Shifting Public Financial Flows from Fossil Fuels to Clean Energy under the Paris Agreement

This report, submitted by the International Institute for Sustainable Development (IISD) to the UNFCCC First Global Stocktake, analyzes the failure of governments to align public financial flows with the Paris Agreement. It argues that public support for fossil fuels remains high and often increases, creating a financial barrier to clean energy deployment. The document provides evidence of subsidy trends, the impact of COVID-19 recovery packages, and offers a framework for fossil fuel subsidy reform (FFSR) to accelerate the energy transition while ensuring social equity.

• Global fossil fuel subsidies have increased since the Paris Agreement, reaching USD 732 billion in 2021, which is 35% higher than the USD 543 billion recorded in 2015.
• Preliminary International Energy Agency (IEA) estimates indicate that subsidies for fossil fuel consumption exceeded USD 1 trillion for the first time in 2022, totaling at least USD 1.1 trillion.
• Public financial support for clean energy is significantly lower than for fossil fuels; for example, IRENA estimated renewable subsidies at approximately USD 167 billion in 2017.
• COVID-19 recovery efforts often prioritized fossil-intensive sectors; in 2020 and 2021, 41% (USD 515 billion) of quantified new public money commitments from 38 major economies and eight multilateral development banks were for fossil-intensive sectors.
• There are three critical knowledge gaps regarding public financial flows for energy: unquantified investments by state-owned enterprises (SOEs), lack of transparency in project-level finance through intermediaries, and a lack of systematic country-level assessments of renewable energy subsidies.
• Fossil fuel subsidies act as a barrier to the Paris Agreement by artificially lowering costs, which incentivizes higher consumption and emissions while distorting the market against clean energy technologies.
• Consumer fossil fuel subsidies are often regressive, with the wealthiest groups receiving the most benefit; in a study of 32 countries, the top quintile of households benefited at least six times more than the bottom quintile.
• Reform of fossil fuel subsidies can significantly reduce emissions; research across 32 countries suggests that subsidy reform alone could reduce GHG emissions by 6% by 2030, and adding a 10% fossil energy tax with revenue recycling could increase reductions to 11.8%.
• Challenges to subsidy reform include a lack of social protection capacity and public trust for consumer subsidies, and the influence of vested interests and opaque reporting for producer subsidies.
• Successful reform requires a three-pronged planning approach: getting prices right (e.g., using price caps and floors), managing impacts (e.g., reallocating revenues to social protection), and building support through stakeholder consultation.

APA

International Institute for Sustainable Development (n.d.). Shifting Public Financial Flows from Fossil Fuels to Clean Energy under the Paris Agreement. https://www.iisd.org/system/files/2023-03/global-stocktake-shifting-public-financial-flows.pdf

Chicago

International Institute for Sustainable Development. Shifting Public Financial Flows from Fossil Fuels to Clean Energy under the Paris Agreement. n.d. https://www.iisd.org/system/files/2023-03/global-stocktake-shifting-public-financial-flows.pdf.

Wikipedia

{{cite report |author=International Institute for Sustainable Development |title=Shifting Public Financial Flows from Fossil Fuels to Clean Energy under the Paris Agreement |url=https://www.iisd.org/system/files/2023-03/global-stocktake-shifting-public-financial-flows.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{internationalinstituteforsustainabledevelopmentndshifting, author = {{International Institute for Sustainable Development}}, title = {{Shifting Public Financial Flows from Fossil Fuels to Clean Energy under the Paris Agreement}}, institution = {International Institute for Sustainable Development}, url = {https://www.iisd.org/system/files/2023-03/global-stocktake-shifting-public-financial-flows.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }