A Step-by-Step Guide for Governments to Prepare Fossil Fuel Subsidy Inventories

The document outlines a five-step process for governments to identify and quantify fossil fuel subsidies: applying a whole-of-government approach, establishing a comprehensive scope based on WTO standards, choosing measurement methods (price-gap vs. inventory), evaluating socio-economic and environmental impacts, and ensuring regular public disclosure. It emphasizes the use of the WTO Agreement on Subsidies and Countervailing Measures (ASCM) as a minimum baseline and highlights the role of effective carbon rates (ECRs) in improving cross-country comparability.

• Governments worldwide spend over a trillion US dollars annually on fossil fuel subsidies, which strains budgets, contributes to climate change and air pollution, and distorts markets against cleaner energy sources.
• The Coalition on Phasing Out Fossil Fuel Incentives Including Subsidies (COFFIS), launched at COP 28 in 2023 with 17 member countries, has committed to publishing subsidy inventories and developing a comprehensive measurement framework.
• The WTO's Agreement on Subsidies and Countervailing Measures (ASCM) is recommended as the minimum starting point for subsidy definitions, covering financial contributions by governments that confer a benefit.
• COFFIS members have agreed to common minimum standards for inventories, which include defining fossil fuels broadly (primary commodities and derivatives), covering both production and consumption, spanning all relevant sectors (including aviation and shipping), assessing climate and socio-economic impacts, and publishing data annually.
• There are two primary measurement approaches: the price-gap approach (estimating the difference between domestic retail and international reference prices) and the inventory approach (a bottom-up collection of direct budgetary transfers and tax expenditures).
• To address the lack of cross-country comparability in tax expenditure data, several countries—including Ireland, France, Finland, and Switzerland—use effective carbon rates (ECRs) to calculate the value of fossil fuel tax expenditures.
• A comprehensive inventory should track four main delivery mechanisms: direct transfers of funds, revenue foregone/underpricing of goods, induced transfers/price support, and the transfer of risk to government (such as below-market loans).
• Preliminary assessments of subsidy impacts can identify 'legacy' schemes that are obsolete or generate high environmental harm; eliminating global production and consumption subsidies could potentially cut total GHG emissions by up to 10%.
• While often intended to protect the poor, many 'blanket' subsidies are regressive, as wealthier households typically consume more energy and thus receive more absolute benefit.
• The Agreement on Climate Change, Trade and Sustainability (ACCTS), signed in late 2024 by Costa Rica, Iceland, New Zealand, and Switzerland, uses a 'Standardised Carbon Rate Measurement' (SCRM) to determine if a benefit is conferred based on a committed carbon price.

APA

Urazova, I., Picciariello, A., Gerasimchuk, I., Do, N., & Wendenburg, A. (2025). A Step-by-Step Guide for Governments to Prepare Fossil Fuel Subsidy Inventories. International Institute for Sustainable Development. https://www.iisd.org/system/files/2025-12/governments-fossil-fuel-subsidy-inventories.pdf

Chicago

Urazova, Indira, Angela Picciariello, Ivetta Gerasimchuk, Nhat Do, and Anne Wendenburg. A Step-by-Step Guide for Governments to Prepare Fossil Fuel Subsidy Inventories. International Institute for Sustainable Development, 2025. https://www.iisd.org/system/files/2025-12/governments-fossil-fuel-subsidy-inventories.pdf.

Wikipedia

{{cite report |last1=Urazova |first1=Indira |last2=Picciariello |first2=Angela |last3=Gerasimchuk |first3=Ivetta |last4=Do |first4=Nhat |last5=Wendenburg |first5=Anne |title=A Step-by-Step Guide for Governments to Prepare Fossil Fuel Subsidy Inventories |publisher=International Institute for Sustainable Development |date=December 2025 |url=https://www.iisd.org/system/files/2025-12/governments-fossil-fuel-subsidy-inventories.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{urazova2025stepbystep, author = {Urazova, Indira and Picciariello, Angela and Gerasimchuk, Ivetta and Do, Nhat and Wendenburg, Anne}, title = {{A Step-by-Step Guide for Governments to Prepare Fossil Fuel Subsidy Inventories}}, institution = {International Institute for Sustainable Development}, year = {2025}, month = dec, url = {https://www.iisd.org/system/files/2025-12/governments-fossil-fuel-subsidy-inventories.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }