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

The document details a side event focused on the economic, social, and environmental imperatives of reforming fossil-fuel subsidies. It highlights the fiscal burden of these subsidies, which totaled an estimated US$409 billion in consumption subsidies in 2010, and their role in increasing greenhouse gas emissions. The report presents case studies from Ethiopia, Costa Rica, and Sweden to illustrate different reform trajectories and challenges. It advocates for a comprehensive reform strategy that includes targeted compensation for the poor, transparency, and specific commitments within the Rio+20 outcome document, including financial and technical assistance for developing countries.

• Global fossil-fuel subsidies create significant fiscal pressure and primarily benefit the middle class, with only 8 per cent of 2010 subsidies reaching the poorest populations. In 2010, consumption subsidies were estimated at US$409 billion, with another US$100 billion potentially granted to producers, leading to an annual average between US$400–600 billion.
• Reforming fossil-fuel subsidies has a direct impact on climate change; it is estimated that greenhouse gas (GHG) emissions could be reduced by 10 per cent by 2050 through such reforms.
• Effective reform requires a comprehensive strategy to avoid negative social impacts, as simply raising prices without protecting the poorest can lead to poor outcomes. Recommended measures include targeted compensation schemes, such as transfer payments for low-income households, gradual implementation starting with fuels least important to the poor, and price smoothing mechanisms.
• Ethiopia abandoned its fuel subsidies approximately three years prior to the event due to sustainable development goals and economic necessity, as subsidies represented 50 per cent of total export earnings. This reform led to decreased kerosene imports and increased use of electricity and sugar cane-based biofuels.
• Costa Rica reformed its fossil-fuel subsidies 20 years prior to the event to introduce fuel taxes. Two-thirds of the revenue supports road infrastructure, while one-third funds the Fondo Nacional de Financiamiento Forestal (FONAFIFO), which has paid owners of 860,000 hectares of forest (16.8 per cent of national territory) for environmental services including GHG mitigation.
• Sweden's experience demonstrates the challenge of 'hidden' subsidies in the form of tax exemptions. Despite introducing a CO2 tax in 1991, special rules for certain sectors created subsidies. Sweden is now gradually increasing tax levels for these sectors to reach 60 per cent of the standard tax level by 2015.
• The Global Subsidies Initiative (GSI) argues that the Rio+20 outcome document should move beyond general commitments to environmentally harmful subsidies and specifically commit to reforming fossil-fuel subsidies. This should include reporting mechanisms, financial and technical assistance for developing countries, a Secretariat, and a centre of excellence for peer learning.

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} }