Reforming Fossil‐Fuel Subsidies to Reduce Waste and Limit CO2 Emissions while Protecting the Poor

The report analyzes the economic, environmental, and social impacts of fossil-fuel subsidies in APEC economies, estimating that consumption subsidies alone cost at least US$105 billion in 2010. It argues that such subsidies are often regressive, benefiting wealthier populations and increasing GHG emissions. The document proposes a three-phase reform framework—research, developing options, and implementation—and details case studies from Australia, Indonesia, Chile, Mexico, Thailand, China, and Russia to illustrate best practices in transparency, targeted social compensation (such as cash transfers), and gradual price deregulation.

• APEC economies spent at least US$105 billion on fossil-fuel consumption subsidies in 2010, with some nations spending up to 2.8% of their GDP or US$840 per capita.
• Fossil-fuel subsidies are generally regressive; in 2010, only about 8% of the benefits from global consumption subsidies reached the poorest 20% of the population.
• A full phase-out of global fossil-fuel consumption subsidies between 2012 and 2020 is estimated to reduce global energy demand by 4.1% (620 Mtoe) by 2020 and CO2 emissions by 4.7% (1.7 Gt) by the same year.
• The GSI estimates that global producer subsidies for fossil fuels are at least US$100 billion per year.
• In Indonesia, the 2005 and 2008 reforms utilized unconditional cash transfers (Bantuan Langsung Tunai or BLT) and other social programs to mitigate the impact of fuel price increases on the poor.
• Chile's approach to fuel pricing involves stabilization mechanisms like SIPCO and FEPP, supported by a strong 'Probity and Transparency Agenda' and the independent Council for Transparency.
• Mexico utilizes the Oportunidades conditional cash transfer (CCT) program, which includes an energy component (MXN 50-60) to alleviate energy poverty without distorting market prices.
• China employs a 'managed float' pricing mechanism for gasoline and diesel, adjusting prices based on international crude oil benchmarks, though the government often intervenes to control inflation.
• Russia's domestic natural gas market is heavily subsidized, with the government planning a gradual transition to market prices for industrial consumers by 2015.
• Thailand uses an 'Oil Fund' to smooth price volatility and cross-subsidize specific fuels, while implementing targeted assistance like free electricity for low-volume consumers.
• Australia's Productivity Commission serves as a model for independent, transparent research to inform economic reforms, including those in the fossil-fuel sector.
• Data transparency is a major barrier to reform, as governments often lack full records of support measures or have disincentives to disclose them due to political pressure from vested interests.

APA

International Institute for Sustainable Development (2012). Reforming Fossil‐Fuel Subsidies to Reduce Waste and Limit CO2 Emissions while Protecting the Poor. https://www.iisd.org/gsi/sites/default/files/ffs_apec.pdf

Chicago

International Institute for Sustainable Development. Reforming Fossil‐Fuel Subsidies to Reduce Waste and Limit CO2 Emissions while Protecting the Poor. 2012. https://www.iisd.org/gsi/sites/default/files/ffs_apec.pdf.

Wikipedia

{{cite report |author=International Institute for Sustainable Development |title=Reforming Fossil‐Fuel Subsidies to Reduce Waste and Limit CO2 Emissions while Protecting the Poor |date=September 2012 |url=https://www.iisd.org/gsi/sites/default/files/ffs_apec.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{internationalinstituteforsustainabledevelopment2012reforming, author = {{International Institute for Sustainable Development}}, title = {{Reforming Fossil‐Fuel Subsidies to Reduce Waste and Limit CO2 Emissions while Protecting the Poor}}, institution = {International Institute for Sustainable Development}, year = {2012}, month = sep, url = {https://www.iisd.org/gsi/sites/default/files/ffs_apec.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }