demand reductions based on price increases.
• The effectiveness of fossil-fuel subsidy reform in reducing emissions is significantly enhanced when coupled with a global climate policy agreement and binding emission caps, particularly in OECD countries. Without such caps, 'carbon leakage' can occur, where lower oil prices resulting from reforms in some countries lead to increased consumption in others. For example, one model showed emissions reductions increasing from 8 per cent to 10 per cent when OECD emission caps were included.
• Fossil-fuel subsidies to producers are substantial but often opaque, with GSI estimating them at around US$100 billion globally and OCI & ODI estimating around US$88 billion annually across the G20 for exploration and production. These subsidies encourage the exploitation of resources in sensitive areas like the Arctic, which is considered incommensurate with limiting global warming to 2°C.
• To maximize the emission reductions from subsidy removal, governments must simultaneously invest in low-carbon infrastructure and energy efficiency. This enables 'switching' behavior, allowing consumers to move to cleaner alternatives rather than simply paying more for the same fossil fuels. For instance, in Saudi Arabia, removing subsidies could reduce the payback period for upgrading to a fuel-efficient vehicle from 16 years to 3 years.
• Fossil-fuel subsidy reform (FFSR) can be integrated into several UNFCCC mechanisms: it can be included in Intended Nationally Determined Contributions (INDCs) for pre- and post-2020 actions, framed as Nationally Appropriate Mitigation Actions (NAMAs) to attract technical and financial support, or discussed via Technical Experts Meetings (TEMs) on fiscal instruments.
• The removal of consumer subsidies can unlock significant government savings, which in some Southeast Asian countries represent between 5 and 30 per cent of government expenditure. These savings can be reinvested into social safety nets to protect vulnerable populations or into low-carbon energy pathways. Currently, global donor funding for technical advice on FFSR (US$8 million to US$10 million annually) is very small compared to the scale of the subsidies themselves (US$543 billion in 2013).

APA

Merrill, L., Harris, M., Casier, L., & Bassi, A. M. (2015). Fossil-Fuel Subsidies and Climate Change. International Institute for Sustainable Development. https://www.iisd.org/gsi/sites/default/files/FFS_Climate.pdf

Chicago

Merrill, Laura, Melissa Harris, Liesbeth Casier, and Andrea M. Bassi. Fossil-Fuel Subsidies and Climate Change. International Institute for Sustainable Development, 2015. https://www.iisd.org/gsi/sites/default/files/FFS_Climate.pdf.

Wikipedia

{{cite report |last1=Merrill |first1=Laura |last2=Harris |first2=Melissa |last3=Casier |first3=Liesbeth |last4=Bassi |first4=Andrea M. |title=Fossil-Fuel Subsidies and Climate Change |publisher=International Institute for Sustainable Development |date=2015 |url=https://www.iisd.org/gsi/sites/default/files/FFS_Climate.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{merrill2015fossilfuel, author = {Merrill, Laura and Harris, Melissa and Casier, Liesbeth and Bassi, Andrea M.}, title = {{Fossil-Fuel Subsidies and Climate Change}}, institution = {International Institute for Sustainable Development}, year = {2015}, url = {https://www.iisd.org/gsi/sites/default/files/FFS_Climate.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }