Fossil Fuel to Clean Energy Subsidy Swaps

This report by the International Institute for Sustainable Development (IISD) advocates for "subsidy swaps," the process of redirecting government financial support from fossil fuels to clean energy. It argues that while removing fossil fuel subsidies can reduce emissions, a swap is necessary to ensure permanent reductions and provide economic, social, and health benefits. The document analyzes the global context of these shifts and provides case studies from India, Indonesia, Zambia, and Morocco to demonstrate the feasibility of reallocating resources to renewable energy and energy efficiency.

• Fossil fuel subsidies act as a significant obstacle to transitioning to clean energy systems. While reforming these subsidies can reduce emissions, the report argues that a "swap"—reallocating savings to fund the clean energy transition—is required to achieve permanent emission reductions and improve jobs, public health, and gender equality.
• Global financial flows are already shifting, with renewable energy investments exceeding fossil fuel investments every year since 2008. Additionally, the world has installed more renewable capacity than fossil fuel-based generators annually since 2014. However, the transition is slow, as fossil fuels still met nearly 70 per cent of total energy demand growth in 2018.
• Subsidy swaps can expand fiscal space and mitigate the economic risks of stranded assets. Phasing out global fossil fuel subsidies could increase global GDP by 0.2 per cent by 2030. Furthermore, using swap resources to support workers and communities affected by the early shutdown of high-carbon assets can promote a socially just transition.
• The removal of fossil fuel subsidies, combined with appropriate taxation and a swap to clean energy, can significantly reduce carbon emissions. Research suggests that removing all consumer fossil fuel subsidies could decrease global carbon emissions by 2.32 to 10 per cent by 2030. A study of 20 countries found that swapping 30 per cent of reform savings into energy efficiency and renewables increased emission reductions from 11 to 18 per cent.
• Clean energy swaps offer substantial social benefits, including job creation and improved public health. The International Labour Organization estimates that limiting climate change to 2°C could result in a net increase of approximately 18 million jobs by 2030. Additionally, transitioning away from coal and kerosene reduces respiratory and cardiovascular diseases caused by air pollution.
• Fossil fuel subsidies often have negative gender-disaggregated impacts, particularly for women responsible for fuel collection and exposed to indoor air pollution. In Nigeria, the sudden withdrawal of kerosene subsidies caused particular hardship for women. Swaps can address these issues by improving the affordability of clean energy alternatives.
• India has shifted public financial flows from petroleum products to renewable energy and electricity distribution between fiscal year 2014 and 2017. The report suggests a specific swap opportunity to redirect funds from kerosene subsidies, which suffer from 51 per cent leakage due to illegal diversion, toward off-grid solar products for marginalized households.
• Indonesia has a history of successful subsidy reform, such as saving USD 15.6 billion from gasoline and diesel reforms in 2015. However, coal subsidies and a coal price cap of USD 70 per tonne (introduced in 2018) make renewables less competitive. The report suggests swapping coal and LPG subsidy savings to support the renewable sector.
• Zambia can implement a swap by replacing diesel-generated electricity with solar PV and promoting energy efficiency in the mining sector, which accounts for 55 per cent of all electricity consumption. Solar tariffs from recent auctions (USD 0.07 per kWh) are significantly lower than diesel-generated electricity costs (USD 0.16–0.17 per kWh).
• Morocco aims for 52 per cent of total installed capacity to be renewable by 2030. The report proposes swapping the remaining fossil fuel subsidies, specifically those for butane gas (estimated at USD 1.2 billion in 2018), to fund solar water heaters for households and solar pumps for farmers.
• To maximize impact, the report recommends that governments focus on large-scale on-grid renewable energy swaps and use public resources to de-risk projects, thereby leveraging private finance. It also emphasizes the need for correct fossil fuel taxation to internalize externalities like greenhouse gas emissions.

APA

Bridle, R., Sharma, S., Mostafa, M., & Geddes, A. (2019). Fossil Fuel to Clean Energy Subsidy Swaps. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/fossil-fuel-clean-energy-subsidy-swap.pdf

Chicago

Bridle, Richard, Shruti Sharma, Mostafa Mostafa, and Anna Geddes. Fossil Fuel to Clean Energy Subsidy Swaps. International Institute for Sustainable Development, 2019. https://www.iisd.org/system/files/publications/fossil-fuel-clean-energy-subsidy-swap.pdf.

Wikipedia

{{cite report |last1=Bridle |first1=Richard |last2=Sharma |first2=Shruti |last3=Mostafa |first3=Mostafa |last4=Geddes |first4=Anna |title=Fossil Fuel to Clean Energy Subsidy Swaps |publisher=International Institute for Sustainable Development |date=June 2019 |url=https://www.iisd.org/system/files/publications/fossil-fuel-clean-energy-subsidy-swap.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{bridle2019fossil, author = {Bridle, Richard and Sharma, Shruti and Mostafa, Mostafa and Geddes, Anna}, title = {{Fossil Fuel to Clean Energy Subsidy Swaps}}, institution = {International Institute for Sustainable Development}, year = {2019}, month = jun, url = {https://www.iisd.org/system/files/publications/fossil-fuel-clean-energy-subsidy-swap.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }