Fossil Fuel Subsidy Reform and the Just Transition

The report argues that fossil fuel subsidy reform (FFSR) is a critical tool for financing a just transition, as global subsidies total at least USD 425 billion per year. It posits that FFSR can reduce global carbon emissions by roughly 10 per cent by 2050 if both production and consumption subsidies are eliminated. The document outlines a framework for successful reform based on three elements: getting prices right, managing impacts, and building support. Through case studies of Morocco, Mexico, Argentina, Indonesia, and the Netherlands, the report demonstrates that while FFSR can create budgetary space for social safety nets and renewable energy, a lack of stakeholder engagement and abrupt price hikes—as seen in Mexico—can lead to civil unrest. Conversely, the Netherlands' long-term transition of its coal sector illustrates how targeted supports and social dialogue can protect workers during industrial shifts.

• The elimination of all global fossil fuel subsidies for both production and consumption is estimated to reduce global carbon emissions by approximately 10 per cent by 2050, with consumption subsidy removal alone contributing a decrease of between 6.4 and 8.2 per cent.
• Fossil fuel subsidies are often socially regressive, primarily benefiting wealthier populations rather than the poor. An IMF review of developing countries in 2010 found that 92 per cent of consumption subsidies were realized by the top four quintiles of society.
• Global fossil fuel subsidies total at least USD 425 billion per year, representing a significant potential source of domestic financing for just transition initiatives, including worker supports, education, and health programming.
• Successful fossil fuel subsidy reform requires three core elements: getting the prices right, managing impacts, and building support. Abrupt price shifts can cause economic shocks, while gradual, predictable adjustments are more sustainable.
• The renewable energy sector is generally more labour-intensive than the fossil fuel sector. For example, solar photovoltaic capacity is projected to create between seven and 11 times more jobs per megawatt than coal or natural gas.
• In Morocco, FFSR has created fiscal space to invest in renewable energy, such as the NOOR concentrated solar power (CSP) project, which aims to generate 2,000 MW by 2020 and reduce reliance on imported fuels.
• Mexico's 2017 fuel price increases, which reached up to 20 per cent, led to civil unrest and protests known as "el gasolinazo" due to a lack of stakeholder consultation and the absence of complementary supports for vulnerable households.
• Indonesia's reform process successfully reallocated subsidy savings into social and infrastructure projects, including IDR 148 trillion for growth and poverty reduction and IDR 63.1 trillion for infrastructure.
• The Netherlands' transition from coal mining between 1965 and 1990 cost approximately EUR 11.6 billion but successfully transitioned roughly 75,000 jobs through a proactive plan that linked mine closures to the creation of new employment.
• Argentina's efforts to phase out energy subsidies under President Mauricio Macri have contributed to a 17 per cent decrease in public debt as of August 2017, though initial price hikes faced legal challenges due to a lack of public hearings.
• The cost of just transition is high; for example, supports for U.S. workers in fossil fuel production alone are estimated at USD 600 million per year, while the Dutch mining transition required billions in subsidies.

APA

Gass, P., & Echeverria, D. (2017). Fossil Fuel Subsidy Reform and the Just Transition. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/fossil-fuel-subsidy-reform-just-transition.pdf

Chicago

Gass, Philip, and Daniella Echeverria. Fossil Fuel Subsidy Reform and the Just Transition. International Institute for Sustainable Development, 2017. https://www.iisd.org/system/files/publications/fossil-fuel-subsidy-reform-just-transition.pdf.

Wikipedia

{{cite report |last1=Gass |first1=Philip |last2=Echeverria |first2=Daniella |title=Fossil Fuel Subsidy Reform and the Just Transition |publisher=International Institute for Sustainable Development |date=December 2017 |url=https://www.iisd.org/system/files/publications/fossil-fuel-subsidy-reform-just-transition.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{gass2017fossil, author = {Gass, Philip and Echeverria, Daniella}, title = {{Fossil Fuel Subsidy Reform and the Just Transition}}, institution = {International Institute for Sustainable Development}, year = {2017}, month = dec, url = {https://www.iisd.org/system/files/publications/fossil-fuel-subsidy-reform-just-transition.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }