Fossil-Fuel Subsidy Reform: Building momentum at Rio and beyond

This report summarizes a side event held on March 26, 2012, organized by the 'Friends of Fossil Fuel Subsidy Reform' to build consensus on reforming fossil-fuel subsidies ahead of the Rio+20 summit. The event featured perspectives from the IMF, the International Institute for Sustainable Development (IISD), and representatives from Ethiopia, Costa Rica, and Sweden, focusing on the fiscal, environmental, and social implications of subsidy removal.

• Global fossil-fuel subsidies create significant fiscal pressure and environmental damage, with 2010 consumption subsidies estimated at US$409 billion and producer subsidies at US$100 billion. Total annual subsidies typically range between US$400–600 billion. These subsidies are inefficient for poverty reduction, as only 8 per cent of 2010 subsidies reached the poorest, and their reform could potentially reduce greenhouse gas (GHG) emissions by 10 per cent by 2050.
• The IMF advocates for the removal of subsidies as a prerequisite for introducing accurate fossil-fuel pricing through taxes, which are viewed as the most effective tools for emissions reduction and clean technology deployment. To mitigate social impacts, the IMF recommends gradual reform starting with fuels least important to poor households, utilizing targeted compensation schemes like transfer payments and price smoothing mechanisms.
• The Global Subsidies Initiative (GSI) argues that while removing subsidies can free resources to eradicate poverty, a simplistic approach of raising prices without protections can harm the poorest. GSI proposes that the Rio+20 outcome document should move beyond general commitments to specifically mandate the reform of fossil-fuel subsidies, provide assistance to developing countries, establish a Secretariat, and create a centre of excellence for peer learning.
• Ethiopia abandoned its fuel subsidies approximately three years prior to the event because they were costly, representing 50 per cent of total export earnings and increasing the trade deficit. This reform led to a decrease in kerosene imports and an increase in the use of electricity and biofuels derived from sugar cane.
• Costa Rica reformed its fossil-fuel subsidies 20 years prior to the event, replacing them with fuel taxes. Two-thirds of the revenue funded road infrastructure, while one-third funded the Fondo Nacional de Financiamiento Forestal (FONAFIFO). Since 1997, FONAFIFO has paid owners of 860,000 hectares of forest (16.8 per cent of national territory) for environmental services, including GHG mitigation and biodiversity protection, involving 10,000 families and investing US$21 million in areas near indigenous populations.
• Sweden's experience highlights the challenge of 'hidden' subsidies in the form of tax exemptions. Despite introducing a CO2 tax in 1991, certain sectors were granted exemptions to maintain competitiveness. Sweden has since decided to gradually increase taxes for these sectors so that by 2015 they pay 60 per cent of the standard tax level. The case emphasizes that public reporting and political consensus are critical for reform.
• Discussion at the event revealed a lack of formal global governance structures to support countries in subsidy reform, with current efforts being ad hoc. Additionally, there is tension regarding the Rio+20 outcome document; the G-77 expressed a preference to delete paragraph 126, which supports the phase-out of market-distorting subsidies, potentially due to concerns from oil-exporting countries.

APA

International Institute for Sustainable Development (2012). Fossil-Fuel Subsidy Reform: Building momentum at Rio and beyond. https://www.iisd.org/gsi/sites/default/files/ffs_sideevent_rio_beyond_meetingreport.pdf

Chicago

International Institute for Sustainable Development. Fossil-Fuel Subsidy Reform: Building momentum at Rio and beyond. 2012. https://www.iisd.org/gsi/sites/default/files/ffs_sideevent_rio_beyond_meetingreport.pdf.

Wikipedia

{{cite report |author=International Institute for Sustainable Development |title=Fossil-Fuel Subsidy Reform: Building momentum at Rio and beyond |date=26 March 2012 |url=https://www.iisd.org/gsi/sites/default/files/ffs_sideevent_rio_beyond_meetingreport.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{internationalinstituteforsustainabledevelopment2012fossilfuel, author = {{International Institute for Sustainable Development}}, title = {{Fossil-Fuel Subsidy Reform: Building momentum at Rio and beyond}}, institution = {International Institute for Sustainable Development}, year = {2012}, month = mar, url = {https://www.iisd.org/gsi/sites/default/files/ffs_sideevent_rio_beyond_meetingreport.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }