Background Note on Fossil Fuel Subsidy Reform

The document analyzes the global landscape of fossil fuel subsidies, noting a significant rise to almost USD 700 billion in 2021. It distinguishes between production and consumption subsidies—the latter making up 86% of 2019 estimates—and highlights how these supports distort international trade through 'pass-through' effects. The briefing argues that reforming these subsidies could reduce CO2 emissions by an average of 6% by 2030 across 32 economies, especially if savings are reinvested in clean energy. It also details the role of the WTO and other international forums (G7, G20, APEC) in establishing disciplines to phase out inefficient subsidies.

• Global fossil fuel subsidies experienced significant volatility between 2019 and 2021, falling from USD 525 billion in 2019 to USD 375 billion in 2020, before rising to almost USD 700 billion in 2021 due to post-COVID-19 recovery measures.
• Consumption subsidies are the dominant form of support, accounting for 86% of all fossil fuel subsidies in 2019, while production subsidies accounted for only 9%.
• Reforming fossil fuel subsidies across 32 economies by 2025 is estimated to reduce CO2 emissions by an average of 6% by 2030, with some countries seeing reductions up to 35%. A 'subsidy swap'—reinvesting one-third of savings into energy efficiency and renewables—could provide an additional 3% reduction.
• Fossil fuel subsidies create trade distortions through direct competitive advantages for subsidized products and indirect 'pass-through' effects, where downstream industries (such as iron, steel, and aluminum) benefit from cheaper energy inputs.
• Fossil fuel subsidies are often socially regressive; an IMF study of 32 developing countries found that 80% of gasoline subsidies benefit the top 40% of households, with the wealthiest 20% benefiting six times more than the poorest 20%.
• While the WTO's Agreement on Subsidies and Countervailing Measures (ASCM) focuses on trade-distorting effects rather than environmental impacts, the recent Agreement on Fisheries Subsidies demonstrates a precedent for WTO disciplines based on environmental considerations.

APA

Baršauskaitė, I. (2022). Background Note on Fossil Fuel Subsidy Reform. International Institute for Sustainable Development. https://www.iisd.org/system/files/2022-08/background-note-fossil-fuel-subsidy-reform.pdf

Chicago

Baršauskaitė, Ieva. Background Note on Fossil Fuel Subsidy Reform. International Institute for Sustainable Development, 2022. https://www.iisd.org/system/files/2022-08/background-note-fossil-fuel-subsidy-reform.pdf.

Wikipedia

{{cite report |last1=Baršauskaitė |first1=Ieva |title=Background Note on Fossil Fuel Subsidy Reform |publisher=International Institute for Sustainable Development |date=September 2022 |url=https://www.iisd.org/system/files/2022-08/background-note-fossil-fuel-subsidy-reform.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{barauskait2022background, author = {Baršauskaitė, Ieva}, title = {{Background Note on Fossil Fuel Subsidy Reform}}, institution = {International Institute for Sustainable Development}, year = {2022}, month = sep, url = {https://www.iisd.org/system/files/2022-08/background-note-fossil-fuel-subsidy-reform.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }