Exploring the Trade Impacts of Fossil Fuel Subsidies

The report analyzes how fossil fuel subsidies create direct and pass-through trade effects, distorting markets for crude energy products, refined energy carriers, and energy-intensive industries. It provides empirical evidence on the massive scale of these markets—with fossil fuel product trade alone representing over 10% of worldwide trade value in 2018—and argues that current WTO rules are ineffective at constraining these measures. The document proposes five options for WTO engagement: improving transparency, building capacity, establishing a pledge-and-review process, clarifying existing rules, and negotiating new binding subsidy disciplines.

• Fossil fuel subsidies create both direct trade effects, where subsidies to producers reduce extraction or transformation costs, and pass-through effects, where downstream producers benefit from lower-cost inputs provided by subsidized upstream producers.
• The scale of trade in fossil fuel and energy-intensive products is immense; in 2018, trade in crude oil, petroleum products, natural gas, and coal was valued at least at USD 943 billion, USD 800 billion, USD 299 billion, and USD 124 billion, respectively.
• Energy-intensive and electricity-intensive industries are highly trade-exposed, with the minimum value of energy-intensive products trade exceeding USD 1 trillion and electricity-intensive product trade exceeding USD 300 billion.
• Fossil fuel products trade, excluding energy-intensive industries, accounted for more than 10% of the total worldwide trade value of USD 19 trillion in 2018.
• Producer subsidies often target the most expensive extraction methods to maintain competitiveness, such as the U.S. providing tax credits for coal mined from thin seams or Russia supporting extraction from mature mines.
• Consumption subsidies can lead to the smuggling of easily transportable energy products, such as gasoline and diesel, to neighboring countries with higher prices, undercutting legitimate suppliers.
• Fossil fuel subsidies obstruct the transition to green energy by reducing the competitiveness of renewable energy technologies and crowding out related investments.
• Current WTO rules, specifically the Agreement on Subsidies and Countervailing Measures (ASCM), have been ineffective at constraining fossil fuel subsidies due to political factors and the legal difficulty of proving a subsidy is "specific" and causes "adverse effects".
• The report proposes five options for the WTO to address these subsidies: improving transparency, building capacity for reform, establishing a voluntary pledge-and-review process, clarifying the application of existing rules, and negotiating new binding subsidy disciplines.

APA

Moerenhout, T., & Irschlinger, T. (2020). Exploring the Trade Impacts of Fossil Fuel Subsidies. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/trade-impacts-fossil-fuel-subsidies.pdf

Chicago

Moerenhout, Tom, and Tristan Irschlinger. Exploring the Trade Impacts of Fossil Fuel Subsidies. International Institute for Sustainable Development, 2020. https://www.iisd.org/system/files/publications/trade-impacts-fossil-fuel-subsidies.pdf.

Wikipedia

{{cite report |last1=Moerenhout |first1=Tom |last2=Irschlinger |first2=Tristan |title=Exploring the Trade Impacts of Fossil Fuel Subsidies |publisher=International Institute for Sustainable Development |date=March 2020 |url=https://www.iisd.org/system/files/publications/trade-impacts-fossil-fuel-subsidies.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{moerenhout2020exploring, author = {Moerenhout, Tom and Irschlinger, Tristan}, title = {{Exploring the Trade Impacts of Fossil Fuel Subsidies}}, institution = {International Institute for Sustainable Development}, year = {2020}, month = mar, url = {https://www.iisd.org/system/files/publications/trade-impacts-fossil-fuel-subsidies.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }